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Bank CEOs are pushing back on Trump's plan for the Fed · The Financial Exchange Show

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Speaker 2: Chuck, Mike and Tucker with you here, and as we
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Speaker 2: kick things off on a busy day of economic data.
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Speaker 2: We'll get to some of that in just a little bit.
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Speaker 2: Our top story that we're going to discuss kind of
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Speaker 2: at the start here continues to be the focus on J.
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Speaker 2: Powell and the Fed, given all of the hullabaloo during
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Speaker 2: the eleven am hour yesterday, where we went from hey,
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Speaker 2: the President talked to a group of Republican lawmakers about, you.
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Speaker 3: Know, maybe firing J.
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Speaker 2: Powell to the President showed me the letter indicating he
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Speaker 2: was going to fire J. Powell to I'm not going
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Speaker 2: to fire J. Powell, all in the span of about
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Speaker 2: a half hour, which had markets really disjointed quite honestly.
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Speaker 2: I mean, at one point, I think it was maybe
1:59
Speaker 2: around eleven thirty or so, the S and P had
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Speaker 2: fallen about two thirds of a percent, so stocks actually
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Speaker 2: didn't move too much. The bigger moves were happening in bonds,
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Speaker 2: where the long end of the yield curve sold off
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Speaker 2: almost ten basis points in a span of twenty minutes,
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Speaker 2: which is a sizable move for a full day, let
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Speaker 2: alone twenty minutes. At the same time, the dollar index
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Speaker 2: sold off about nine tenths of a percent. In the
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Speaker 2: same period of time, gold rallied over one and a
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Speaker 2: quarter percent, and then all of that subsequently reversed within
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Speaker 2: forty minutes later.
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Speaker 4: So to give a sense for the size of those
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Speaker 4: types of shifts, I think back during Liberation Day when
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Speaker 4: that fiasco was going on bonds removing something like twenty
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Speaker 4: basis points, and that was the thing that caused the
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Speaker 4: Trump administration to primarily pull back from all of that.
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Speaker 4: So to see a ten basis point move in long
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Speaker 4: term debt in a twenty minute time period is very significant.
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Speaker 3: Yeah, I mean a one percent.
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Speaker 2: To put things in perspective, when we look at the
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Speaker 2: US dollar index, a normal move for a day is
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Speaker 2: anywhere between a tenth of a percent and a quarter percent.
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Speaker 2: That's kind of normal. And this was almost a one
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Speaker 2: percent move in twenty minutes. Yes, so things were getting edgy,
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Speaker 2: and it suggests that, hey, if you were to see
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Speaker 2: a firing of J. Powell, things could get rather dodgy.
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Speaker 2: And this brings us to this piece from Nick Timmeros
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Speaker 2: and Brian Schwartz from The Wall Street Journal. Nick tim
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Speaker 2: Ros and The reason that I mentioned who wrote it
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Speaker 2: is Nick is a.
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Speaker 3: Nick's a J. Powell groupie.
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Speaker 2: And what I mean by that is not that, you know,
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Speaker 2: he's you know, unanimously portraying, you know, a flattering portrait
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Speaker 2: of J.
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Speaker 3: Powell.
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Speaker 2: But what Powell wants to get across comes through in
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Speaker 2: Timros's articles.
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Speaker 4: Is that a fair way of saying it, Yeah, a
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Speaker 4: mouthpiece of the Fed. Describe it. He's been described as such.
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Speaker 2: So you get this piece and it's titled the FED
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Speaker 2: Building Renovation at the heart of Trump's efforts to oust Power,
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Speaker 2: and basically what it talks about is, look, you had
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Speaker 2: this renovation of the Federal Reserve Building, which was you know,
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Speaker 2: built in the nineteen thirties, and it's basically lays out, look,
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Speaker 2: it was supposed to cost, you know, less than two
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Speaker 2: billion dollars. Now the cost has ballooned to two and
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Speaker 2: a half billion, and basically goes through the Trump administration
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Speaker 2: is trying to say that this is fraud and you know,
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Speaker 2: reason potentially for a four cause firing.
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Speaker 3: And the FED obviously and J.
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Speaker 2: Power saying like, no, this is just you know, kind
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Speaker 2: of how construction costs have gone since we proposed it.
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Speaker 2: And where things are now, and you know there's a
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Speaker 2: bunch of his besti's in here, and you know, blah
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Speaker 2: blah blah and this and that.
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Speaker 3: Ultimately, here's what here, here's.
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Speaker 2: My read on the whole situation is the Federal Reserve
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Speaker 2: is a self funded institution. It does not receive any
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Speaker 2: appropriations from Congress. It does not receive taxpayer funds from Congress.
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Speaker 2: You can make the case that, yeah, some of its
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Speaker 2: income comes through sources that ultimately may be derived from
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Speaker 2: federal borrowing. But ultimately it's not something where the Fed
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Speaker 2: has any kind of uh, you know, say in how
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Speaker 2: much it receives from the federal government. It just it
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Speaker 2: operates based on it's its own balance sheet and income
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Speaker 2: statement and so on.
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Speaker 4: Yeah, they also, you know, charge banks fees, so you know,
5:28
Speaker 4: passed through to consumers exist there too. And look at
5:31
Speaker 4: anytime any organization is being accused of waste, fraud or abuse,
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Speaker 4: then they should be looked at critically. But it is
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Speaker 4: an important distinction that this is not I don't know
5:42
Speaker 4: the SoC Security Administration, correct.
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Speaker 3: So here here's what I do. Let me start with
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Speaker 3: what I don't know.
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Speaker 2: I have no idea if there's any waste in the
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Speaker 2: fed's construction rebuilding project.
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Speaker 4: There probably is, quite honestly, I'll tell I'm redoing my
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Speaker 4: pool right now, and there a bit of waste. There's
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Speaker 4: no fraud or abuse as far as I know, but
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Speaker 4: there's a fair bit of waste doing things that I
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Speaker 4: don't need to do.
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Speaker 3: Correct Like, I'm.
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Speaker 2: Sure there is, or it's oh like you know we
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Speaker 2: were gonna do like this in this room, but not fine, whatever,
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Speaker 2: just do what we want to get it done, Okay,
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Speaker 2: I like, I get it. So is there probably some
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Speaker 2: waste in there? Yeah, I bet there is. I'm I'm
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Speaker 2: willing to say that. Is there fraud in there? Well,
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Speaker 2: fraud is like telling people you're gonna do one thing
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Speaker 2: and then doing something different. I don't have any evidence
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Speaker 2: of that, so I'm not going to say there's any
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Speaker 2: fraud in there. If someone brings me concrete evidence and says, yes,
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Speaker 2: like here's the fraud that happened, okay, I'll take a
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Speaker 2: look at it. But I don't think we have any
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Speaker 2: evidence of any fraud at this point.
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Speaker 4: Fair I think so, But I haven't said there's no
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Speaker 4: there's no evidence of any fraud.
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Speaker 2: You're right, you know, if something comes out fine, I'll
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Speaker 2: look at it. But to this point, I think you
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Speaker 2: can make the case. Yeah, there's probably some wasteful spending
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Speaker 2: in there. Is there any fraud, Okay, like I have
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Speaker 2: no evidence that points in that direction. Is the project
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Speaker 2: over budget? Yeah, but talk to anyone who's done a
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Speaker 2: construction project in the last three years and they'll tell
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Speaker 2: you came in over budget and took longer than expected.
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Speaker 3: Am I wrong?
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Speaker 4: Honestly? You know, if you're half a billion over budget,
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Speaker 4: that sounds like a lot when it's on a two
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Speaker 4: billion dollar budget to start with. It's a lot, But
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Speaker 4: it's twenty.
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Speaker 2: Cost over and is not crazy in today's environment, you know,
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Speaker 2: it's it's it's not.
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Speaker 4: Yeah.
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Speaker 2: So, look, is a two and a half billion dollar
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Speaker 2: renovation of the FED distasteful?
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Speaker 3: Yeah? I think you can make a case for that
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Speaker 3: even sure, Like you know.
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Speaker 2: Yeah, it's it's not necessary in the broadest you know
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Speaker 2: terms out there, and especially at a time when you
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Speaker 2: know a lot of folks in America are still struggling
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Speaker 2: to see you know, the Federal Reserve doing a two
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Speaker 2: and a half billion dollar project. Could you make the
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Speaker 2: case it's it's kind of distasteful.
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Speaker 4: It's kind of so it draws a lot of comparisons
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Speaker 4: to me to the fact that the White House hasn't
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Speaker 4: been updated in decades, and every president that's been there, right,
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Speaker 4: they're just fine complains about well, no, but they do
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Speaker 4: complain about how it's falling apart. But no president wants
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Speaker 4: to be responsible for orchestrating a two billion dollar renovation
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Speaker 4: of the White House.
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Speaker 3: No, because they know better, you know, they know better.
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Speaker 3: It's bad PR.
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Speaker 2: Yeah, dude, you get to fire the FED president for
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Speaker 2: bad PR and you know, wasteful spending that's not on
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Speaker 2: taxpayers dimes. I don't really know, but actually no, I do. No,
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Speaker 2: you don't, wow, Michael Michael. Michael Michael.
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Speaker 4: Depends what you mean by get to because we might
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Speaker 4: be testing that theory. Pretty much, should one fire the
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Speaker 4: FED chair better question? No?
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Speaker 3: Correct? Okay, And this is not to you know, make
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Speaker 3: me up to be like some kind of J.
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Speaker 2: Powell apologist again, Like you can pull the tape on
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Speaker 2: our shows from or whatever the audio is stored on
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Speaker 2: these days. You can pull from twenty twenty one to
8:57
Speaker 2: twenty two and even the first half twenty three, and
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Speaker 2: we were like, man, these guys not doing a good job.
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Speaker 2: This is not what you want to see from the FED.
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Speaker 2: So it's not to say that the Fed is always
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Speaker 2: right there. They're often wrong as recently as a couple
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Speaker 2: of years ago, they were wrong for an extended period
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Speaker 2: of time.
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Speaker 3: But it is to say that, in.
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Speaker 2: My opinion, this whole thing about the FED building renovation
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Speaker 2: being you know, something that is a problem that would
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Speaker 2: you know, potentially be reason to fire J.
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Speaker 3: Powell.
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Speaker 2: Man, if you want to fire J. Powell, just try
9:32
Speaker 2: to fire J Powell. The building is not something that's
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Speaker 2: there's no there there based on what we've seen to
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Speaker 2: this point.
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Speaker 4: So we got to take a break Jack. When we
9:42
Speaker 4: do come back, I think it's important for us to
9:45
Speaker 4: spend a fair bit of time on why this matters
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Speaker 4: so much, why bond markets freaked out, why bank CEOs
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Speaker 4: are writing letters, because quite honestly, if any other leader
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Speaker 4: of pretty much any division of a branch the federal
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Speaker 4: government was doing something like this, it wouldn't be the same.
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Speaker 4: There would be some protests, there would be some frustration,
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Speaker 4: but there isn't the same regard given to those different
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Speaker 4: government or quasi government agencies as is given to the FED.
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Speaker 4: And I think we need to explain why that is.
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Speaker 4: So let's take a quick break and let's talk a
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Speaker 4: little bit about the history there and why this matters
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Speaker 4: so much to anyone in the financial services industry. Quick break,
10:28
Speaker 4: we'll be back after this.
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Speaker 2: We were talking a little bit about the piece from
11:34
Speaker 2: the Wall Street Journal about this Federal Reserve building renovation
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Speaker 2: that is getting more news than it probably deserves. Uh,
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Speaker 2: and you mentioned at the end of the segment. Look,
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Speaker 2: let's let's talk a little bit about why. What's the
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Speaker 2: best way to phrase this, Mike kind of why.
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Speaker 4: Why threatening the independence of the fedmatters?
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Speaker 3: Yeah, let's tart.
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Speaker 4: I mean, that's really what we want to get at,
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Speaker 4: because I do think that this situation would be a
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Speaker 4: fair bit different if we were talking about a two
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Speaker 4: billion dollar renovation at the Department of Energy or the
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Speaker 4: Social Security Administration or some other other agency or group
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Speaker 4: in the government. So let's let's we talked a little
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Speaker 4: bit about it on Tuesday, Chuck of you know, other
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Speaker 4: nations outside the United States where there has not been
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Speaker 4: a central bank that's truly independent of the federal of
12:29
Speaker 4: the you know, executive branch of the government. Brazil, Turkey,
12:33
Speaker 4: other other countries like that. Let's actually start in the
12:37
Speaker 4: United States because we actually do have a history here
12:40
Speaker 4: of yes, federal Federal Reserve and central bank independence, but
12:46
Speaker 4: moments in history where it didn't exactly function the way
12:49
Speaker 4: it was supposed to. And so the Journal's got a
12:52
Speaker 4: piece about this today. You can check it out yourselves,
12:55
Speaker 4: but you know, what history really tells us about all this.
12:57
Speaker 4: And so in the nineteen sixties, President Lyndon Johnson wanted
13:03
Speaker 4: lower rates, as most presidents do. In particular, he was
13:07
Speaker 4: trying to push through a whole bunch of spending. He
13:09
Speaker 4: was quoted as saying that a RAID increase would amount
13:13
Speaker 4: to squeezing blood from the American working man in the
13:18
Speaker 4: interests of Wall Street. Nonetheless, the Central Bank president at
13:23
Speaker 4: the time pushed forward with a raid increase. He got
13:26
Speaker 4: chewed out by the president at the time, and things
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Speaker 4: moved on. The nineteen seventies was the period that most
13:34
Speaker 4: historians and economists look at for that real period of
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Speaker 4: a somewhat what do you call it, a full failure
13:44
Speaker 4: of central bank independence? I'm not sure I can go
13:46
Speaker 4: that far, but some degree of failure when it came
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Speaker 4: to the Central Bank's independence and Arthur Burns, do you
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Speaker 4: want to take that for a minute, chuck.
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Speaker 2: Yeah, I mean, I don't even know if it's a
13:56
Speaker 2: failure in central bank independence so much like I would
13:58
Speaker 2: make the case it was just they executed bad policy
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Speaker 2: pretty consistently. Yeah, some of that, you can make the
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Speaker 2: cases because of pressure from President Nixon to keep rates low.
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Speaker 3: Prior to the seventy two election.
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Speaker 2: But some it was just bad policy, correct, And you know,
14:16
Speaker 2: like this is when you had the central bank saying, well,
14:19
Speaker 2: if you exclude X, y and z from inflation, it's
14:23
Speaker 2: not actually that bad. And you got to the point
14:24
Speaker 2: where you're like, okay, so you're including like the price
14:27
Speaker 2: of water bottles and inflation and nothing else.
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Speaker 3: What are we really measuring here?
14:31
Speaker 2: So I think that you know, that certainly is something
14:34
Speaker 2: where you can you know, make a case that some
14:36
Speaker 2: of it was because of the lack of some of
14:40
Speaker 2: it was because of pressure from the president. But look,
14:42
Speaker 2: I'll make the case that every president in history since
14:46
Speaker 2: the FED was created has wanted interest rates to be lower.
14:50
Speaker 4: Yeah, I'll try agree.
14:52
Speaker 2: There are there any that have you know, been out
14:54
Speaker 2: there and said, please raise the cost of borrowing so
14:57
Speaker 2: that it's more expensive for the country and it's constituents
15:00
Speaker 2: to borrow.
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Speaker 4: No, I don't think done that.
15:04
Speaker 2: And this specifically gets at why central bank independence is important,
15:10
Speaker 2: is because every politician, when push comes to shove, would
15:14
Speaker 2: prefer for borrowing to be cheaper. If you want evidence
15:18
Speaker 2: of this, by the way, look no further than the
15:20
Speaker 2: last twenty five years when repeatedly forced to make difficult
15:25
Speaker 2: decisions on different items, whether social security or budget bills
15:32
Speaker 2: or you know, specific policy bills and this and that.
15:36
Speaker 2: The decision on all of them has basically been do
15:39
Speaker 2: whatever makes the most sense for me politically in the
15:41
Speaker 2: upcoming election.
15:42
Speaker 3: Yep.
15:43
Speaker 2: And this is why we currently have so a social
15:45
Speaker 2: security program that now has you know, seven years until
15:48
Speaker 2: it potentially sees twenty plus percent benefit cuts. We have
15:52
Speaker 2: annual budget deficits that are running north of six percent
15:55
Speaker 2: on an annual basis, And it's mostly because politicians and
16:00
Speaker 2: faced with those tough decisions, unfortunately in the last twenty
16:03
Speaker 2: five years in particular, have decided over and over to
16:07
Speaker 2: do the easy thing instead of the challenging thing. And
16:11
Speaker 2: the idea behind central bank independence is not that the
16:14
Speaker 2: central bank is always going to be right. They are human,
16:17
Speaker 2: they are not robots, and even robots, as we've seen
16:21
Speaker 2: from Chad GPT and the like, they're not always right either.
16:24
Speaker 2: Sometimes they tell you to go eat a rock because
16:26
Speaker 2: it's nutritious. So I think that ultimately the idea behind
16:31
Speaker 2: central bank independence is, hey, if.
16:33
Speaker 3: You appoint people to these boards.
16:37
Speaker 2: A you want them to be eminently qualified because this
16:40
Speaker 2: is something that's really important. And to this point, I
16:43
Speaker 2: don't think there's been any question as to the broad
16:45
Speaker 2: qualifications of the people at the FED. And ultimately you
16:51
Speaker 2: want to have them in a position where they are
16:53
Speaker 2: not subject to the whims of removal if they don't
16:56
Speaker 2: conduct policy the exact way that the president wants them
17:01
Speaker 2: to conduct it. And this is important not because of
17:06
Speaker 2: any one president, but I say this over and over.
17:10
Speaker 2: Imagine that the least qualified person economically comes to the
17:16
Speaker 2: least economically qualified person comes into office in twenty twenty eight.
17:20
Speaker 2: It is someone who grew up you know, I don't know.
17:24
Speaker 2: The only thing that they've ever known is whatever. They're
17:29
Speaker 2: just really unqualified. Each of you can imagine the person
17:31
Speaker 2: who you would least like to see running the economy.
17:35
Speaker 2: Now imagine that that person gets to set interest rates.
17:38
Speaker 2: Do you think that's a good idea?
17:41
Speaker 4: Well, and specifically why would be because artificially low borrowing
17:46
Speaker 4: costs prompt more inflation, and so prompts investors in bonds
17:53
Speaker 4: to say, well, if there is a risk of higher inflation,
17:57
Speaker 4: and if I lend the federal United State's government twenty
18:02
Speaker 4: billion dollars over the next ten years, and I'm genuinely
18:06
Speaker 4: concerned that the four percent interest rate or so that
18:09
Speaker 4: I get on it is not going to pay for
18:11
Speaker 4: the amount of inflation that I'm going to see over
18:13
Speaker 4: the next decade and that devaluation of the dollar and
18:15
Speaker 4: all the problems that would come with it. Then what
18:18
Speaker 4: am I going to do. I'm not gonna buy the bond.
18:20
Speaker 4: I'm going to demand a higher interest rate.
18:22
Speaker 2: And play out the string on this. Because here's the
18:24
Speaker 2: way that I look at it. Let's say that the
18:27
Speaker 2: you get a FED that's completely co opted by a president. Sure,
18:33
Speaker 2: they decide to lower interest rates to one percent in
18:35
Speaker 2: the short term, the long end of the curve blows
18:38
Speaker 2: out to the top side because people say, okay, this
18:40
Speaker 2: is gonna spur inflation. The FED then responds by saying, great,
18:43
Speaker 2: We're going to engage in what's called yield curve control,
18:46
Speaker 2: basically targeting interest rates along the entire yield curve and
18:49
Speaker 2: buying bonds if needed. So they say, okay, we're going
18:52
Speaker 2: to take that ten year treasury down to you know,
18:55
Speaker 2: three percent. By the way, this is what the FED
18:58
Speaker 2: did during World War two and the immediate aftermath, basically
19:01
Speaker 2: through like the first part of the Korean War, and
19:03
Speaker 2: what you saw was inflation. By the time they finally
19:05
Speaker 2: stopped doing it in nineteen fifty one, inflation was twenty
19:08
Speaker 2: one percent. Now you say, okay, so they've they've great.
19:12
Speaker 2: But they kept government borrowing costs down. That's good and
19:15
Speaker 2: it probably means cheaper mortgages. Right, Well, what you're gonna
19:18
Speaker 2: set the rate for thirty or fixed rate mortgages?
19:21
Speaker 3: Now?
19:21
Speaker 2: Are we just doing a top down based economy where
19:24
Speaker 2: you get the President and the Fed setting what interest
19:26
Speaker 2: rates are across the board?
19:28
Speaker 3: We think this is a good idea.
19:29
Speaker 4: That's Argentina.
19:31
Speaker 2: Let's take a quick break. When we come back, it's
19:34
Speaker 2: Wall Street Watch.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:54
Speaker 1: Street Watch a complete look and what's moving markets so
19:57
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: After yesterday's choppy ride due to uncertainty around the potential
20:05
Speaker 5: firing of FET chairman Drome Powell, markets today are in
20:09
Speaker 5: positive territory, with more second quarter earning streaming in. Wall
20:13
Speaker 5: Street's also digesting June retail sales data posted earlier this morning,
20:18
Speaker 5: which rose zero point six percent last month, higher than
20:21
Speaker 5: forecasts of zero point one percent. Right now, the Dow
20:25
Speaker 5: is up by tenth of one percent, or sixty nine points.
20:28
Speaker 5: S and P five hundred is up a quarter percent
20:30
Speaker 5: higher or fifteen points. Nasdac up is up half a
20:34
Speaker 5: percent or one hundred and two points. Russell two thousand
20:37
Speaker 5: is up nearly one percent higher or twenty one points.
20:40
Speaker 5: Ten year treasure Real down one basis point of four
20:42
Speaker 5: point four to three seven percent, and crude oil is
20:46
Speaker 5: up six tenths of one percent, rating it's sixty six
20:49
Speaker 5: dollars and seventy seven cents of barrel. Big news from
20:53
Speaker 5: Uber this morning, after the ride hailing company announced a
20:55
Speaker 5: partnership with EV maker Lucid and self driving tech startup
21:00
Speaker 5: Neuro to launch more than twenty thousand robotaxis over the
21:04
Speaker 5: next six years. As part of the deal, Uber will
21:07
Speaker 5: invest three hundred million dollars in Lucid. Lucid stock is
21:12
Speaker 5: surging twenty six percent on that news, while Uber stock
21:15
Speaker 5: is off over half a percent. Meanwhile, shares in high
21:19
Speaker 5: fructose syrup producer Archer Daniels Midland Or sinking two percent
21:23
Speaker 5: after President Trump yesterday announced that he had persuaded Coca
21:27
Speaker 5: Cola to use real cane sugar in its drinks in
21:31
Speaker 5: the US. Coke stock, by the way, is up nearly
21:34
Speaker 5: one percent. Sticking with the beverage space, where Pepsi posted
21:38
Speaker 5: better than expected second quarter earnings and revenue this morning
21:41
Speaker 5: despite weaker demand for its food and drinks in North America.
21:45
Speaker 5: Pepsi also reiterated its full year outlook, sending that stock
21:50
Speaker 5: up over six percent. Elsewhere, a Ge Aerospace raised its
21:54
Speaker 5: annual earnings outlook after the aircraft engine maker posted sales
21:58
Speaker 5: in profit that beat xpexs that stock is actually down
22:02
Speaker 5: by one percent. United Airlines posted better than expected adjusted
22:06
Speaker 5: quarterly earnings, but its annual outlook disappointed. Shares are up
22:10
Speaker 5: two percent, and after today's closing bell, all eyes will
22:13
Speaker 5: turn to anticipated earnings from streaming giant Netflix. I'm Tucker Silvan.
22:20
Speaker 3: That is Wall Street Watch, Mike.
22:22
Speaker 2: We got a whole bunch of economic data this morning.
22:25
Speaker 2: It's actually not a whole bunch, it's it's two reports,
22:29
Speaker 2: but there's still really interesting reports to look at.
22:32
Speaker 4: You want to start about the Fed Philly Fed Manufacturing Survey.
22:35
Speaker 2: Chuck, I'll actually talk about that the Philly Fed Manufacturing
22:38
Speaker 2: Survey I put it, matters like, it's interesting to see
22:42
Speaker 2: what they say, and what we did see was some
22:46
Speaker 2: meaningful improvement from the last couple of months here, but
22:49
Speaker 2: also potentially a concerning note. So here's the good stuff
22:52
Speaker 2: that we saw in Philly FED. The employment index bounced
22:55
Speaker 2: back from a minus nine point eight to a positive
22:57
Speaker 2: ten point three, indicating more manuf facturers in the Philly
23:01
Speaker 2: Fed region are hiring now compared to where they were
23:04
Speaker 2: in I'm.
23:04
Speaker 3: Sorry in June.
23:06
Speaker 2: New orders also improved from two point three up to
23:09
Speaker 2: eighteen point four, so you've got good news on both
23:12
Speaker 2: of those fronts. The bad news is that the Philly
23:15
Speaker 2: Fed Prices Paid index went from forty one point four
23:17
Speaker 2: up to fifty eight point eight, suggesting that manufacturers are
23:21
Speaker 2: broadly seeing increased pricing pressures on what they are using.
23:27
Speaker 3: So there's good news bad news.
23:29
Speaker 2: But I think overall, really, you know, I think the
23:31
Speaker 2: good news probably overwhelms the bad news at the current
23:35
Speaker 2: moment for the Philly Fed Manufacturing Index.
23:38
Speaker 4: I think you have to kind of say the same
23:39
Speaker 4: thing about most of the other reports that we are
23:42
Speaker 4: going to get to here. But let's jump to the
23:43
Speaker 4: jobless claims then next if you don't mind.
23:45
Speaker 2: Yeah, jobless claims. Really good news on this front as well.
23:48
Speaker 2: So we saw a continued decline in weekly jobless claims,
23:53
Speaker 2: going from two hundred and twenty eight thousand in the
23:56
Speaker 2: prior week down to two hundred and twenty one thousand
23:58
Speaker 2: this week. This match is, by the way, what we've
24:00
Speaker 2: seen at this time of year. In each of the
24:03
Speaker 2: last couple of years, we've seen a little bit of
24:04
Speaker 2: a spike in late June into early July, which really
24:08
Speaker 2: suggests that there's just an issue with the seasonal adjustment
24:12
Speaker 2: factors and there's not really anything that's going on here.
24:15
Speaker 2: We said that this was something that was possible when
24:17
Speaker 2: we started to see these creeping up maybe a month
24:20
Speaker 2: or so ago, and that this is not really anything
24:22
Speaker 2: to be worried about because it was following a normal
24:25
Speaker 2: seasonal trend, and in fact, that's what we've seen here.
24:28
Speaker 2: The other piece of news that I think is better
24:30
Speaker 2: news on this front, continuing jobbless claims did increase by
24:33
Speaker 2: two thousand, from one point nine five to four million
24:37
Speaker 2: to one point nine to five to six but that's
24:40
Speaker 2: more in line with where we would expect this to
24:43
Speaker 2: be based on prior year numbers, and pretty much what
24:46
Speaker 2: it does then is it takes this from a place
24:50
Speaker 2: where we were starting to get concerned because year over
24:53
Speaker 2: year you were starting to see continuing jobbless claims rising
24:58
Speaker 2: by six seven eight percent annually, and that's something whereas
25:02
Speaker 2: you start to get close to that ten percent number,
25:03
Speaker 2: it kind of gets you into a dangerous spot where
25:06
Speaker 2: things tend to ratchet up pretty quickly. Instead, what we
25:09
Speaker 2: have here is a case where now for this week,
25:13
Speaker 2: you're seeing continuing jobbles claims rising four point eight percent
25:17
Speaker 2: year over year.
25:18
Speaker 3: That's a much more comfortable.
25:20
Speaker 2: Figure where you can say, yeah, there might be, you know,
25:22
Speaker 2: some more jobbles claims, but it's not yet happening at
25:25
Speaker 2: a pace where it's overly concerning to us. It's just
25:30
Speaker 2: one week of this data, so obviously we need to
25:32
Speaker 2: see more and see how things evolve from here. But
25:36
Speaker 2: I do think it's a positive sign on this front
25:40
Speaker 2: at least that one of the things that we were
25:43
Speaker 2: concerned about, those continuing jobless claims moving up at a
25:46
Speaker 2: faster pace at least for now, seems to have abated somewhat.
25:50
Speaker 2: And we'll have to see where things go, you know,
25:52
Speaker 2: in the coming weeks. But things are looking better on
25:55
Speaker 2: this front than they were four to six weeks ago
25:58
Speaker 2: when we were starting to get concerns. I think that
26:00
Speaker 2: that's really good news there.
26:01
Speaker 4: What I like about it, too, Chucket, is it seems
26:04
Speaker 4: to again you wait for more data and you see
26:08
Speaker 4: what the trend plays out. But this report seems to
26:10
Speaker 4: confirm the kind of big narrative around the labor market
26:15
Speaker 4: right now, which is employers are holding on to employees.
26:18
Speaker 4: They're not hiring terribly quickly, but they're also not firing
26:21
Speaker 4: terribly quickly. If you don't have a job, it's relatively
26:24
Speaker 4: tough to find a new one. But we're not seeing
26:26
Speaker 4: a big deterioration in the state of the labor market.
26:28
Speaker 4: And that's what we got out of the monthly jobs report,
26:31
Speaker 4: where the unemployment rate dropped. That's what we've been seeing
26:34
Speaker 4: from the Joltz report, and all this data is actually
26:36
Speaker 4: not horribly contradictory for once, which is nice.
26:40
Speaker 2: Let's talk a little bit about the retail sales data
26:42
Speaker 2: because this one, this is the only one where I
26:45
Speaker 2: think I have a little bit of a different view
26:47
Speaker 2: on this, even though this was the one that you
26:49
Speaker 2: know was being trumpeted initially because retail sales came in
26:53
Speaker 2: with point six percent month over months growth compared to
26:55
Speaker 2: expectations of point one. Even stripping out autos, you came
26:59
Speaker 2: in at half a percent compared to point three percent expected,
27:03
Speaker 2: And so the immediate.
27:04
Speaker 3: Read is we're back, baby, like that's that's that's what
27:07
Speaker 3: you see here.
27:08
Speaker 1: Uh.
27:09
Speaker 2: The contrarian view that I will take on this, uh,
27:13
Speaker 2: is that when we look at core goods prices, they
27:19
Speaker 2: rows by point six percent for the month. And so
27:22
Speaker 2: all this is telling you, because retail sales do not
27:25
Speaker 2: adjust nominally, is that stripping out autos, you actually saw
27:30
Speaker 2: real good spending declines slightly for the month. People were
27:34
Speaker 2: just spending more in order to keep up with price increases.
27:39
Speaker 2: So that's my contrarian take on the good news is
27:43
Speaker 2: that people are at least still buying basically in the
27:45
Speaker 2: same quantities. The bad news, it's not a real increase
27:50
Speaker 2: in people buying more stuff. It's just the price increases
27:54
Speaker 2: that are passing through. So that's my contrarian take is
27:59
Speaker 2: this report's fine because it doesn't show degradation the way
28:02
Speaker 2: that the last couple months did. The tear front loading
28:05
Speaker 2: was real, and then the last couple months were people
28:07
Speaker 2: buying less stuff because they had bought a bunch back
28:10
Speaker 2: in February and March. But this is not a meaningful
28:14
Speaker 2: real improvement because prices went up by the same amount
28:17
Speaker 2: or actually by a little bit more than what we
28:19
Speaker 2: saw for retail sales.
28:21
Speaker 3: Ex autos got it.
28:22
Speaker 4: So basically the consumer has in deteriorated significantly, but they are.
28:28
Speaker 3: Not any water.
28:31
Speaker 2: The other piece that I'll point out, and this was
28:33
Speaker 2: not me who grabbed this, This is from Neil Dudda
28:38
Speaker 2: from Renaissance Macro.
28:40
Speaker 3: I'll read his quote here. Look through some of the details.
28:42
Speaker 2: Furniture and Home furnishing and Electronics and appliance stores saw
28:46
Speaker 2: sales decline point zero seven percent, about flat. However, CPI
28:50
Speaker 2: for household furnishing and Supplies rose one percent. Thus it's
28:53
Speaker 2: safe to assume that real spending in this category fell. Similarly,
28:57
Speaker 2: Recreation commodities CPI rose point eight percent for the month,
29:01
Speaker 2: while sales it's sporting goods, hobbybook and music stores went
29:04
Speaker 2: up by just zero point two percent. The contrast is
29:07
Speaker 2: clothing accessory stores saw sales rise point nine percent, while
29:10
Speaker 2: apparel CPI rose point four indicating growth and reel spending
29:14
Speaker 2: on clothes. So basically, what what data points out is, hey,
29:18
Speaker 2: in the areas where you saw big price increases in CPI,
29:23
Speaker 2: you actually saw some some pretty bad numbers in this
29:26
Speaker 2: retail sales report. Can you draw a straight line for
29:29
Speaker 2: one month? Not really, because it's one month and like
29:31
Speaker 2: all kinds of weird stuff can happen, like three people
29:34
Speaker 2: in New York City don't buy cellos and music stores
29:37
Speaker 2: go down, like I don't know, but I don't know,
29:42
Speaker 2: it's it's it's something, you know, like we need to
29:45
Speaker 2: see a broader trend, I think in order to make
29:47
Speaker 2: something of some of this. But overall, my take on
29:51
Speaker 2: the retail data is it's fine, Like it's it's not
29:54
Speaker 2: showing what we saw for the last two months, which
29:56
Speaker 2: is good, but it's not this huge improvement because the
30:00
Speaker 2: prices for a lot of this stuff went up as
30:02
Speaker 2: well as we saw in CPI.
30:03
Speaker 3: Earlier this week.
30:04
Speaker 2: Right the other two reports, I think you can say
30:07
Speaker 2: pretty much nothing but you know, good news aside from
30:09
Speaker 2: that price is paid component of Philly fed. But overall,
30:13
Speaker 2: the story continues to be the same in the US
30:15
Speaker 2: economy to this point, We really haven't seen any huge
30:19
Speaker 2: shift in trajectory because of tariffs, positive or negative. It's
30:25
Speaker 2: basically things are moving and until proven otherwise, that's kind
30:30
Speaker 2: of where we are. Let's take a quick break here
30:34
Speaker 2: when we come back. Ah, this should be a fun one.
30:37
Speaker 2: It's titled the Bond Market Won't let America be Irresponsible Forever.
30:42
Speaker 3: We'll see about.
30:42
Speaker 1: That missed one of our shows. Catch up anytime by
30:47
Speaker 1: asking your Alexis Smart speaker to play the Financial Exchange.
30:50
Speaker 1: This is the Financial Exchange Radio Network. The Financial Exchange
30:55
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30:58
Speaker 1: to date on breaking busy in this news all morning
31:01
Speaker 1: Long Base is the Financial Exchange Radio Network.
31:12
Speaker 2: All right, we've got a piece here in Bloomberg Opinion.
31:17
Speaker 2: It's titled the Bond Market Won't Let America be Irresponsible Forever?
31:22
Speaker 2: In America is saying, hey, you can't tell us what
31:25
Speaker 2: to do. Watch And I do think that the sub
31:30
Speaker 2: headline actually gets at some of this. It says the
31:33
Speaker 2: national debt is rising in interest rates will follow eventually.
31:37
Speaker 2: And this gets it something that we've talked about an
31:39
Speaker 2: awful lot, which is I remember if we you know,
31:43
Speaker 2: go back in time, Tucker, can you cue up the
31:45
Speaker 2: time machine for me for a minute. That okay, we're
31:47
Speaker 2: just getting the flex capacitor moving. But I remember, back
31:51
Speaker 2: in the fall of twenty twenty three, the birds are chirping,
31:57
Speaker 2: the leaves are falling, and interest rates arising. Ten year
32:01
Speaker 2: treasury went from three point seven percent up to four
32:04
Speaker 2: point nine nine seven. It rose one and a quarter
32:06
Speaker 2: percent in the span of two months at the end
32:09
Speaker 2: of twenty twenty three, and everyone in their grandmother's going,
32:14
Speaker 2: oh boy, the national.
32:16
Speaker 3: Debt's too high. You gotta do something about the debtor.
32:21
Speaker 3: Rates are gonna go higher.
32:23
Speaker 2: And Congress responded by doing absolutely nothing about the debt,
32:25
Speaker 2: which means that rates.
32:26
Speaker 3: Went, oh, this is interesting.
32:29
Speaker 2: Two months later, by the end of twenty twenty three,
32:33
Speaker 2: that's right, just two short months later, the interest rate
32:37
Speaker 2: on the ten year treasury went from four point nine
32:39
Speaker 2: ninety seven percent to three point seven eighty five. It
32:41
Speaker 2: reversed the entire move in a span of two months. Mike,
32:45
Speaker 2: did anything happen in those last two months where the
32:48
Speaker 2: US decided, Hey, you know what, we're gonna put on
32:50
Speaker 2: our adult pants today and we're gonna go and deal
32:53
Speaker 2: with the national debt.
32:54
Speaker 4: Yeah, we raised taxes, cut benefit No, of course not.
32:57
Speaker 3: No, we didn't. We did nothing of that sort.
32:58
Speaker 2: And so this is why I always say it's important
33:00
Speaker 2: not to ascribe short term market fluctuations to long term forces.
33:06
Speaker 2: Is there the possibility that higher US deficits lead to
33:11
Speaker 2: higher interest rates?
33:12
Speaker 3: Yes? Period.
33:15
Speaker 2: Is it also true that over short time periods be
33:19
Speaker 2: a week, a month, or even a year, the bond
33:22
Speaker 2: market can move in ways that have nothing to do
33:24
Speaker 2: with the long term deficit trajectory as well? Yes, period.
33:28
Speaker 2: Any other thoughts, I guess two other ones.
33:32
Speaker 3: One.
33:33
Speaker 4: Her article ascribes a lot of the inflation. I'll quote
33:39
Speaker 4: Allison from this article. Actually, culmination of this era was
33:43
Speaker 4: the pandemic and its aftermath, when the US and other
33:46
Speaker 4: countries issued an unthinkable amount of peace time debt. Finally
33:50
Speaker 4: markets responded. It turns out there was a limit to
33:52
Speaker 4: how indebted a country could be. Inflation took off, interest
33:55
Speaker 4: rates went up to I think she's miss describing things
33:58
Speaker 4: a little bit here. It did the run up of
34:01
Speaker 4: deficits and the amount of government spending globally contribute to
34:05
Speaker 4: higher interest rates and higher inflation?
34:07
Speaker 3: Yes?
34:07
Speaker 4: Was that the only thing that caused higher inflation? Probably not.
34:11
Speaker 4: We also shut down large parts of the world and
34:14
Speaker 4: had a tough time restarting them. The other big piece
34:17
Speaker 4: that I would say here is you talk about long
34:20
Speaker 4: periods of time where bond markets can do weird things.
34:24
Speaker 4: I'll say furthermore that you can have long periods of
34:28
Speaker 4: time where governments can do really dumb things without much
34:32
Speaker 4: of a reaction. See the last twenty five years of
34:35
Speaker 4: our nation's attitude towards government debt, and quite honestly, things
34:41
Speaker 4: haven't gotten too bad, and so it's important to keep
34:45
Speaker 4: their context. I think we need a reminder of this
34:49
Speaker 4: every once in a while that yeah, we can't just
34:50
Speaker 4: get away with being horribly fiscally irresponsible forever, but it's also.
34:57
Speaker 3: We can do it for a while.
34:59
Speaker 4: An entire quarter century where there's been very little in
35:02
Speaker 4: the way of repercussions.
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36:03
Speaker 2: Mike, I'm trying to reconcile what we've seen the last
36:05
Speaker 2: two days now in the semiconductor space, because yesterday ASML,
36:10
Speaker 2: who manufactures they're the company that makes the machines that
36:14
Speaker 2: make semiconductors, is the simplest way to describe it. They
36:17
Speaker 2: make these lithography machines that help companies like Taiwan Semiconductor
36:21
Speaker 2: and Intel actually fabricate chips, and so ASML comes out
36:26
Speaker 2: yesterday and says, hey, we had a good quarter things
36:28
Speaker 2: look good. Bookings are good right now, but we're not
36:33
Speaker 2: really sure if we're gonna see growth in twenty twenty six.
36:37
Speaker 2: We hope too, but we can't comment on that yet,
36:42
Speaker 2: which was kind of a big deal, which is why
36:44
Speaker 2: their stock fell like ten percent yesterday. Today, Taiwan Semiconductor
36:49
Speaker 2: comes out, and I'll just quote here from the Wall
36:51
Speaker 2: Street Journal, Taiwan Semiconductor Manufacturing is accelerating its expansion in
36:55
Speaker 2: Arizona to mean's soaring US demand from clients and artificial
36:58
Speaker 2: intelligence and high performance compute hut. They also reported, you know,
37:02
Speaker 2: broader earnings that were really quite strong, which is why
37:05
Speaker 2: if you look at Taiwan Semiconductor today, they're up about
37:09
Speaker 2: three percent. And so I'm trying to reconcile this between
37:13
Speaker 2: the company that makes the machines for Taiwan Semi is saying, yeah,
37:17
Speaker 2: we're not quite sure if there's going to be growth
37:19
Speaker 2: in twenty six, and Taiwan Semi's like, hey, we got
37:22
Speaker 2: all kinds of growth here.
37:23
Speaker 4: We had nothing but growth in twenty twenty sex. Yeah,
37:26
Speaker 4: it is tough for me to reconcile as well. I mean,
37:28
Speaker 4: I suppose, hypothetically, ASML might be saying something about their
37:33
Speaker 4: ability to distribute their machines to other countries like China
37:36
Speaker 4: that isn't there and was in the past, and might
37:39
Speaker 4: not be able to make as big a piece of
37:40
Speaker 4: their business. They could also just be overly conservative in
37:46
Speaker 4: their view on how trade wars could interrupt business, because
37:49
Speaker 4: I'm with you, I mean sure for folks that don't know,
37:53
Speaker 4: not only are they the supplier to Taiwan semi of
37:56
Speaker 4: lithography machines, they are the only one in the world
37:59
Speaker 4: that does this.
38:00
Speaker 2: No one else does it, and they sour stuff basically
38:02
Speaker 2: there thing that they do. They coordinate a ton of
38:06
Speaker 2: imports to build these machines. They build them very precisely,
38:10
Speaker 2: and then they send them very precisely without them breaking
38:12
Speaker 2: while they're on boats and planes and stuff like that.
38:15
Speaker 3: It's kind of a unique skill set.
38:17
Speaker 2: Let's take a quick break. Hour two is coming up
38:20
Speaker 2: in just a little bit.