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Will a divided Fed start cutting rates soon? · The Financial Exchange Show

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  Speaker 1: donation today. Face is the Financial Exchange with Mike Armstrong,
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  Speaker 1: and Mark Vandetti.
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  Speaker 2: Well, the economic end earnings whirlwind is continuing. Mark, It's Mike,
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  Speaker 2: Mark and Tucker with you here on a Tuesday morning
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  Speaker 2: where we've got a jobs market release that just came
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  Speaker 2: out six minutes ago, a few earnings to go through.
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  Speaker 2: Consumer confidence also released this morning, data on the housing market.
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  Speaker 2: We described this week in particular, mark at least yesterday
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  Speaker 2: as the single busiest week of the year when it
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  Speaker 2: comes to just releases of all sorts of information, whether
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  Speaker 2: it's earnings, economic data, fed week.
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  Speaker 3: I mean, I don't know the last time we had.
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  Speaker 2: A Federal Reserve release day with a jobs report and
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  Speaker 2: ten well, I'm guessing like twenty trillion dollars worth of
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  Speaker 2: market capitalization reporting all in the same week.
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  Speaker 3: But that's what we're getting this morning. Anyway.
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  Speaker 2: As I mentioned, the SMP Case Shiller Home Index was
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  Speaker 2: released this morning at nine am, consumer confidence just six minutes,
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  Speaker 2: seven minutes ago, now job opening seven minutes ago. Tomorrow
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  Speaker 2: will be getting the ADP Employment Report, reading on GDP
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  Speaker 2: pending home sales, and then of course Ja Powell taking
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  Speaker 2: the stage at two thirty PM for his press conference
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  Speaker 2: and interest rate decision, which in some ways is a
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  Speaker 2: bit of a no story, but in others you're likely
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  Speaker 2: to have some descents, which is pretty rare, so likely
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  Speaker 2: to get some questions about rate setting policy. Thursday, we
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  Speaker 2: always get jobless claims, so those will come in. We
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  Speaker 2: also have PCE inflation, the feds preferred measure of inflation.
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  Speaker 2: They won't have this data ahead of their rate making decision,
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  Speaker 2: but will be released the day right after. And then
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  Speaker 2: finally Friday, the big behemoth jobs report coming out at
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  Speaker 2: eight thirty am, among some other economic data. All of
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  Speaker 2: that is also occurring amongst big earnings calls. So Procter, Gamble,
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  Speaker 2: United Healthcare, ASTERSNICA, and Mark all least earnings before the
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  Speaker 2: bell this morning. Visa is going after the bell. Tomorrow
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  Speaker 2: after the bell, Microsoft and Meta reporting earnings, and then
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  Speaker 2: Thursday after the bell as well, Apple and Amazon reporting earnings, MasterCard,
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  Speaker 2: av SMP Global all reporting before.
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  Speaker 3: The bell on Thursday too. What I miss I don't
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  Speaker 3: know how I could have missed, and a half minutes straight.
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  Speaker 4: My taxes are due on Friday, real taxes for the court.
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  Speaker 3: So very personal but important data point for our fan daddy.
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  Speaker 4: Yeah is really it affects a lot of people. We're
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  Speaker 4: in the Commonwealth of Massachusetts.
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  Speaker 3: Yeah, yeah, you're not alone. Yeah, not alone.
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  Speaker 4: So as you get a haircut, now I'm looking a
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  Speaker 4: little shaggy. I mean to be flipp I have obviously
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  Speaker 4: some serious things to say, so may or may not
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  Speaker 4: have toime two hours.
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  Speaker 2: Let's let's let's start off here with the data we
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  Speaker 2: just got a few minutes ago, and and you know
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  Speaker 2: we can come back to it because we are just
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  Speaker 2: still digesting it. But the job openings data is always
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  Speaker 2: released towards the end of the month and gives you
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  Speaker 2: a read on the state of the labor market towards
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  Speaker 2: the towards the end of the previous months. So this
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  Speaker 2: data is all as of June, and generally speaking it's
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  Speaker 2: a weaker report than we got in May.
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  Speaker 3: But I don't think substantially weaker.
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  Speaker 2: But this report, in particular mark has been looked at
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  Speaker 2: as perhaps a more reliable signifier of potential and forthcoming
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  Speaker 2: inflation than the regular jobs report that we get on Fridays.
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  Speaker 2: And so I wonder if you have any big takeaways
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  Speaker 2: from the trend on this data over the last few months.
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  Speaker 2: This is the Jolts Report, the Job openings link.
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  Speaker 4: Look, this is your preferred measure of labor market slack,
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  Speaker 4: And as you pointed out, the way researchers like to
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  Speaker 4: think about the inflation process is that it's a function
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  Speaker 4: of expected inflation, which thank god, we don't get any
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  Speaker 4: data on this week. To my knowledge, something called the
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  Speaker 4: output gap, which is the difference between what the economy
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  Speaker 4: is doing and what it could be doing, whether it's
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  Speaker 4: exceeding its speed limit if you like. And I'll focus
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  Speaker 4: on the output gap component of the inflation process, because
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  Speaker 4: that's where this jolt's number has risen to prominence in
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  Speaker 4: the current cycle over the past roughly twenty years. Substituting
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  Speaker 4: this vacancy's number, or specifically the vacancy to unemployment numbers
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  Speaker 4: employed people ratio, which is a way of looking at
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  Speaker 4: the supply versus the demand in terms of open jobs.
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  Speaker 2: This was the one that we talked about at length
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  Speaker 2: over the last few years, where there were two openings
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  Speaker 2: for every unemployed person looking for work.
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  Speaker 4: That way, demand relative to supply. Excuse me, I inverted
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  Speaker 4: that ratio. So this has done a better job in
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  Speaker 4: the current cycle and over the past couple of decades
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  Speaker 4: really as compared to say, the more traditional measure of
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  Speaker 4: labor markets slacked the unemployment rate or some others in
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  Speaker 4: explaining inflation, so researchers and as a consequence, though with
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  Speaker 4: a lag, everybody else started to focus on it. Keep
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  Speaker 4: in mind, though, that relationship can break down. Sure, variable
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  Speaker 4: is only good for forecasting if it's if it's relationship,
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  Speaker 4: it's correlation. If you like, holds up with whatever it
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  Speaker 4: is you're trying to forecast.
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  Speaker 2: So in either case, the day that was released, it
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  Speaker 2: was not a big change. Month over month, we came
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  Speaker 2: in at seven point four million job openings. We saw
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  Speaker 2: declines in job openings in accommodation and food services by
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  Speaker 2: about three hundred thousand, healthcare and social assistants declined by
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  Speaker 2: two forty four, finance and insurance declined by one forty two,
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  Speaker 2: and we saw increases in retail information and state and
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  Speaker 2: local government education by sixty one k increase. The total
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  Speaker 2: number of hires were a little changed again at five
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  Speaker 2: point two million, three point three percent. Separations also very
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  Speaker 2: little changed here that the number and rate of total
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  Speaker 2: separations in June sat at five point one million, or
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  Speaker 2: three point two percent. That once again did not change
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  Speaker 2: much month over month.
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  Speaker 4: I'm looking at this series over the good Mike, I'm
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  Speaker 4: sorrying different all right, thank you. I'm looking at the
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  Speaker 4: series over the past roughly year, and it doesn't have
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  Speaker 4: a trend, meaning if you smoothed it by putting a
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  Speaker 4: moving average through it or something like that, it'd be flat.
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  Speaker 4: Like job opening is a year ago, exactly a year
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  Speaker 4: ago where we were a June with this report seven
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  Speaker 4: point four actually seven point four to one two if you.
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  Speaker 3: Want to sit right there at the exact Yeah, and it's.
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  Speaker 4: Bounced around twelve month high eight point zero, twelve month
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  Speaker 4: low seven. I don't need to belabor this. The point is,
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  Speaker 4: just look at the series. It's not really suggesting easing
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  Speaker 4: or tightening of labor market conditions.
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  Speaker 2: One small data point that I know at least one
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  Speaker 2: FED governor has been harping on has been the state
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  Speaker 2: of the labor market and what he's been calling underlying weakness.
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  Speaker 2: That's Governor Waller, who apparently plans to dissent at this meeting.
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  Speaker 2: At this next meeting, according to some reporting, he's spoken
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  Speaker 2: to the underlying weakness coming from private corporations and that
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  Speaker 2: a lot of the hiring has been occurring at state
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  Speaker 2: and local government. This does not contradict that theory, I
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  Speaker 2: guess is where I would put it. As you are
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  Speaker 2: seeing net declines in job openings in some private sectors
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  Speaker 2: such as food services, healthcare, finance, et cetera, whereas state
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  Speaker 2: and local educ government and education increases to the tune
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  Speaker 2: of sixty one thousand jobs. And so again, I think
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  Speaker 2: the more indicative one and the you know, if we're
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  Speaker 2: going to see weakness in the labor market, I would
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  Speaker 2: expect it to come from the monthly jobs report, which
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  Speaker 2: is also a bit more current. We get that on
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  Speaker 2: Friday of this week. But I have to say that,
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  Speaker 2: you know, with this report, combined with the weekly jobs
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  Speaker 2: reports that we've been getting on filings front, employment, it's
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  Speaker 2: tough to conclude that we are in a tremendously weak
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  Speaker 2: labor market right now. In fact, by most accounts, by
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  Speaker 2: most historical accounts, we are in a tremendously strong.
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  Speaker 4: Anything in the fours or five is really good. We're
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  Speaker 4: a little bit spoiled historically speaking, maybe because of compositional
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  Speaker 4: changes in the labor force. That's not a great measure anymore.
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  Speaker 4: I e.
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  Speaker 3: Were old.
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  Speaker 4: We won't know for a long time. Yeah, you're getting
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  Speaker 4: changing demographics. I don't know whatever. That's something that researchers
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  Speaker 4: say and they hope you don't ask a follow up question,
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  Speaker 4: which I was hoping you wouldn't do there, so thank you.
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  Speaker 4: I'll point out also, Mike, if I may, that the
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  Speaker 4: ratio that we talked about earlier of vacancies, which is
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  Speaker 4: what we got this morning, to the number of unemployed
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  Speaker 4: people supply to demand to supply for labor, is at
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  Speaker 4: one point one. I'm rounding up just a little bit.
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  Speaker 4: That's that seems modest relative to the frantic pace of
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  Speaker 4: the labor market in twenty twenty two when it was
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  Speaker 4: at two. So it's fallen by half, but relative to
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  Speaker 4: pre this ratio started to tick up in twenty seventeen.
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  Speaker 4: You remember Trump cut taxes, any cut regulations. Most researchers
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  Speaker 4: found Trump one's tax plan. I'll call it the Paul
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  Speaker 4: Ryan tax plank. Was Paul Ryan hadron on the shelf
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  Speaker 4: for like fifteen years. The Paul Ryan tax plan that
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  Speaker 4: Trump signed did stimulate the economy. This ratio started to
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  Speaker 4: rise from when Trump won. When Trump was elected the
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  Speaker 4: first time point seven, which was the average for the
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  Speaker 4: few years before that, to one point two roughly, and
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  Speaker 4: then it plummeted before it rose to two, so we're
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  Speaker 4: back to roughly twenty eighteen to twenty nineteen. Vacancy is
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  Speaker 4: too unemployed, but that's still way. And you may recall
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  Speaker 4: the FED was worried about inflation.
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  Speaker 1: Then.
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  Speaker 2: Yeah, I was gonna say, I don't think that anyone
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  Speaker 2: sitting in twenty eighteen or twenty nineteen was describing the
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  Speaker 2: labor market as weak.
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  Speaker 4: And no, it's strange, quite good, quite robust, robust arguably,
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  Speaker 4: so we may still be I get Willer's a serious researcher.
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  Speaker 4: I hope he's not just posturing for an appointment here
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  Speaker 4: by giving the White House what it wants.
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  Speaker 2: Well, let's then take a break and talk a little
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  Speaker 2: bit about the FED and what we are expecting tomorrow
• 11:04
  Speaker 2: during their release. Nick Timmeros, often considered the mouthpiece of
• 11:08
  Speaker 2: the Federal Reserve from a journalism The Standpoint, has a
• 11:11
  Speaker 2: piece this morning about that meeting and what's likely to
• 11:14
  Speaker 2: be upcoming.
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  Speaker 3: We'll cover that next.
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  Speaker 2: Here.
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• 11:51
  Speaker 2: All right, Mark, The Federal Reserve Board of Governors has
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  Speaker 2: entered their meeting period here, and I would imagine it's
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  Speaker 2: got to be pretty brief.
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  Speaker 3: We're not going to move interest rates.
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  Speaker 2: Maybe they're you know, talking about all the fun pressure
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  Speaker 2: from the president and the the renovation. It must be loud.
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  Speaker 2: Actually during this meeting. It's just a lot of hammers banging.
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  Speaker 4: And jacket picture of the movie Conclave.
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  Speaker 3: Yeah yeah, with a lot of a lot, a lot
• 12:18
  Speaker 3: of construction, a lot of rich with yeah yeah, the crew.
• 12:23
  Speaker 4: So now that's actually not what it's like at all,
• 12:25
  Speaker 4: Is I understand it? It's pretty lively there. There are
• 12:27
  Speaker 4: a lot of these people are researchers, former academics. They're
• 12:29
  Speaker 4: used to poking holes. And as much as people like
• 12:31
  Speaker 4: to criticize economics as being some sort of priesthood where
• 12:34
  Speaker 4: they defend uh, where they defend doctrine and don't tolerate descent,
• 12:38
  Speaker 4: I can tell your research is not like that at all.
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  Speaker 4: It's it's about finding holes and other people's arguments, so
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  Speaker 4: I suspect it's pretty lively.
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  Speaker 2: So Nick Timros reporting that the divided FED will be
• 12:50
  Speaker 2: talking about future rate cuts but won't be moving this week.
• 12:53
  Speaker 2: I can think of few instances where Nick Timros has
• 12:56
  Speaker 2: reported something about the FED and been wrong, so I
• 12:59
  Speaker 2: tend to trust his reporting on where this goes. The
• 13:03
  Speaker 2: backdrop here we talk about frequently, so I'm guessing a
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  Speaker 2: lot of people know. But the backdrop here is that
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  Speaker 2: we have come off of multi decade high inflation from
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  Speaker 2: the twenty twenty two time period. We are now running
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  Speaker 2: at a much more manageable and tolerable, tolerable rate of inflation.
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  Speaker 2: Although people don't seem too enthusiastic about the even two
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  Speaker 2: and a half, I'm going to call it two and
• 13:26
  Speaker 2: a half would you would you call inflation right now?
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  Speaker 4: Trend inflation is a little higher. I'm using the media
• 13:30
  Speaker 4: in the two and a half to three is my
• 13:33
  Speaker 4: best guest based on measures of trend inflation seems.
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  Speaker 2: More tolerable, both from the federal reserves perspective as well
• 13:40
  Speaker 2: as from the general public's perspective. But at the same time,
• 13:43
  Speaker 2: the President has been pushing hard for lower rates, and
• 13:47
  Speaker 2: his perspective is I think different than really any economist
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  Speaker 2: in terms of wanting lower interest rates.
• 13:53
  Speaker 3: Speak.
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  Speaker 4: The rationale is he's made clear he wants to finance
• 13:58
  Speaker 4: debt cheaply, yes without right now. The Fed's job is
• 14:01
  Speaker 4: to be a thermostat. The economy gets too hot, you
• 14:04
  Speaker 4: cool it down, just like your thermostat. Economy gets too cold,
• 14:07
  Speaker 4: you heat it up. But just like your thermostat does,
• 14:09
  Speaker 4: its effect should be to respond to feedback by dampening
• 14:13
  Speaker 4: it right, And he wants to take that. He wants
• 14:15
  Speaker 4: to change that.
• 14:16
  Speaker 2: He wants the Federal Reserve to be more involved in
• 14:19
  Speaker 2: what the Treasury does, which is funding the operation entirely.
• 14:21
  Speaker 4: Though, like take the thermostat mandate away, don't worry about
• 14:25
  Speaker 4: He's saying inflation is not only secondary, but maybe even
• 14:28
  Speaker 4: not on the table, and just focus on financing the
• 14:31
  Speaker 4: debt as cheaply as possible, which is of course a
• 14:33
  Speaker 4: prescription for runaway inflation and economic chaos.
• 14:36
  Speaker 2: Here is the conundrum that the Treasury is facing down,
• 14:39
  Speaker 2: which they have been for several years. They have a
• 14:42
  Speaker 2: bunch of debt that is going to be coming do
• 14:44
  Speaker 2: over the course of this year. In the next several years,
• 14:47
  Speaker 2: you're also running larger deficits with the new big, one,
• 14:52
  Speaker 2: Big Beautiful Bill Act and the tax cuts that are
• 14:55
  Speaker 2: coming to do here. And so there's a question of, Okay,
• 14:58
  Speaker 2: do we just issue you shorter term debt and assume
• 15:02
  Speaker 2: that those rates will eventually come down across the spectrum,
• 15:05
  Speaker 2: at which point we can reach out and extend to
• 15:09
  Speaker 2: ten and twenty and thirty year treasuries, or do we
• 15:13
  Speaker 2: do what most Treasury officials have done for the last
• 15:16
  Speaker 2: several decades, which is put together plan, don't really talk
• 15:19
  Speaker 2: about it, and issue debts pretty consistently with the way
• 15:22
  Speaker 2: that you have previously. I think what to me is
• 15:26
  Speaker 2: missing in all these conversations is any justification for longer
• 15:30
  Speaker 2: term interest rates to be coming down anytime soon. Which
• 15:33
  Speaker 2: is why I think it's kind of a fool's errand
• 15:36
  Speaker 2: to begin with, to say, hey, Fed, start lowering rates.
• 15:39
  Speaker 2: We have seen pretty concrete evidence that even if they
• 15:42
  Speaker 2: choose to do so, you may not see long term.
• 15:44
  Speaker 4: K We tried this after World War Two. We started
• 15:46
  Speaker 4: with short term rates, we went them, we capped longer
• 15:50
  Speaker 4: term rates. Inflation was out of control. There was something
• 15:53
  Speaker 4: called the FED Treasury Accord. There's a nice history of
• 15:55
  Speaker 4: it on the Fed's website. You and Chuck have probably
• 15:58
  Speaker 4: talked about it in the past couple of weeks. That's
• 16:01
  Speaker 4: where the idea of independent monetary policy came from, with
• 16:04
  Speaker 4: some refinements over the subsequent decades. So we have tried
• 16:07
  Speaker 4: this before, Mike. The result was runaway inflation and FED independence.
• 16:14
  Speaker 4: We can learn that lesson again. It seems like we're
• 16:16
  Speaker 4: faded to learn that lesson again, like some Greek tragic figure,
• 16:21
  Speaker 4: repeating stupid mistakes over and over. But that's maybe part
• 16:25
  Speaker 4: of part of the human experience.
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  Speaker 2: So let's let's move on from the White House pressures
• 16:31
  Speaker 2: on the Federal Reserve and actually talk about what's likely
• 16:34
  Speaker 2: being debated and talked about within these meetings. Because there
• 16:38
  Speaker 2: are two voting members of the Federal Reserve that seem
• 16:40
  Speaker 2: to be proponents of lower interest rates today, what is
• 16:44
  Speaker 2: there compelling evidence for why that should happen other than
• 16:48
  Speaker 2: I want to pick for the Federalserve. But if I'm
• 16:50
  Speaker 2: being honest, I don't think either Bowman or Waller are
• 16:53
  Speaker 2: likely to be picked, regardless of what the Federal Reserve.
• 16:56
  Speaker 4: Probably not because they're not todioush and I forgive me,
• 16:59
  Speaker 4: but Trump wants a tow. He wants somebody he can
• 17:00
  Speaker 4: control with the FED. He's not going to brook any
• 17:03
  Speaker 4: opposition from the FED to lowering rates once he gets
• 17:06
  Speaker 4: to pick the chairman, So expect someone who's thoroughly loyal
• 17:10
  Speaker 4: to him, like he's picked for other positions. It's not
• 17:12
  Speaker 4: a criticism, just an observation. Sure, that's the way he
• 17:14
  Speaker 4: wants to run it, and arguably he's entitled to his president.
• 17:18
  Speaker 4: So the Waller is a serious guy. He genuinely he
• 17:22
  Speaker 4: recognizes that FED policy operates on the real economy, and
• 17:28
  Speaker 4: by that I mean the stuff we all actually do
• 17:30
  Speaker 4: with a bit of a lag. So if you think
• 17:31
  Speaker 4: the economy is slowing now, remembering what I said earlier
• 17:34
  Speaker 4: about the FED being a thermostat, they're not. Just it's
• 17:37
  Speaker 4: as if your thermistat was looking ahead, which I think
• 17:39
  Speaker 4: it actually does under some of these more sophisticated demand
• 17:43
  Speaker 4: management plans. Now, so some of us are familiar with
• 17:45
  Speaker 4: our thermostat dropping on us suddenly because we enrolled in
• 17:48
  Speaker 4: national grid. I don't know, connected solutions. You didn't expect
• 17:51
  Speaker 4: it to, but it's pre cooling your home.
• 17:53
  Speaker 2: I learned fifty dollars gift cards, so it can yeah,
• 17:56
  Speaker 2: control my thermostat from everything.
• 17:58
  Speaker 4: Yeah, you get that one. That's one time, and then
• 18:00
  Speaker 4: twenty bucks a year, which is why I withdrew. It
• 18:03
  Speaker 4: was insulting. Much like the FED, this connected Okay, this
• 18:09
  Speaker 4: is a little bit on the fly here, but connected
• 18:10
  Speaker 4: solutions lowers your temperature and anticipation of greater demand later
• 18:14
  Speaker 4: in the day, so let's pre cool your home. Similarly,
• 18:16
  Speaker 4: the FED wants to preheat if you like the economy
• 18:20
  Speaker 4: because they have weakness or Waller does in Bowman do
• 18:23
  Speaker 4: and that is a totally legit It's not necessarily politically motivated,
• 18:26
  Speaker 4: though I suspect that they're posturing a bit and and
• 18:32
  Speaker 4: hoping for the job of chairman. That's that's not an
• 18:36
  Speaker 4: illegitimate thing to do. I that we all do that
• 18:37
  Speaker 4: at work.
• 18:38
  Speaker 2: So the danger there being that economic forecasting is a
• 18:41
  Speaker 2: little bit more difficult than twelve hour weather forecasting, and
• 18:46
  Speaker 2: you could totally different lower the temperature right in the
• 18:50
  Speaker 2: midst of a dramatic weather change.
• 18:52
  Speaker 3: That is going to make we expect.
• 18:54
  Speaker 4: The FED to be forward looking. But at the same time,
• 18:56
  Speaker 4: economic forecasting is impossible to do con distantly with accuracy,
• 19:01
  Speaker 4: and I'm very comfortable with that. With that statement, it
• 19:04
  Speaker 4: is a serious people know not to do it. It's
• 19:06
  Speaker 4: like stock market forecasting, and for the same reason, it's
• 19:12
  Speaker 4: not just very hard, but impossible to do consistently.
• 19:14
  Speaker 3: Let's take a quick break.
• 19:16
  Speaker 2: When we come back here, we're gonna have a full
• 19:18
  Speaker 2: market update as we head into the real height of
• 19:22
  Speaker 2: earning season later this week. Quick break, we'll be back
• 19:24
  Speaker 2: with market Watch with Wall Street Watch next.
• 19:40
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:42
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:47
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:52
  Speaker 1: Street Watch. A complete look at what's moving market so
• 19:55
  Speaker 1: far today right here on the Financial Exchange Radio Network.
• 19:59
  Speaker 5: As the busines week escalates, Marcus today are mostly quiet
• 20:02
  Speaker 5: as investors sift through a new batch of second quarter
• 20:05
  Speaker 5: earnings in addition to the latest job openings data with
• 20:08
  Speaker 5: the Joltz report posted earlier this morning. Right now, the
• 20:12
  Speaker 5: Dow is off by tenth of a percent, or seventy
• 20:14
  Speaker 5: one points, SMP five hundred is edging five points higher,
• 20:19
  Speaker 5: Nasdaq is up by nearly two tenths of one percent,
• 20:22
  Speaker 5: or thirty eight points, Russell two thousand is up by
• 20:25
  Speaker 5: three tenths of one percent, ten year treasureeled down six
• 20:29
  Speaker 5: basis points today a four point three five eight percent,
• 20:32
  Speaker 5: and crude oil up over one percent higher training at
• 20:36
  Speaker 5: sixty seven dollars in forty eight cents a barrel. Novo
• 20:39
  Speaker 5: nord To share is plunging twenty percent after the Danish
• 20:43
  Speaker 5: pharmaceutical giant cut its full year guidance citing weaker growth
• 20:46
  Speaker 5: expectations for its blockbuster obesity drug Wegoviy. Furthermore, of the
• 20:51
  Speaker 5: company appointed company that Mike Doustar as its new ceoh. Meanwhile,
• 20:58
  Speaker 5: United Health reinstated it's got it ends, giving an estimate
• 21:01
  Speaker 5: for annual earnings well below its original forecast. The healthcare
• 21:05
  Speaker 5: conglomer continues to grapple with higher medical costs in Medicare
• 21:09
  Speaker 5: advantage plans as well as the broader insurance industry. United
• 21:13
  Speaker 5: Health shares are down another four percent today are now
• 21:15
  Speaker 5: down over forty five percent this year. Elsewhere, Procter and
• 21:20
  Speaker 5: Gamble posted stronger than expected quarterly results and reiterated that
• 21:24
  Speaker 5: tariffs could add one billion dollars to its annual costs.
• 21:27
  Speaker 5: The maker of Tied detergent and other well known everyday
• 21:31
  Speaker 5: products said it is also seeing slower consumer spending that
• 21:35
  Speaker 5: stock is up modestly. Boeing's brisker pace of plane deliveries
• 21:39
  Speaker 5: list lifted the company to its best quarterly financial performance
• 21:43
  Speaker 5: since twenty twenty three. The Auerspace company also reported a
• 21:47
  Speaker 5: smaller than expected loss and beat revenue forecasts. Boeing shares
• 21:52
  Speaker 5: are down two percent. Paypaled down by eight percent after
• 21:56
  Speaker 5: the digital payments company third quarter guidance fell short of expects,
• 22:01
  Speaker 5: and after today's closing bell, we'll see more earnings from
• 22:04
  Speaker 5: Visa Booking Holdings and Starbucks. I'm Tucker Silvan. That is
• 22:08
  Speaker 5: Wall Street Watch.
• 22:09
  Speaker 2: Tucker mentioned it briefly there, but I want to talk
• 22:11
  Speaker 2: a little bit more about Proctor Gamble. I mean, they
• 22:15
  Speaker 2: have a pretty good sense of what's going on with
• 22:18
  Speaker 2: the consumer in most cases. Their business model has certainly
• 22:24
  Speaker 2: changed a fair bit over the years with the way
• 22:26
  Speaker 2: that we now shop. You know, it used to be
• 22:28
  Speaker 2: that they would pay big money for that Eyeline product
• 22:33
  Speaker 2: placement in the grocery store.
• 22:34
  Speaker 3: That's become less valuable.
• 22:36
  Speaker 2: But nonetheless, I mean this is a company that has
• 22:38
  Speaker 2: been a household name for decades. The first piece adding
• 22:44
  Speaker 2: a billion dollars to their costs should tariff's stay in place.
• 22:50
  Speaker 2: Their total operating expenses in twenty twenty four Procter and
• 22:54
  Speaker 2: Gambles were about twenty three point three billions, So not
• 22:58
  Speaker 2: an insignificant cost increase here if we're talking about adding
• 23:00
  Speaker 2: a billion to a twenty three point three billion cost pile,
• 23:03
  Speaker 2: and that's been pretty consistent. It's been between twenty and
• 23:07
  Speaker 2: twenty three billion over the course of the last four years.
• 23:11
  Speaker 2: The piece that I found fairly interesting had nothing to
• 23:15
  Speaker 2: do with tariffs.
• 23:16
  Speaker 3: I mean, no kidding.
• 23:16
  Speaker 2: A company like Proctor Gamble is going to face tariffs.
• 23:18
  Speaker 2: They probably do a fair bit of manufacturing overseas. Maybe
• 23:21
  Speaker 2: they'll pull some of that back. The pieces about consumers
• 23:26
  Speaker 2: was interesting here, and I can't tell if they are
• 23:29
  Speaker 2: just blaming fairly poor results on a weak consumer or
• 23:35
  Speaker 2: if there's actually something to be said here. But they said, quote,
• 23:39
  Speaker 2: they're using up their pantry inventory, delaying purchases, and shopping
• 23:43
  Speaker 2: at stores less frequently to avoid the tempted temptation to
• 23:47
  Speaker 2: buy things that they don't need. They also mentioned that
• 23:51
  Speaker 2: both on the lower income side and the higher income side,
• 23:54
  Speaker 2: they are seeing a bit of a squeeze. Both consumer
• 23:57
  Speaker 2: segments are looking for value, but looking for value with
• 23:59
  Speaker 2: their respective constraints. Those lower income consumer consumers buying things
• 24:05
  Speaker 2: less frequently, smaller sizes. Those higher income consumers are uh
• 24:11
  Speaker 2: looking at you know, finding deals and and looking for
• 24:15
  Speaker 2: discounts in this in you know, one place or another.
• 24:18
  Speaker 3: I just.
• 24:21
  Speaker 2: I don't know that there's much to that. Like Proctor
• 24:24
  Speaker 2: Gamble struggling here, I don't know that that tells me
• 24:29
  Speaker 2: much about the consumer that we didn't already know. I
• 24:31
  Speaker 2: don't know that it's anything other than just somewhat poor
• 24:35
  Speaker 2: results on Procter Gamble side, whose stock is now down
• 24:38
  Speaker 2: half percent today and in about five and a half
• 24:42
  Speaker 2: to six percent for the year, And.
• 24:43
  Speaker 3: So I don't know.
• 24:44
  Speaker 2: I'm always looking through earnings to see if we can
• 24:46
  Speaker 2: actually glean something new about the consumer, and I don't
• 24:48
  Speaker 2: think this really tells me much. Proctor Gamble sales are
• 24:52
  Speaker 2: fine but not great.
• 24:54
  Speaker 4: Yeah, you look at the anecdotes, the comments. The financials
• 24:59
  Speaker 4: were f business fine, sales could have been better, I
• 25:02
  Speaker 4: guess growing top of every company would say that. But
• 25:05
  Speaker 4: everything else looked fine and in line with expectations. I
• 25:08
  Speaker 4: think this is not my area, but I haven't seen
• 25:11
  Speaker 4: anybody suggest that there was anything alarming about these results.
• 25:17
  Speaker 4: And then as for their off hand and not offhand,
• 25:19
  Speaker 4: they're prepared, but their comments about the state of the consumer.
• 25:22
  Speaker 4: I mean, how many times did we hear warnings about
• 25:26
  Speaker 4: COVID savings running out and consumer spending running into a.
• 25:29
  Speaker 3: Wall for the last like three or four years.
• 25:32
  Speaker 4: That chatter stopped about a year and a half ago. Year,
• 25:35
  Speaker 4: year and a half ago, Right, we haven't heard that.
• 25:37
  Speaker 4: You haven't heard that in a while. Right, what happens
• 25:38
  Speaker 4: when people deplete their COVID era savings? They had we
• 25:41
  Speaker 4: had estimates of yeah, that's like that's gone, long since gone,
• 25:45
  Speaker 4: and didn't seem to put a dent in overall economic growth,
• 25:48
  Speaker 4: didn't even seem to put a dent in spending. Go ahead.
• 25:50
  Speaker 3: I have a theory there.
• 25:51
  Speaker 2: We have an amazing ability to underestimate just how irresponsible
• 25:56
  Speaker 2: American spending patterns are. Like, who cares that they ran
• 25:58
  Speaker 2: out of their COVID savings. They all have credit cards,
• 26:00
  Speaker 2: They're all going to run this back up. They're going
• 26:02
  Speaker 2: to And that's exactly what we saw is COVID era
• 26:05
  Speaker 2: savings got spent on solo stoves and then they still
• 26:10
  Speaker 2: bought the stuff that they needed from Procter and Gamele, Because.
• 26:13
  Speaker 4: What's the stove. Is that an outdoor pizza oven or something.
• 26:15
  Speaker 2: It's the it's those outdoor like smokeless fire pits that
• 26:20
  Speaker 2: that that Snoop endorsed. Oh don't remember when do you
• 26:24
  Speaker 2: remember the endorsement where he was he announced he was
• 26:27
  Speaker 2: giving up smoke on one day, and then the next
• 26:31
  Speaker 2: day he announced that he was giving up smoke because
• 26:33
  Speaker 2: he was endorsing the the solo stove smokeless fire pit.
• 26:36
  Speaker 2: But you know that was a popular COVID era item.
• 26:40
  Speaker 2: But yeah, I mean, that's that's what I attributed all
• 26:43
  Speaker 2: that to is, yeah, we did run through our COVID
• 26:46
  Speaker 2: savings and then credit card balances basically returned to the
• 26:50
  Speaker 2: trend line that we were on prior to COVID.
• 26:52
  Speaker 4: Right, And so I think, and you in Tucker Silva
• 26:55
  Speaker 4: and you Mike have already underscored this. The most interesting
• 26:59
  Speaker 4: thing to come out of of today's remarks is the
• 27:02
  Speaker 4: hit two is the increase in costs and presumably the
• 27:06
  Speaker 4: decrease in profits or increase in prices or some combination
• 27:09
  Speaker 4: of those two things. It sounds like they have a
• 27:12
  Speaker 4: pretty good idea. What tariffs are going to cost them
• 27:15
  Speaker 4: a little under five percent of their current of their
• 27:18
  Speaker 4: current cost run rate. How are they going to make
• 27:21
  Speaker 4: up for that? Are they going to is there room
• 27:23
  Speaker 4: in pricing or are they going to pass it along?
• 27:25
  Speaker 4: What do we hear from other companies as the weeks
• 27:28
  Speaker 4: roll on about that? And what does that allow us
• 27:30
  Speaker 4: to say about inflation? Something we can make tariffs in inflation.
• 27:34
  Speaker 4: Some people are doing a victory lap because we haven't
• 27:36
  Speaker 4: had a spike in inflation yet. Maybe in the next
• 27:39
  Speaker 4: hour we'll talk a little bit about that.
• 27:40
  Speaker 2: One interesting piece I guess on the tariff front is,
• 27:43
  Speaker 2: unlike some other CEOs that we've heard from recently. I
• 27:47
  Speaker 2: think Mary Bearra, GM CEO mentioned this is many CEOs
• 27:53
  Speaker 2: are putting out there their predictions of what the tariff
• 27:55
  Speaker 2: impact could be. But I remember GM CEO saying, and
• 27:58
  Speaker 2: we're looking at how we're going to mitigate that overall cost.
• 28:02
  Speaker 2: No mention of mitigation on productor Gamble's part not saying, hey, yeah,
• 28:06
  Speaker 2: with a twenty percent tariff raid on wherever it is
• 28:08
  Speaker 2: we manufacture tide pods that we're going to be putting
• 28:12
  Speaker 2: more of that manufacturing here in the United States seem
• 28:15
  Speaker 2: to be more of a statement of this is going
• 28:17
  Speaker 2: to be the cost. What we do at the cost
• 28:19
  Speaker 2: is an open question, but this seems like it's going
• 28:21
  Speaker 2: to be the cost, and we don't have any plans
• 28:23
  Speaker 2: to mitigate it, or at least if I were a
• 28:25
  Speaker 2: CEO of a company that was planning on lowering their
• 28:29
  Speaker 2: tariff costs by moving jobs back to the United States,
• 28:31
  Speaker 2: I would sure be trumpeting that on my earnings call,
• 28:35
  Speaker 2: because I think it would get you some attention.
• 28:36
  Speaker 4: I would assume that P ANDG has to pass these
• 28:38
  Speaker 4: costs through to the consumer. They make commodities. They have
• 28:41
  Speaker 4: some nice brands, but they make commodities.
• 28:43
  Speaker 3: Yep.
• 28:43
  Speaker 4: That everybody else will have to pass their costs along
• 28:46
  Speaker 4: to the consumer at TRU And again, we haven't had
• 28:48
  Speaker 4: inflation yet from tariff's, but we can at some point
• 28:50
  Speaker 4: talk about why that's likely to cause at least a
• 28:52
  Speaker 4: temporary jump in inflation.
• 28:53
  Speaker 3: Let's take a quick break speaking of tariff's number of
• 28:56
  Speaker 3: pieces on the US EU trade deal being released to day.
• 29:00
  Speaker 3: Quick Break will be covering those next on the Financial Exchange.
• 29:03
  Speaker 1: Find daily interviews and full shows of the Financial Exchange
• 29:06
  Speaker 1: on how are YouTube page. Get cut up on anything
• 29:09
  Speaker 1: and everything you might have missed. This is the Financial
• 29:12
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• 29:17
  Speaker 1: to two one three eighty five with your comments and
• 29:20
  Speaker 1: questions about today's show. This is the Financial Exchange Radio Network.
• 29:33
  Speaker 2: Mark. The stories that seem to be dominating the headlines
• 29:36
  Speaker 2: today at least are that Trump is winning his trade war.
• 29:40
  Speaker 2: And I think, you know, probably important that we define winning.
• 29:43
  Speaker 2: But I think from one perspective, I would describe it
• 29:46
  Speaker 2: as winning, and I would say that I'm fairly surprised
• 29:48
  Speaker 2: in one perspective, which is the President has seemingly successfully
• 29:53
  Speaker 2: implemented some of the highest tariffs on imports into the
• 29:57
  Speaker 2: United States in close to one hundred years without significant
• 30:02
  Speaker 2: retaliation from other trade partners. So from that perspective, I
• 30:07
  Speaker 2: can call it a surprising, you know, a surprising and
• 30:11
  Speaker 2: I'm not going to say good outcome because that kind
• 30:13
  Speaker 2: of depends on your perspective. If you're an importer, you're
• 30:16
  Speaker 2: not terribly happy about it. But I think a surprising
• 30:20
  Speaker 2: outcome here is that, yeah, they have implemented tariffs on Vietnam,
• 30:24
  Speaker 2: the UK, all of the European Union, Japan, and by
• 30:30
  Speaker 2: and large not seen mass retaliation from those countries in
• 30:33
  Speaker 2: terms of reciprocal tariffs on US made products. The question
• 30:40
  Speaker 2: of whether or not we're winning the trade war, I'm
• 30:43
  Speaker 2: not sure how to define that.
• 30:44
  Speaker 4: Yeah, countries don't Countries don't compete. Companies compete. Let me
• 30:47
  Speaker 4: start with that. And that may not seem intuitive. You
• 30:49
  Speaker 4: probably have not heard that. I probably wouldn't have believed
• 30:52
  Speaker 4: it before I learned about this stuff. Countries don't compete,
• 30:55
  Speaker 4: Companies compete. This is not the era of the gold
• 30:58
  Speaker 4: standard where Spain sends a gallon to collect a lot
• 31:00
  Speaker 4: of gold from Brazil or some crap. Forgive mate, but
• 31:04
  Speaker 4: I'm making light of mercantilism. But you know what I mean.
• 31:07
  Speaker 4: The the the name of the game here is not
• 31:09
  Speaker 4: to collect more gold than France. Okay, this this is
• 31:12
  Speaker 4: not this is this is not seventeen ten. Name of
• 31:15
  Speaker 4: the game here is highest per capita GDP and high
• 31:18
  Speaker 4: per capita GDP that's gross domestic product growth rate. And
• 31:21
  Speaker 4: the way you do that is to do what you're
• 31:23
  Speaker 4: good at. The fancy name for that is focus on
• 31:26
  Speaker 4: your comparative advantage, things that you're relatively better at producing.
• 31:29
  Speaker 3: For Chile, that would be copper.
• 31:31
  Speaker 4: Right, Chile st cops. We send Chile BCG consulting services.
• 31:35
  Speaker 3: I was gonna say, say, what is it like a
• 31:37
  Speaker 3: financial a lot of its services.
• 31:40
  Speaker 4: Now like we have a services big services surplus with Europe.
• 31:43
  Speaker 4: A goods deficit, but a services surplus. You add those
• 31:46
  Speaker 4: two together and our trade balance with Europe is about even.
• 31:50
  Speaker 4: So going into this, Going into this, there were very
• 31:53
  Speaker 4: low tariffs on US exports of manufactured goods to Europe,
• 31:57
  Speaker 4: on the order of about one percent. Paul Krugman, a
• 31:59
  Speaker 4: fan miss international economist, rights this morning balance of trade
• 32:04
  Speaker 4: was close to even. Our exports to Europe are about
• 32:08
  Speaker 4: ninety percent of our imports. Our companies operated freely in Europe.
• 32:12
  Speaker 4: Krugman goes on hundreds of billions of years in profits.
• 32:15
  Speaker 4: We all know European corporations were because we have a
• 32:18
  Speaker 4: slight goods deficit with Europe sending those dollars we sent
• 32:21
  Speaker 4: abroad back to US in the form of one hundred
• 32:23
  Speaker 4: and fifty billion dollars a year in investments. This was
• 32:25
  Speaker 4: last year. How are we better off paying more for
• 32:29
  Speaker 4: what we need or what we choose to import from Europe?
• 32:33
  Speaker 4: Is the big question.
• 32:35
  Speaker 2: Yeah, I guess the potential answers to that question would
• 32:39
  Speaker 2: be does employment increase as a whole? Does employment in
• 32:44
  Speaker 2: the United States increase? It's tough to measure guess without.
• 32:51
  Speaker 4: Yeah, what is your metric here?
• 32:53
  Speaker 2: That's that's a good way. Does employment increase? And I
• 32:55
  Speaker 2: don't just mean manufacturing employment. I mean, like you know,
• 32:58
  Speaker 2: because there will be losses in other areas, So does
• 33:00
  Speaker 2: employment increase. It's tougher to measure other things like oh,
• 33:05
  Speaker 2: we are in a financially fiscally better place in the
• 33:08
  Speaker 2: United States compared to the absence of tariffs, because deficits
• 33:13
  Speaker 2: would have been larger.
• 33:14
  Speaker 4: Well, then that means somebody. Again, all these goals are
• 33:17
  Speaker 4: somewhat intention Mike. If the objective is to move manufacturing
• 33:20
  Speaker 4: back here, that means that you are that people are
• 33:25
  Speaker 4: not consuming foreign goods consuming domestic goods. That means you're
• 33:29
  Speaker 4: not raising revenue because you're not collecting tariffs.
• 33:31
  Speaker 3: Right.
• 33:32
  Speaker 2: My point with all this is I have a tough
• 33:34
  Speaker 2: time measuring what the success story or narrative is. Like,
• 33:39
  Speaker 2: you know, we talked about how do you measure a
• 33:40
  Speaker 2: successful Trump two point zero economy and we came up
• 33:43
  Speaker 2: with a bunch of things. I have a tougher time
• 33:45
  Speaker 2: coming up with those things in the case of a
• 33:46
  Speaker 2: trade war. But what I can say is that investors
• 33:51
  Speaker 2: of all kinds have been I think pleasantly surprised that
• 33:55
  Speaker 2: the US has been able to or US investors at
• 33:58
  Speaker 2: least have been surprised that the hasn't been able to
• 34:00
  Speaker 2: implement this degree of tariffs, which to be clear, are
• 34:03
  Speaker 2: the highest since the nineteen thirties without sparking a an
• 34:08
  Speaker 2: escalating trade war.
• 34:09
  Speaker 4: To this point, Mike, the crap hit the fan in
• 34:11
  Speaker 4: April YEP, when we were at higher than these levels
• 34:15
  Speaker 4: twice three times these levels. These levels are still extreme,
• 34:18
  Speaker 4: they only look slightly less bad. So investors are maybe
• 34:22
  Speaker 4: breathing a sigh of relief and the public more broadly
• 34:25
  Speaker 4: breathing a sigh of relief because it's not as bad
• 34:27
  Speaker 4: as a vlable self inflicted wound like we were on
• 34:32
  Speaker 4: the verge of committing in April.
• 34:34
  Speaker 3: Yeah, I don't.
• 34:35
  Speaker 2: I think that's the reset of expectations, right, is that
• 34:38
  Speaker 2: was a broad expectation, was for a horrible self inflicted wound,
• 34:41
  Speaker 2: and instead we are in a place where if they
• 34:44
  Speaker 2: stay at fifteen to twenty percent, the tariffs might be
• 34:47
  Speaker 2: manageable for.
• 34:50
  Speaker 3: Most businesses and consumers.
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• 35:51
  Speaker 2: Mark We do have a release from the European Union
• 35:55
  Speaker 2: on a written release from the European Union on the
• 35:58
  Speaker 2: US EU Trade Deal. It's at title EU US Trade
• 36:01
  Speaker 2: Deal Explained, and it's kind of a Q and A.
• 36:03
  Speaker 2: But in terms of the highlights here that I can quote,
• 36:06
  Speaker 2: and I find this telling because it's actually coming from
• 36:09
  Speaker 2: the European Union. It's not you know, the New York Times,
• 36:12
  Speaker 2: it's not the Wall Street Journal, it's not Fox. It's
• 36:14
  Speaker 2: from the European Union's own perspective on this. The fifteen
• 36:18
  Speaker 2: percent ceiling tariff rate applies to nearly all EU exports
• 36:22
  Speaker 2: currently subject to reciprocal tariffs, so remember that those were
• 36:25
  Speaker 2: already in place. The fifteen percent ceiling also applies to
• 36:29
  Speaker 2: cars and car parts. Those are currently subject to twenty
• 36:32
  Speaker 2: five percent, so you know they're holding that out as
• 36:35
  Speaker 2: a gain here from these negotiations. Fifteen percent ceiling will
• 36:38
  Speaker 2: also apply to any potential future terraffs on pharmaceuticals and semiconductors,
• 36:43
  Speaker 2: So basically saying the fifteen percent of the ceiling, we
• 36:46
  Speaker 2: might have some goods that are exempted from tariffs on
• 36:50
  Speaker 2: certain types of products. As of the first of August,
• 36:53
  Speaker 2: US tariffs on EU aircraft and air craft parts, certain chemicals,
• 36:57
  Speaker 2: certain drug generics, or natural resources. Will go back to
• 37:00
  Speaker 2: pre January levels, just meaning that you know, we are
• 37:05
  Speaker 2: not increasing on some of those specific products. The piece
• 37:09
  Speaker 2: that I found telling to me was on the investment
• 37:13
  Speaker 2: side of things, and so one they pointed out that
• 37:17
  Speaker 2: the political Agreement of July twenty seventh, twenty twenty five
• 37:20
  Speaker 2: is not legally binding beyond taking immediate actions committed that
• 37:25
  Speaker 2: you and US will further negotiate, So this is not
• 37:29
  Speaker 2: anything that has been binding to EU member states. And
• 37:33
  Speaker 2: then they point out something specifically about investment that I
• 37:37
  Speaker 2: am trying to find here. The EU intends to procure
• 37:42
  Speaker 2: US liquefied natural gas, oil and nuclear energy products with
• 37:45
  Speaker 2: an expected off take value of seven hundred and fifty
• 37:48
  Speaker 2: billion dollars over the next three years. This will contribute
• 37:52
  Speaker 2: to replacing Russian gas and oil on the EU market.
• 37:55
  Speaker 4: Can we take this up in the next hour. There's
• 37:57
  Speaker 4: a relationship between trade and goods and services and investment
• 37:59
  Speaker 4: flow that I think we have to unpack of it.
• 38:03
  Speaker 3: We got to take a quick break.
• 38:04
  Speaker 2: We will be back with a whole lot more in
• 38:06
  Speaker 2: the second hour the financial exchange in including continued talk
• 38:10
  Speaker 2: of the newly announced US EU trade deal.
• 38:13
  Speaker 3: We'll be right back folks,