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SpaceX Mania Meets the New Energy Reality · The Financial Exchange Show

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Speaker 2: Lane, Good morning, and welcome back to the Financial Exchange.
1:13
Speaker 2: It's Mike, Paul and Ben with you on a Tuesday
1:16
Speaker 2: here as we kick off a FED meeting. We'll be
1:19
Speaker 2: getting the press conference from the new chair, Kevin Worsh tomorrow.
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Speaker 2: So his first press conference on the state of the economy,
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Speaker 2: state of interest rates, G seven kicked off and President
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Speaker 2: Trump is fielding questions. They're certainly going to be talking
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Speaker 2: about the Iran potential peace deal, pushing for help on
1:41
Speaker 2: mind sweeping efforts from the European Union.
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Speaker 3: We will see.
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Speaker 2: As they attempt to push his attention back to the
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Speaker 2: war in Ukraine. What else do we have going on here?
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Speaker 2: We've got a mixed market in early trading. Actually, SMP
1:56
Speaker 2: just turned positive again. It's been floating around around flats
2:00
Speaker 2: acquisition news and pretty much all attention continuing to be
2:04
Speaker 2: on SpaceX as it potentially overtakes a few huge names.
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Speaker 3: So we'll be talking.
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Speaker 2: About the first three days of trading in SpaceX stock,
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Speaker 2: which went public on Friday. But we're going to start
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Speaker 2: off in Iran, with oil prices falling again today below
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Speaker 2: eighty bucks a barrel, just about the I guess the
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Speaker 2: reshaping of global energy markets in twenty twenty six, and
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Speaker 2: what seems temporary, what seems permanent, assuming that we get
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Speaker 2: to some negotiated ceasefire with oil moving through the strait
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Speaker 2: of horror moves, let's call it, in the next two months. Here,
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Speaker 2: it does seem that globally a lot has changed, if
2:45
Speaker 2: not in terms of infrastructure, then certainly in terms of
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Speaker 2: attitudes towards security the Middle East.
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Speaker 4: Yeah, it seems like, Mike, we've had this conversation on
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Speaker 4: a bunch of different subjects over the course of the
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Speaker 4: last five or six years post COVID, where there is
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Speaker 4: much more of a focus on sort of the deglobalization
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Speaker 4: of the economy, where you have to really scrutinize as
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Speaker 4: a country or a company, who are you relying upon
3:11
Speaker 4: for certain resources out there. And the days of past
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Speaker 4: of just trying to be efficient with just in time
3:17
Speaker 4: inventory and all these other different practices of just trying
3:20
Speaker 4: to get the lowest price possible have sort of been
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Speaker 4: subbed out for this focus on how are we going
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Speaker 4: to be resilient amidst geopolitical issues like the one that
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Speaker 4: we were dealing with most recently here. So from an
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Speaker 4: energy perspective. Specifically, you have to be sitting there if
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Speaker 4: you're those countries in Asia and in Europe, and Europe
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Speaker 4: already got this shock in twenty twenty two when the
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Speaker 4: Russia Ukraine war broke out, where you have to really
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Speaker 4: look at where are we going to get our energy from.
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Speaker 4: I think there's an overwhelming sort of feeling out there
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Speaker 4: that though this deal may be in place, that the
3:55
Speaker 4: straight up homus is not going to be as reliable
3:58
Speaker 4: as it was in years past, and that as a
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Speaker 4: result of that, if you are these other countries, you
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Speaker 4: need to find other ways to diversify your suppliers for
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Speaker 4: energy and gas, or perhaps as alluded to in this
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Speaker 4: piece of the New York Times, here look and heavily
4:14
Speaker 4: more heavily scrutinize this idea of investing in renewable energy
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Speaker 4: so that you have another level to lever to pull upon.
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Speaker 4: If you see the energy socks that they just experienced.
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Speaker 2: Here, yeah, we will end up seeing I mean, I
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Speaker 2: do think that that was one of the main lessons
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Speaker 2: from COVID is say this just in time, manufacturing for
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Speaker 2: autos and all sorts of stuff can break down pretty
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Speaker 2: quickly and become a real thor in the side of companies.
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Speaker 2: On the other hand, I can't look at the auto industry,
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Speaker 2: at least here in the United States and say, Wow,
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Speaker 2: what a much more resilient supply chain they have these days, right.
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Speaker 2: I think they basically dealt with the disruption and said,
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Speaker 2: probably not worth the cost to build out that resilience
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Speaker 2: that we would need, and so right back to the
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Speaker 2: normal status of things.
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Speaker 5: I think it's pinning with the brown buds just to
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Speaker 5: focus on the auto sector. Yeah, agree, it's a far broader.
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Speaker 3: Whereas in other areas.
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Speaker 2: I would take your point that while we aren't there yet,
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Speaker 2: you know, the United States passed the Chips Act and
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Speaker 2: is looking very closely at rare earth materials and trying
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Speaker 2: to diversify sources from that front. So I do think
5:21
Speaker 2: again it's a guess at this stage, we don't really
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Speaker 2: know how each individual country is going to react to
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Speaker 2: all this, But I do think that there is a
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Speaker 2: compelling argument that frankly, just the strait of horror MUZ
5:32
Speaker 2: is going to be less critical ten years from now
5:35
Speaker 2: than it was in twenty twenty five. From one component
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Speaker 2: you're going to have most certainly you're going to have
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Speaker 2: countries around the Middle East trying to find different means
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Speaker 2: of routing their oil through pipelines and other sources that
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Speaker 2: aren't close to Iran. From another component, you're going to
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Speaker 2: have a lot of countries trying to diversify their energy
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Speaker 2: supplies and building power plants don't rely purely on oil
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Speaker 2: and gas. But so all of those I would expect,
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Speaker 2: you know, long term decreasing demand for some of those products.
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Speaker 2: On the other hand, the other key lesson and the
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Speaker 2: main lesson in the United States and China were able
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Speaker 2: to teach the world during this event was hey, you
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Speaker 2: better stockpile some of this stuff. And that'll be the
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Speaker 2: piece that I think is fascinating. You know, we in
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Speaker 2: the United States have had a Strategic Petroleum Reserve since
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Speaker 2: I actually don't know when it was created. But do
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Speaker 2: you have countries that begin stockpiling aluminum and you know,
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Speaker 2: refined products. Do you have can you even stockpile fertilizer?
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Speaker 2: Probably not, But this entire supply chain is going to
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Speaker 2: be I think looked at pretty critically because even if Iran,
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Speaker 2: you know, agrees to a ceasefire and we actually have
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Speaker 2: traffic flowing somewhat normally and best case scenario there to
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Speaker 2: get back to pre war traffic in the Strait, I
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Speaker 2: would imagine you're looking at a few months minimum before
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Speaker 2: that actually happens. But even if it does, you are
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Speaker 2: going to have countries that experience a very poor harvest.
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Speaker 2: You're going to have elevated energy prices for a while,
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Speaker 2: You're gonna have damaged infrastructure. And so what sort of
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Speaker 2: lessons get taken away here and what does that mean
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Speaker 2: for the intermediate term for some of these prices, Because yeah,
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Speaker 2: the Chinese refilling their stockpiles, the US refilling its strategic
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Speaker 2: petroleum reserve, all of that serves to potentially elevate prices
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Speaker 2: for longer.
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Speaker 3: But it's been a.
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Speaker 2: Long time since we've talked about anything other than, hey,
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Speaker 2: if the straight up four moves doesn't reopen, this is
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Speaker 2: how bad energy markets could get. We finally moved past
7:50
Speaker 2: a little bit that focus for the time being.
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Speaker 4: No question about it. I'm surprised that we have seen
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Speaker 4: oil dipso dramatically in the near term here, just because
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Speaker 4: it does feel like there could be some potential fallouts
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Speaker 4: from just everything that we've seen over the last one
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Speaker 4: hundred plus days. Where we sit at West Texas Unior
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Speaker 4: meteor at seventy eight dollars a barrel. It's just been
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Speaker 4: a really precipitous drop. And I understand that it's energy
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Speaker 4: futures trading that we're looking at here to a degree,
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Speaker 4: but it just seems that's.
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Speaker 3: Been my feeling about this since the very beginning of
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Speaker 3: the war. Why you just crush my hair?
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Speaker 5: Yeah, I just I don't.
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Speaker 2: I mean, you have to be so utterly convinced that
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Speaker 2: this is actually going to work to get oil prices
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Speaker 2: down below eighty bucks a barrel, right, you have to
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Speaker 2: be convinced that that straight Orf form moves is going
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Speaker 2: to be opening within weeks, that there is going to
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Speaker 2: be an actual ceasefire that everyone's going to sign on
8:43
Speaker 2: Friday and then successfully negotiate something new over the course
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Speaker 2: of the next sixty days. And don't get me wrong,
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Speaker 2: like both parties don't seem to want to shoot at
8:52
Speaker 2: each other anymore. But yeah, a lot needs to go, right.
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Speaker 2: I think for oil prices to stay at seven the
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Speaker 2: seven dollars and sixty cents a barrel for the rest
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Speaker 2: of this year. And I don't know, there seems to
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Speaker 2: be a little bit of counting chickens before they hatch here.
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Speaker 3: But again that's my attitude.
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Speaker 2: But you know what, I've been kind of wrong about
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Speaker 2: my assumptions where oil prices should be.
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Speaker 5: So hard beginning, so hard to figure out where it's
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Speaker 5: going to go.
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Speaker 2: Yeah, so yeah, I don't know that my perspective on
9:22
Speaker 2: that is correct. But when we look at just the
9:25
Speaker 2: way things are lining up, I have a tough time
9:27
Speaker 2: understanding why it's as low as it is right now,
9:30
Speaker 2: but it is, and I will certainly take lower gas prices.
9:33
Speaker 2: You know, higher gas prices are more or less attacks
9:36
Speaker 2: on the American consumer and seeing them come back down
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Speaker 2: can only benefit the American consumer and much other areas
9:43
Speaker 2: of the market.
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Speaker 3: We got to take quick break. When we come back,
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Speaker 3: I want to focus just.
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Speaker 2: A little bit more on this diversification of energy play
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Speaker 2: and what it might mean for different you know, major
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Speaker 2: players out there, and one of the main beneficiaries people
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Speaker 2: are pointing to is China. We'll talk about why and
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Speaker 2: what it could mean for their economy.
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Speaker 3: Next.
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11:07
Speaker 3: Paul.
11:07
Speaker 2: We will talk more about SpaceX later, but I think
11:10
Speaker 2: it was just important to point out that it's up
11:12
Speaker 2: another thirteen percent today and just surpassed Microsoft on market capitalization.
11:19
Speaker 2: It had surpassed Amazon this morning and now surpassed Microsoft
11:25
Speaker 2: in terms of market cap in trading on day three
11:28
Speaker 2: of its debut in public markets. I'll just point out
11:32
Speaker 2: a few things here, So SpaceX in terms of the
11:35
Speaker 2: value of its shares is now worth more than Microsoft.
11:40
Speaker 2: SpaceX in full year twenty twenty five grew their revenue
11:43
Speaker 2: by thirty three percent, up to nearly nineteen billion dollars,
11:47
Speaker 2: which is interesting until you learned that Microsoft last year
11:51
Speaker 2: also grew their sales pretty substantially, up to two hundred
11:53
Speaker 2: and eighty two billion dollars. So nineteen versus two hundred
11:57
Speaker 2: and eighty two, you tell me which was the more
11:58
Speaker 2: valuable company they're trailing. Free cash flow for SpaceX was
12:03
Speaker 2: negative because they've been pouring money into all sorts of
12:05
Speaker 2: different projects. Microsoft produced free cash flow of nearly seventy
12:09
Speaker 2: two billion dollars ebit DA of one hundred and sixty
12:13
Speaker 2: three billion versus SpaceX is six point six and net income,
12:19
Speaker 2: you know, dwarfed SpaceX is. Has been pointed out by
12:23
Speaker 2: many many major outlets. SpaceX trades at a price to
12:27
Speaker 2: sales ratio. You can't do a price to earning, so
12:29
Speaker 2: they don't have any of over one hundred now and
12:33
Speaker 2: well over one hundred now. All that I will say
12:36
Speaker 2: about SpaceX is you really better believe in the growth
12:39
Speaker 2: story of that company because that's the only way you
12:41
Speaker 2: can justify any of these numbers. Don't get me wrong,
12:46
Speaker 2: Tesla has traded at these types of numbers for better
12:49
Speaker 2: part of a decade now, so you know, elon Musk companies,
12:52
Speaker 2: for whatever reason, are able to fetch that higher valuation.
12:55
Speaker 2: But the scale of this one is pretty tough to
12:59
Speaker 2: to wrap your arms around. Again, SpaceX surpassing both Amazon
13:03
Speaker 2: and Microsoft in terms of market capitalization to become I believe,
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Speaker 2: the fourth largest company in the world.
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Speaker 5: That's right, It's incredible, you know.
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Speaker 4: Certainly when the IPO was coming out with the one
13:12
Speaker 4: hundred and thirty five dollars a share price tag, that
13:15
Speaker 4: was looked at as a pretty steep premium for investors
13:19
Speaker 4: to be willing to pay to get in on the IPO.
13:21
Speaker 4: It first publicly started trading about one hundred and fifty
13:24
Speaker 4: bucks a share, and here we sit, what do we
13:27
Speaker 4: three days later at two hundred and ten dollars a share.
13:31
Speaker 4: It is really expensive however you slice it. It will
13:35
Speaker 4: be very interesting to follow how it trends over the
13:39
Speaker 4: course of the next three to six months or so.
13:42
Speaker 4: We've talked about I'm sure you guys have probably covered
13:45
Speaker 4: in the program the idea that they only allowed allotted
13:49
Speaker 4: you know, five percent or maybe five to ten percent
13:51
Speaker 4: of their public shares on that IPO offer. So there's
13:54
Speaker 4: a lot of restricted shares from venture capital funds and from.
13:59
Speaker 5: Inside employees and things like that.
14:01
Speaker 4: So it'll be interesting to see how it trades out
14:03
Speaker 4: once some of those lockups start to sort of fall
14:07
Speaker 4: off and more shares become available yep, for sale.
14:10
Speaker 3: Yeah.
14:10
Speaker 2: So yeah, that is an important caveat here that it's
14:13
Speaker 2: trading at these levels with a very limited quantity of
14:16
Speaker 2: shares available to change hands right now. So that is
14:19
Speaker 2: an important caveat, but not a.
14:23
Speaker 3: Sellily irrelevant one to the price today.
14:24
Speaker 4: I wonder if it's some of the ETFs, you know,
14:26
Speaker 4: trying to pick it up and add into their funds.
14:28
Speaker 5: Yeah.
14:28
Speaker 3: Interesting.
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Speaker 2: Nonetheless, any any theory is plausible at this stage. So
14:32
Speaker 2: we were talking before the break about the war and
14:34
Speaker 2: around beneficiaries and just changes to the global order, And
14:38
Speaker 2: when I think about just the structure of how the
14:41
Speaker 2: energy markets are set up right now, it's tough for
14:45
Speaker 2: me to paint a picture where China is not a
14:46
Speaker 2: huge beneficiary now. They do not produce really any of
14:50
Speaker 2: their own oil. They are very energy dependent when it
14:53
Speaker 2: comes to those traditional sources. But no country has spent
14:57
Speaker 2: more money or even per percentage of their GDP and
15:01
Speaker 2: diversifying their energy supply away from pure play oil into
15:06
Speaker 2: other areas. Nor does any other country have the infrastructure
15:11
Speaker 2: to be able to build the type of nuclear, solar,
15:16
Speaker 2: wind power infrastructure that goes into all of that. Again,
15:19
Speaker 2: not that to my knowledge, China is the biggest uranium
15:22
Speaker 2: producer or anything like that, But when you talk about
15:24
Speaker 2: turbines and everything else that goes into these plants, China
15:28
Speaker 2: is light years.
15:29
Speaker 3: Ahead of just about everybody else.
15:31
Speaker 2: Furthermore, any sort of rare earths that go into battery
15:34
Speaker 2: tech light years ahead of everybody else here. And so,
15:38
Speaker 2: like I said before, I am not convinced that every
15:41
Speaker 2: country out there is going to really undertake this endeavor
15:44
Speaker 2: of diversifying their energy supply chain, and especially it might
15:49
Speaker 2: not go towards the highest tech stuff. Right, We've seen
15:51
Speaker 2: Japan and South Korea burning a bunch of coal in
15:53
Speaker 2: their power plants, so maybe there's a coal resurgence out there,
15:57
Speaker 2: But on the margins, my bet would be that many
16:01
Speaker 2: Southeast Asian nations look at the events here and say,
16:06
Speaker 2: if this were to happen again.
16:07
Speaker 3: We need to have it. We need alterify fly.
16:10
Speaker 2: Chain of energy infrastructure, because relying on oil from the
16:14
Speaker 2: Middle East, while it's been stable since you know, mid
16:17
Speaker 2: two thousands, was very suddenly not and no guarantee that
16:21
Speaker 2: it remains so exactly.
16:22
Speaker 4: You know, who knows if Iran is to pull this
16:25
Speaker 4: card again with the Straits. So that is the big
16:28
Speaker 4: takeaway that we have here is that you, as certain
16:31
Speaker 4: countries that are energy reliant upon that Persian Gulf area,
16:35
Speaker 4: you need to find alternatives in order to get energy
16:38
Speaker 4: and fuel. We don't want to be I don't want
16:40
Speaker 4: to make it seem two prisoners of the moment that, oh,
16:42
Speaker 4: you know, this is going to be an entire light
16:44
Speaker 4: switch decision where they just go entirely into renewables some
16:48
Speaker 4: of these other countries we've mentioned here. But it is
16:51
Speaker 4: certainly that you need to have at least something else
16:54
Speaker 4: to go to. I'm sure you know the energy consumption
16:57
Speaker 4: gets back in line once everything's sort of past what
17:00
Speaker 4: we've seen here with the closure of the war and
17:03
Speaker 4: the reopening the Strait. But you need clearly give you
17:06
Speaker 4: these countries to have an alternative.
17:07
Speaker 2: Yeah, no, doubt, so we will again see how the
17:10
Speaker 2: shapes at And by the way, I feel as though
17:12
Speaker 2: we're doing a little bit more of like stating that
17:16
Speaker 2: the strait is open, not very good points, like no
17:21
Speaker 2: ships are navigating good points according to reports, no ships
17:24
Speaker 2: are even starting up their engines on an elevator basis
17:27
Speaker 2: compared to last week. So there is very much a
17:30
Speaker 2: wait and see approach being taken here. And I have
17:34
Speaker 2: not that this is predictive of much of anything, but
17:37
Speaker 2: I've been interested in monitoring betting markets when it comes
17:40
Speaker 2: to the Strait of Hormuz because again not that they're
17:47
Speaker 2: indicative of what's going to happen, but it tells you
17:49
Speaker 2: where some people are placing their bets and right now.
17:55
Speaker 2: So Polymarket has a bet available right now where you
17:59
Speaker 2: can place money on will the Strait of Hormuz traffic
18:02
Speaker 2: return to normal by the end of different time periods.
18:05
Speaker 2: So here I'm looking at June thirtieth July thirty first,
18:09
Speaker 2: by normal. They have a port watch that from the
18:13
Speaker 2: IMF that monitors a seven day moving average of transit calls,
18:16
Speaker 2: so they're looking to see if that returns to some.
18:19
Speaker 3: Degree of normalcy by June thirtieth.
18:23
Speaker 2: The chance of that happening on polymarket is at seventeen percent. So,
18:28
Speaker 2: as we talked about before, it's likely to take months
18:30
Speaker 2: to see traffic return to normal here by July thirty
18:34
Speaker 2: first fifty nine percent chance. So basically a coin flip
18:40
Speaker 2: that traffic returns to normal by a month and a
18:42
Speaker 2: half from now.
18:44
Speaker 3: Again, you might not need a.
18:46
Speaker 2: Full degree of normal to calm energy markets, right even
18:51
Speaker 2: if half of normal traffic is flowing through with China,
18:55
Speaker 2: you know, not importing much oil right now, that could
18:58
Speaker 2: be enough to kind of move things along and justify energy.
19:01
Speaker 3: Prices where they are.
19:02
Speaker 2: But I just found that interesting that, Hey, when we
19:06
Speaker 2: look at oil prices, they're down below eighty bucks a barrel.
19:08
Speaker 2: When we look at whether or not people believe the
19:11
Speaker 2: strait's actually going to open anytime soon, they're telling you,
19:15
Speaker 2: in the short term almost definitely not, and even in
19:18
Speaker 2: the intermediate.
19:18
Speaker 3: Term month and a half out.
19:21
Speaker 2: Flip a coin quick break Wall Street Watch coming up next.
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20:01
Speaker 6: It's eleven ten thirty four and markets are currently mixed.
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Speaker 6: The Dow Jones is up three hundred and twenty four points,
20:07
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20:09
Speaker 6: and P five hundred, however, is down a quarter of
20:13
Speaker 6: a percent. Nasdaq is down just about under half a percent,
20:17
Speaker 6: while oil is down just under four percent. Brent crude
20:21
Speaker 6: is down three point thirty four percent, gold is down
20:26
Speaker 6: just over a tenth of percent, and silver is down
20:28
Speaker 6: just under four tenths of a percent. Meanwhile, online brokerage
20:32
Speaker 6: Robinhood is down over one percent after announcing it would
20:35
Speaker 6: lay off about ten percent of its workforce. Robinhood expects
20:39
Speaker 6: to take around twenty million dollars in charges for severance
20:42
Speaker 6: and benefit costs. David Buster's stock is off over two
20:45
Speaker 6: percent on weaker than expected first quarter results. The company
20:49
Speaker 6: earned sixteen cents per share, well below the forecast of
20:52
Speaker 6: sixty cents per share. Revenue of five hundred and fifty
20:55
Speaker 6: nine point two million dollars also missed the five hundred
20:58
Speaker 6: and eighty million dollar concents. This chemicals manufacturer Huntsman is
21:02
Speaker 6: off seventeen and a half percent after agreed to merge
21:05
Speaker 6: with rival Olin in an all stock deal. After the
21:09
Speaker 6: merger of the new company will name Olin Huntsman. The
21:11
Speaker 6: deal is expected to close in the first half of
21:14
Speaker 6: twenty twenty seven. Oland shares are off about six percent,
21:18
Speaker 6: and finally, SpaceX has jumped over seven percent, building on
21:22
Speaker 6: its already massive gains. Today it's surpassed both Amazon and
21:26
Speaker 6: Microsoft to be the fourth largest US company. I am
21:31
Speaker 6: ben Kitchen and that was Wall Street Watch.
21:34
Speaker 2: Every once in a while we get a story that
21:36
Speaker 2: I'm not entirely sure what to do with, but I
21:38
Speaker 2: think is worth noting. So China reported that their consumer
21:41
Speaker 2: spending has fallen for the first time since COVID. So
21:46
Speaker 2: a few things about any statistics China related. They don't
21:50
Speaker 2: get released without the express permission of the central authority,
21:54
Speaker 2: or if they do get released without that permission, then
21:57
Speaker 2: the people releasing them get sent off somewhere to do
22:01
Speaker 2: something different. So I think the first thing I would
22:05
Speaker 2: take is, I don't believe these numbers, but I do
22:07
Speaker 2: believe that the Chinese government wanted it reported that these
22:09
Speaker 2: numbers got out there, and usually what it means to
22:13
Speaker 2: me when you hear negative economic information coming out of
22:16
Speaker 2: China is that things are a lot worse and China
22:21
Speaker 2: has to report on it or else get accused of
22:26
Speaker 2: basically covering up all of the information. So I think
22:29
Speaker 2: that I'd be willing to say, yeah, it kind of
22:31
Speaker 2: makes sense that China's consumer is struggling right now, given
22:36
Speaker 2: that currency is devalued and the country is focusing so
22:40
Speaker 2: much on exports and continuing to develop their manufacturing base.
22:45
Speaker 2: That yeah, a can average consumer in China may have
22:48
Speaker 2: a tough time buying goods on the global market, especially
22:52
Speaker 2: with oil prices where they are right now.
22:54
Speaker 3: Yeah.
22:54
Speaker 4: It seems to be illustrated by some of the data
22:56
Speaker 4: pieces mentioned here in this story, where if you look
22:59
Speaker 4: at whole sale prices, so basically what businesses are paying
23:03
Speaker 4: for goods, those are up four percent year over year.
23:05
Speaker 4: But if you look at just the general inflation that
23:08
Speaker 4: China has experienced in the same period of time, it's
23:11
Speaker 4: about one point two percent. So that information tells you that, yeah,
23:15
Speaker 4: businesses are paying more for goods, but yet consumers are
23:19
Speaker 4: not paying that full same four percent increase because there
23:23
Speaker 4: just isn't the demand appetite to substantiate the increase in
23:27
Speaker 4: prices across the board in good different goods and services
23:31
Speaker 4: that China's buying. Now, some of this consumer spending data,
23:34
Speaker 4: they mentioned the caveat that there was a government subsidy
23:37
Speaker 4: program last year which encouraged a lot of Chinese consumers
23:41
Speaker 4: to front run purchases on eves and household appliances. But
23:45
Speaker 4: the general trend, you know, we can question the validity
23:48
Speaker 4: of the numbers. The general trend from this piece is
23:51
Speaker 4: this idea the consumer has been weaker. That's been a
23:53
Speaker 4: trend for several years, even though I know this is
23:56
Speaker 4: the force reported decline since twenty twenty two.
23:58
Speaker 5: That's the feedback you've heard.
24:00
Speaker 4: But exports are surging dramatically. We did see that exports
24:03
Speaker 4: from China surge about twenty percent in dollar terms from
24:07
Speaker 4: January through May as a year over year look back.
24:10
Speaker 3: Yeah.
24:11
Speaker 2: Look, I think a number of different things could contribute
24:14
Speaker 2: to this. But the country is trying to focus a
24:17
Speaker 2: lot of efforts on AI development without enough semiconductors to
24:21
Speaker 2: do so, or at least the most cutting edge ones.
24:24
Speaker 2: And I'm not surprised that the consumer's kind of falling
24:28
Speaker 2: by the wayside.
24:30
Speaker 3: Speaking of the consumer.
24:32
Speaker 2: The US Federal Reserve is going to be meeting on
24:37
Speaker 2: already started meeting today and will give their press conference
24:41
Speaker 2: an interest rate decision tomorrow. I say the consumer because
24:46
Speaker 2: ultimately what the Fed does is intended to shift behavior
24:51
Speaker 2: at the consumer and business level. And what you're seeing
24:56
Speaker 2: right now is in spite of a very dissatisfied consumer
24:59
Speaker 2: with the economy, it's a average American that is doing
25:04
Speaker 2: quite well financially.
25:06
Speaker 3: We're experiencing a big bull market.
25:08
Speaker 2: The unemployment rate has fallen to four point three percent,
25:11
Speaker 2: which is, you know, among the best unemployment rates we've
25:15
Speaker 2: seen over the long term. And that's in spite of
25:19
Speaker 2: a lot of the handering that was being done to
25:22
Speaker 2: the second half of last year on worsening employment data,
25:26
Speaker 2: and you know, the beginning of this year with higher
25:29
Speaker 2: inflation data. So to be clear, right now, interest rates
25:34
Speaker 2: they can't come down at the next meeting, And in
25:37
Speaker 2: my opinion, the best thing that Kevin Worsh could do
25:40
Speaker 2: would be to go out there and say we're you know,
25:45
Speaker 2: we're optimistic to finally be seeing oil prices come down.
25:48
Speaker 2: But obviously right now inflation is the key concern. The
25:51
Speaker 2: labor market is not and so until we see dramatic
25:54
Speaker 2: improvement on the inflation side, we're not going anywhere with
25:57
Speaker 2: interest rates. So I expect that to be the message
26:00
Speaker 2: if he wants to build credibility with his staff, the
26:05
Speaker 2: other voting members of the FOMC, and the general public.
26:10
Speaker 2: If he says something other than that, then there's a
26:12
Speaker 2: real problem. And the problem is that he goes into
26:14
Speaker 2: this job with a credibility issue. His credibility issue is
26:18
Speaker 2: that he was a hawk on inflation. He pushed the
26:22
Speaker 2: Bernanki FED during the Great Recession to not go as
26:25
Speaker 2: far as they did in terms of bailing out the
26:27
Speaker 2: US economy. He was worried about inflation back then. Today
26:31
Speaker 2: he's taking over a FED that has gone above and
26:34
Speaker 2: beyond anything that was done in two thousand and eight
26:37
Speaker 2: in terms of supporting the economy over the last six
26:39
Speaker 2: years and has pretty much run on the idea that, hey,
26:44
Speaker 2: I'd like to do a little bit more of that,
26:45
Speaker 2: I'd like to cut interest rates, and I'd like to
26:47
Speaker 2: make this economy juice this economy even further, when it's
26:51
Speaker 2: pretty much the exact thing he disagreed with during the
26:54
Speaker 2: early sorry late two thousands, early twenty tens and so
26:58
Speaker 2: he faces that credibility issue of hey, it looks like
27:01
Speaker 2: you are just kind of positioning yourself for this job,
27:04
Speaker 2: and so will he be able to regain that credibility
27:07
Speaker 2: in his first meeting? I think is my main question.
27:09
Speaker 4: Yeah, I think that's probably my main focus too, is
27:11
Speaker 4: just is the sentiment more similar to the platform that
27:15
Speaker 4: he ran on this idea that he wanted to keep
27:18
Speaker 4: interest rates down? Or is there going to be I
27:21
Speaker 4: won't say a pivot, but is there going to be
27:23
Speaker 4: some acknowledgment of the macroeconomic environment that we're in which
27:27
Speaker 4: really necessitates FED keeping the rates where they are today.
27:32
Speaker 2: I'll also point out right, like you know, I don't
27:35
Speaker 2: know where interest rates are going to be by year
27:37
Speaker 2: end in terms of you know, the betting odds on this, right,
27:40
Speaker 2: the most likely outcome is that they are by year
27:44
Speaker 2: end about a quarter percent higher than where they are now.
27:48
Speaker 2: So it's most likely outcome. Most outcomes have it to
27:51
Speaker 2: be higher than where they are right now. But that
27:54
Speaker 2: comes at a time when you have record equity issuance.
27:58
Speaker 2: Right we're having ip over the place, publicly held companies
28:02
Speaker 2: issuing new shares, massive debt issuance, we're talking about how
28:06
Speaker 2: Nvidia is trying to raise twenty billion dollars worth of
28:08
Speaker 2: a debt offering right now, and at the same time,
28:12
Speaker 2: interest rates appear to be maybe even going up, which
28:15
Speaker 2: is going to make all of those things, or should
28:17
Speaker 2: make all of those things more challenging. I'll be the
28:20
Speaker 2: first to admit, though, that changes in views on interest
28:23
Speaker 2: rates since the breakout of war and Iran have not
28:26
Speaker 2: affected markets one bit, and they traditionally would if you're
28:29
Speaker 2: looking at you know, especially growth stocks, which guess what
28:34
Speaker 2: you know, it's what's driving the market right now, no
28:36
Speaker 2: doubt is people believing that these massive tech AI, defense,
28:42
Speaker 2: space exploration companies.
28:44
Speaker 3: Are going to grow huge in the future.
28:48
Speaker 2: That is, that growth erodes itself the higher than interest
28:53
Speaker 2: rates are, and so I do wonder if that starts
28:56
Speaker 2: to catch up to.
28:56
Speaker 3: Investors at any point.
28:57
Speaker 2: But again, for the time being, hasn't mattered to the
28:59
Speaker 2: moon on everything, and that's where things have gone. Yes,
29:03
Speaker 2: let's take quick break when we return Massachusetts, voters exiting
29:08
Speaker 2: the state or saying that they might want to do so.
29:11
Speaker 2: In Rhode Island, considering or signing into law a new
29:15
Speaker 2: tax will cover both of those stories.
29:17
Speaker 1: Next. Subscribe now to our YouTube page, where you'll find
29:20
Speaker 1: daily interviews and full shows of the Financial Exchange. We'll
29:24
Speaker 1: get you caught up on anything and everything you might
29:26
Speaker 1: have missed right here on the Financial Exchange, breaking business
29:31
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29:34
Speaker 1: the Financial Exchange Radio Network.
29:55
Speaker 2: A new poll from Suffolk University and The Boston Globe
29:59
Speaker 2: asked some five hundred voters in the Massachusetts area whether
30:04
Speaker 2: or not they've seriously considered moving and other considerations when
30:08
Speaker 2: it comes to the Massachusetts economy. While at least seventy
30:11
Speaker 2: percent of those polls said that they had enough money
30:14
Speaker 2: to live comfortably right now and weren't concerned about losing
30:17
Speaker 2: their jobs, another twenty eight percent said they've weighed seriously
30:22
Speaker 2: considered a move, and the most common reason for that
30:27
Speaker 2: move was the cost of living. Voters in lower income
30:29
Speaker 2: brackets were more likely to say they had seriously considered moving,
30:33
Speaker 2: which was I suppose if you're doing a poll of
30:35
Speaker 2: five hundred people, that kind of makes sense. I also
30:38
Speaker 2: hear it echoed from very high income, high net worth
30:41
Speaker 2: people who are facing a new tax and mass choose
30:44
Speaker 2: it's in higher property taxes than other areas.
30:47
Speaker 3: But yeah, for one in four plus people.
30:52
Speaker 2: Considering a move out of the state due to cost
30:55
Speaker 2: of living considerations, I guess my question would be, when
30:59
Speaker 2: you pull the average person across the country.
31:02
Speaker 5: How do they feel about their states?
31:04
Speaker 3: Is twenty eight percent significant? Yeah?
31:07
Speaker 2: I don't know, Like that's one in four people are
31:08
Speaker 2: considering moving doesn't seem like a massive number. I know
31:12
Speaker 2: a lot fewer than that of people actually relocate out
31:15
Speaker 2: of their state on an annual basis, But one four
31:18
Speaker 2: doesn't seem all that high.
31:22
Speaker 4: No, I have it's difficult to understand what to do
31:27
Speaker 4: with these numbers, because I do feel like if you
31:29
Speaker 4: pulled one hundred people, there's just always going to be
31:33
Speaker 4: a twenty percent that is dissatisfied or is looking to
31:37
Speaker 4: change things up in one direction or another. But how
31:40
Speaker 4: much does just answering a poll question with that negative
31:44
Speaker 4: sentiment that we're going to leave actually reflect in the numbers.
31:48
Speaker 4: I just think that, particularly in the Northeast, we can
31:50
Speaker 4: slant to be a little negative at times and more
31:55
Speaker 4: open to this idea of like I'm out of here,
31:57
Speaker 4: and you know, someone in this piece mentioned, Jeez, Florida
32:00
Speaker 4: would be so much better, you know, the real estate's
32:03
Speaker 4: cheaper and there's no state income text. Yeah, okay, there
32:06
Speaker 4: are some drawbacks with Florida too, like the grass isn't
32:09
Speaker 4: always greener on the other side, alligators, hurricanes, flooded insurance.
32:17
Speaker 3: Yeah, you know.
32:18
Speaker 4: I guess the point being that how much of this
32:21
Speaker 4: is just griping versus you know, actual right, so far,
32:25
Speaker 4: for the numbers.
32:25
Speaker 6: I have some numbers for California and Florida from different
32:28
Speaker 6: universes that did poort. California fifty six percent considered leaving
32:33
Speaker 6: and Florida from fau Reels that fifty residents.
32:37
Speaker 2: All right, so Mass Choose is way to go. You're
32:39
Speaker 2: on the the other piece. So Paul, I'm sure you've
32:41
Speaker 2: experienced this too. But I talked to a lot of
32:44
Speaker 2: people who raise their families and mass choos that's we
32:47
Speaker 2: broadcast our show from mass Choos's if you're not familiar,
32:49
Speaker 2: raise their families here. And then they get to retirement,
32:52
Speaker 2: they're like, I gotta get out of this state, right,
32:53
Speaker 2: I want to leave, And they look at all of
32:58
Speaker 2: it and then we explain to them like, hey, listen,
33:00
Speaker 2: you know, if you're really doing this based on the numbers,
33:03
Speaker 2: like there's plenty of other reasons that you might consider
33:05
Speaker 2: a warmer climate or somewhere.
33:07
Speaker 3: Else to live.
33:08
Speaker 2: But if you're looking at this based on the numbers,
33:11
Speaker 2: the time to have left Massachusetts was when you were
33:14
Speaker 2: in your peak earnings years and paying the income tax.
33:18
Speaker 2: And then so, for instance, we always get here like
33:20
Speaker 2: I'll move north of the border to New Hampshire, I'll
33:22
Speaker 2: avoid the income tax. And then they go look at
33:25
Speaker 2: those numbers and they say, oh, wow, real estate's about
33:28
Speaker 2: the same price in southern New Hampshire to where I'm
33:30
Speaker 2: living now. Not always the case, but you know, let's
33:33
Speaker 2: assume that it is. My property taxes are going to
33:35
Speaker 2: be higher. And when I'm retired, you know, let's take
33:40
Speaker 2: the average person who maybe has some four oh one
33:42
Speaker 2: KSE some savings that they're living off of, and then
33:45
Speaker 2: social Security. Well, okay, neither Massachusetts nor New Hampshire tax
33:48
Speaker 2: my social security. My withdrawals from a non retirement account
33:53
Speaker 2: aren't going to be tax my retirement withdrawals from in
33:56
Speaker 2: ira will. But maybe I've got a pension that's not
33:59
Speaker 2: getting taxed by masts either if you're working for the
34:02
Speaker 2: state at the time. So yeah, there's this dichotomy where
34:07
Speaker 2: people think they're going to save a whole bunch of
34:08
Speaker 2: money by moving in retirement, that's not really where the
34:11
Speaker 2: cost savings come from. And when I talk to people,
34:14
Speaker 2: like the main reason they're here when they have young kids, why,
34:18
Speaker 2: that's damn schools in the country.
34:19
Speaker 5: Yeah, and the hospitals too.
34:22
Speaker 3: Yeah.
34:22
Speaker 2: So it's not to say don't do it, and I
34:27
Speaker 2: am ignoring. Like the big one that I always bring
34:29
Speaker 2: up is, hey, if you make this decision, make it
34:33
Speaker 2: for your kids, because they'll save a bunch of money
34:35
Speaker 2: on death taxes perhaps, but you're not going to save
34:37
Speaker 2: any money for yourself, or if you do, it's not
34:39
Speaker 2: going to be meaningful. So I do get that question
34:43
Speaker 2: all the time, and I they don't like the answer, like, no,
34:47
Speaker 2: you've already paid your taxes to Massachusetts. You'll pay some
34:50
Speaker 2: more when you die, but you know, yeah, sounds great.
34:53
Speaker 2: I'm gonna move to Florida and then I lose my spouse.
34:56
Speaker 2: I'm eighty nine years old and all my kids are
34:58
Speaker 2: in Massachusetts.
34:59
Speaker 3: Where do you think you're going to die? Right? Not
35:02
Speaker 3: gonna be Florida.
35:03
Speaker 4: Yeah, if you're making ten million dollars A little different conversation,
35:05
Speaker 4: But to your part, most people in retirement.
35:07
Speaker 2: Not serve the same I'm not addressing the ten million
35:10
Speaker 2: dollar incomern or here, I'm addressing well, even that ten
35:14
Speaker 2: million dollar income earner, you'll benefit more by leaving now.
35:16
Speaker 5: Rather yeah, yeah what I'm saying. Yeah, I agree.
35:18
Speaker 2: But yeah for the average person, you know, you end
35:21
Speaker 2: up paying the bulk of that taxes while you're working
35:23
Speaker 2: and pulling in that income.
35:25
Speaker 3: Uh.
35:25
Speaker 2: Speaking of retirement and those different stages of life we face,
35:28
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35:31
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35:34
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35:38
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35:43
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35:47
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35:50
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35:53
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35:56
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36:00
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36:04
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36:05
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36:06
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36:09
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36:12
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36:21
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36:26
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36:29
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36:35
Speaker 2: Services if possible. The States seem to be getting more
36:39
Speaker 2: extreme in terms of the divergence between tax rates, Florida
36:44
Speaker 2: actively considering a cap on property taxes across the state,
36:48
Speaker 2: whereas Rhode Island now joining the club and signing in
36:52
Speaker 2: a new nine percent, sorry eight point nine to nine
36:54
Speaker 2: percent tax rate on incomes over a million dollars following
36:59
Speaker 2: the Commonwealth of Mastert's on that front. So I guess
37:03
Speaker 2: my main question that I have is how long is
37:06
Speaker 2: New Hampshire going to be able to hold the line.
37:09
Speaker 5: On the zea the state income text free.
37:11
Speaker 2: You know, like their property taxes are quite high. You
37:15
Speaker 2: have more and more sorry folks, but you know liberal
37:19
Speaker 2: New Hampshire. They're liberal Massachusetts folks. Moving up to New
37:21
Speaker 2: Hampshire and voting on things there. They've been able to
37:25
Speaker 2: hold the line on the income tax. They got rid
37:26
Speaker 2: of their when it is their dividend and capital gains.
37:29
Speaker 2: I think it was the capital gains tax, or maybe
37:32
Speaker 2: it was just dividends, but yeah, more and more states
37:35
Speaker 2: here in the Northeast are going that route. It makes
37:38
Speaker 2: New Hampshire a clear outlier and beneficiary in a lot
37:41
Speaker 2: of ways Rhode Island. I mean, I don't need to
37:45
Speaker 2: get into my viewpoints on millionaire's taxes, but if Massachusetts
37:49
Speaker 2: had the problem of chasing millionaires out of the state,
37:52
Speaker 2: because hey, you can pretty easily get to you know,
37:56
Speaker 2: New Hampshire or Vermont or main and avoid a lot of.
37:59
Speaker 3: Taxation, it's a lot easier to do that in Rhode Island.
38:01
Speaker 5: That's very true.
38:04
Speaker 2: It's all the time we have in this hour the
38:05
Speaker 2: financial exchange, but a lot more to cover in the
38:07
Speaker 2: second hour.
38:08
Speaker 3: Markets have turned negative. We'll cover that in more next
38:11
Speaker 3: on the financial exchange.