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How will the Fed handle Trump's second term? · The Financial Exchange Show

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Speaker 1: This is the Financial Exchange with Chuck Zada and Mike Armstrong.
1:13
Speaker 2: Last full week before the Christmas holiday.
1:15
Speaker 3: It's Chuck, Mike, and Tucker with you, and we'll kick
1:17
Speaker 3: things off with a little bit of FED discussion because
1:20
Speaker 3: we've got Federal Reserve with a meeting this week. Jay
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Speaker 3: Powell about to pop on the purple tie and say, hey,
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Speaker 3: here's what I'm gonna be doing with rates for the
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Speaker 3: next little bit.
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Speaker 2: What's expected here.
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Speaker 4: Mike, Well, first things first will be well, quite honestly,
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Speaker 4: this is one of those meetings, and I guess many
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Speaker 4: of these meetings where pay more attention to what I
1:44
Speaker 4: say than what I do.
1:46
Speaker 2: Oh good, there's a ninety.
1:49
Speaker 4: Chance of a rate cut, so we're getting a quarter
1:52
Speaker 4: percent of rates coming down on the short end. The
1:57
Speaker 4: question will be where are your viewpoints? Where are the
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Speaker 4: committee's viewpoints on rates for twenty twenty five? And the
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Speaker 4: most recent dot plot that was done the day after
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Speaker 4: the election showed that the I think median forecast was
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Speaker 4: for four rate cuts in twenty twenty five, and that
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Speaker 4: seems unlikely to be maintained after this next meeting. The
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Speaker 4: interesting question that I don't know how he's going to
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Speaker 4: answer will be what is the Federal Reserve now doing
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Speaker 4: in terms of their assumptions for modeling out policy changes
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Speaker 4: from Congress. I think there's some meat on that bone,
2:37
Speaker 4: because last time he could get away with the I've
2:43
Speaker 4: got the quote underlined here. We don't guess, we don't speculate,
2:46
Speaker 4: and we don't assume. But at this stage, if you
2:50
Speaker 4: are not speculating that, for instance, tax rates are at
2:54
Speaker 4: least going to stay where they are, then you're making
2:58
Speaker 4: a pretty big assumption about what Congress does. And what
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Speaker 4: I mean by this is, according to today's laws, tax
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Speaker 4: rates will go up in twenty twenty six. If you're
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Speaker 4: actually modeling that out in your forecasts, then you're probably
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Speaker 4: coming up with a pretty inaccurate outcome of where this
3:15
Speaker 4: economy goes over the next four years. And so I
3:18
Speaker 4: think that's an interesting question, is, hey, how have your
3:20
Speaker 4: thoughts developed on policy over the next six weeks, given
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Speaker 4: what we now know about the makeup of Congress, the
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Speaker 4: White House and conjecture coming out of all those.
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Speaker 2: I bet he says nothing on that.
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Speaker 3: I think he's going to continue to say, we don't
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Speaker 3: assume or speculate because look, while you while you're going
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Speaker 3: to get something on the tax side, it's very unclear
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Speaker 3: what format it's going to take. And the reason that
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Speaker 3: I say this is just looking at, you know, the
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Speaker 3: stuff that is coming out now where hey, in the House,
3:49
Speaker 3: you've got a whole bunch of Northeastern Republicans that are
3:53
Speaker 3: saying you need to do something about the salt deduction. Well,
3:56
Speaker 3: in order to make the salt deduction even you know,
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Speaker 3: somewhat paid for, you got to figure out where the
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Speaker 3: revenue is coming from on the other side, or where
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Speaker 3: you're cutting the spending. And this gets into this whole
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Speaker 3: big budgetary mix where you're kind of like, oh, like, yeah,
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Speaker 3: we'd love to cut federal spending, but we got four
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Speaker 3: hundred and thirty five different House members that all want
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Speaker 3: projects in their district in order to get government money,
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Speaker 3: and no one wants to actually give that up. So
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Speaker 3: I'm not saying this is good or bad. It just
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Speaker 3: is sure, And that's the reality of the situation on this.
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Speaker 3: What I find interesting is that in this piece from
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Speaker 3: the Wall Street Journal by Nick tim Rouse, who Nick tim.
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Speaker 2: Rouse is the Fed whisper.
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Speaker 4: Yes, he just whispers to the Fed, Well, he whispers,
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Speaker 4: the FED seemingly whispers to him, and then he's hated
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Speaker 4: with a megaphone and says, I'm Nick Timrose of the
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Speaker 4: Wall Street Journal.
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Speaker 2: He actually doesn't sound like that.
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Speaker 3: But you I think there's some interesting stuff in here
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Speaker 3: that is basically telling you what the FED is going
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Speaker 3: to to say at the upcoming meeting, which is, Hey,
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Speaker 3: we're going to cut here, but we are seeing way
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Speaker 3: too many signs that inflation is still you know, cooking.
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Speaker 3: The labor market is not deteriorated the way we anticipated
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Speaker 3: it deteriorating in September, and as such, we're gonna put
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Speaker 3: a lot of plans on hold for any cuts over
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Speaker 3: the next three to six months. And if you think
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Speaker 3: cuts are coming, you probably have to wait until the
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Speaker 3: second half of twenty five before you're gonna get them.
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Speaker 3: That's what this piece from Tim Morouse is suggesting to me.
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Speaker 4: Yeah, people are some others are describing this as trying
5:36
Speaker 4: to pull off a hawkish cut, yes, which doesn't really
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Speaker 4: make much sense because you're cutting interest rates but trying
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Speaker 4: to be hawkish. But that's that's what I think Jerome
5:44
Speaker 4: Powell is going to try and pull off. Here is Hey,
5:46
Speaker 4: we're on this path of lower rates. We still think
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Speaker 4: it's justifiable, but let's hold off on making any plans
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Speaker 4: for twenty twenty five at this stage.
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Speaker 3: Well, you look at what you've done now to this point,
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Speaker 3: and you've again if you just kind of assumed that
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Speaker 3: the Fed is going to end up with a cut
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Speaker 3: at the December meeting, which is priced into markets, at
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Speaker 3: this point, you take a look at and you say, Okay,
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Speaker 3: the effective FED funds raise is going to be going
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Speaker 3: from you know, five and a third basically down to
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Speaker 3: four and a third over the last three months.
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Speaker 2: It's one percent in rate cuts that you've delivered there.
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Speaker 3: In a typical recessionary cutting cycle, you typically have to
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Speaker 3: do somewhere between three hundred and four hundred basis points,
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Speaker 3: and rate.
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Speaker 2: Cuts you can get away with like two fifty.
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Speaker 3: But you're basically saying, hey, if this is a recession,
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Speaker 3: we've done somewhere between like twenty five to forty percent
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Speaker 3: of the work needed in order to stem that tide.
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Speaker 3: And given that we're not seeing much out there that
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Speaker 3: is truly indicating recession right now, that's probably enough at
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Speaker 3: the moment.
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Speaker 2: Yeah, like that, it's really.
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Speaker 3: Clear to be able for the FED to be able
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Speaker 3: to message that and say yeah, we're five with this. Now,
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Speaker 3: is that number actually going to end up being fine? No,
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Speaker 3: because there are still a million different policy permutations that
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Speaker 3: we have no idea about as far as how they're
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Speaker 3: going to be implemented, what's going to be implemented, and
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Speaker 3: when they're going to be implemented. We still don't have
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Speaker 3: any real clarity on the tariff.
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Speaker 2: Side of the equation. Don't know what's going on there,
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Speaker 2: Am I wrong? Nope.
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Speaker 3: We still don't know what's going on on the immigration
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Speaker 3: side of things as far as hey, you know, what
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Speaker 3: is the plan for how many people are going to
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Speaker 3: be deported and when agreed? And on the tax side, yeah,
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Speaker 3: there's there's chatter about a tax bill and getting something done,
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Speaker 3: but we still don't have any idea whether that is
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Speaker 3: simply an extension of the current cuts, whether there's anything
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Speaker 3: deeper there. And so the fiscal side is kind of
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Speaker 3: messy too in terms of what does it look like.
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Speaker 4: Yeah, I would argue the only thing that is relatively
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Speaker 4: clear on the tax side is that rates won't be
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Speaker 4: going up twenty twenty six, and even that's not a
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Speaker 4: sure thing. But that seems relatively clear to me is
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Speaker 4: that rates which are due to go up in twenty
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Speaker 4: twenty six according to current law, probably won't beyond that.
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Speaker 4: Who's gonna get a tax cut, who's not? Will corporate
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Speaker 4: taxes stay the same, Will people pee taxes on social
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Speaker 4: Security tips over time, different sorts of wages.
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Speaker 2: I think all of that's up in the air.
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Speaker 4: The only thing I feel relatively confident about is that
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Speaker 4: tax rates across the US probably won't be heading up
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Speaker 4: in twenty twenty six like their dute do too. And
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Speaker 4: that you said probably only because you're still not fully
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Speaker 4: cat I'm I'm like ninety percent of the way there.
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Speaker 4: But even there, there's you know, there's always some degree
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Speaker 4: of doubt.
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Speaker 2: There's some question on it.
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Speaker 3: Certainly, so I think that when you look at the
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Speaker 3: needle that the FED is going to try to thread here.
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Speaker 3: If I were Jay Powell, the messaging would be very simple.
8:55
Speaker 3: We saw deterioration in the economy back in September, back
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Speaker 3: in the late part of the summer, and so we
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Speaker 3: moved quickly to make sure it didn't get worse. Then
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Speaker 3: they can even try to take a little bit of
9:05
Speaker 3: credit for this, which listen you don't get to be
9:09
Speaker 3: Chair of the Fed without taking credit for something. Due
9:12
Speaker 3: to our actions, the economy has strengthened in the last
9:16
Speaker 3: few months. See what I did there? Yeah, you see
9:19
Speaker 3: see what I did. As such, we do not believe
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Speaker 3: that further cuts are appropriate at this time, but we
9:25
Speaker 3: reserve the right to implement them if necessary. Currently, we
9:31
Speaker 3: view the risks to our dual mandate of higher inflation
9:35
Speaker 3: and higher unemployment of you know, maintaining low inflation and
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Speaker 3: low unemployment as being equal as opposed to tilted towards
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Speaker 3: the employment side. Several months ago, would anyone like to
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Speaker 3: ask me any questions?
9:51
Speaker 2: Why are eggs so expensive? Uh? Freaking bird flew man? Like,
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Speaker 2: what the hell?
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Speaker 1: Like?
9:56
Speaker 2: That's that's basically it. Yeah.
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Speaker 4: Yeah, There's so many other factors that come into here.
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Speaker 4: We're gonna cover later about how people may be pulling
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Speaker 4: purchases up front ahead of time because they're worried about tariffs.
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Speaker 4: And so I continue to agree there's gonna be a
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Speaker 4: lot of pressure for Jerome Powell to you know, lay
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Speaker 4: down a stake in terms of where he thinks things
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Speaker 4: go in twenty twenty five. And I do tend to
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Speaker 4: agree that by and large. You can't possibly know at
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Speaker 4: this stage what teriffs might look like, what immigration might
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Speaker 4: look like, what taxes look like, and those will all
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Speaker 4: be highly impactful on inflation come twenty twenty five.
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Speaker 3: Let's take a quick break here when we come back,
10:37
Speaker 3: so we talked about the Powell Trump relationship, or if
10:39
Speaker 3: we'd done enough Powell talk for today.
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Speaker 4: I want to talk just briefly about the timing of
10:44
Speaker 4: things when it comes to that relationship and what some
10:48
Speaker 4: are going to interpret it as, and then we'll we
10:50
Speaker 4: can move on from the Fed talk after that.
10:52
Speaker 2: Let's do that when we return.
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Speaker 3: Piece in the New York Times to day, Powell's FED
11:51
Speaker 3: appears headed for another collision with Trump. This implies that
11:55
Speaker 3: there was a collision before, which I thought they generally
11:59
Speaker 3: got along pretty well during his first term, So I'm
12:02
Speaker 3: not really sure what the first collision was. Yeah, like yeah,
12:07
Speaker 3: Trump would always say, hey, like Powell's got to you know,
12:10
Speaker 3: do this, do that, But he says that about everyone.
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Speaker 4: The only thing you can call a collision would be
12:15
Speaker 4: on this time the campaign trail, Like that would be
12:18
Speaker 4: the only one. And it's only a collision if Jerome
12:22
Speaker 4: Powell engages with it. So I tend to agree a
12:25
Speaker 4: collision might be a an exaggeration here, But here's where
12:30
Speaker 4: things are going to show and where some are going
12:33
Speaker 4: to call politics on the FED. The FED started cutting
12:36
Speaker 4: rates in September before the election, and they did a
12:38
Speaker 4: big rate cut of fifty basis points. They have subsequently
12:42
Speaker 4: now cut rates the day after the election and we'll
12:45
Speaker 4: probably do so on Wednesday of this week. Then Donald
12:48
Speaker 4: Trump is going to take office in January, and then
12:51
Speaker 4: the Federal Reserve is going to start meeting afterwards. And
12:54
Speaker 4: there is a fairly significant chance that the timing all
13:00
Speaker 4: that is going to work out so that Jerome Powell
13:03
Speaker 4: pauses rate cuts pretty much the same exact time that
13:06
Speaker 4: Donald Trump takes office. Sure it's not a sure thing,
13:09
Speaker 4: but it's very possible that that is what occurs. And
13:13
Speaker 4: you know, Donald Trump is being called a low rate guy.
13:16
Speaker 4: Guess what, any president in US history can be described
13:19
Speaker 4: as a low rate guy because they all want lower rates.
13:23
Speaker 3: No one sits there in the White House and says,
13:26
Speaker 3: you know what, it would make this economy better higher
13:28
Speaker 3: interest rates.
13:29
Speaker 2: Right.
13:29
Speaker 4: There are some that say, hey, Federal Reserve needs to
13:31
Speaker 4: do his job. I'm going to stay out of it.
13:33
Speaker 4: But if you ask them what they want, they want
13:35
Speaker 4: lower rates because it stimulates the economy. It's a very clear,
13:40
Speaker 4: you know, set of priorities. And so this is where
13:44
Speaker 4: it's lining up. And I think for those that understand
13:49
Speaker 4: what the Fed's job is and watch what's going on
13:51
Speaker 4: the economy, it makes a fair bit of sense, right,
13:54
Speaker 4: you know, the September rate cut might have been too big,
13:56
Speaker 4: might have been unjustified, and I think that's debatable. But overall,
13:59
Speaker 4: the direction of where they went over the last three
14:01
Speaker 4: months made perfect sense given the data, and may make
14:05
Speaker 4: sense in January to stop cutting. But the timing is
14:10
Speaker 4: going to look suspicious to those that don't pay a
14:12
Speaker 4: lot of attention, and so that's where we're heading. Well,
14:14
Speaker 4: then they should pay better attention because it's it's not suspicious.
14:18
Speaker 4: It's not and we will spend all of our time
14:20
Speaker 4: clarifying it, and they should pay more attention.
14:23
Speaker 2: But let's be really.
14:24
Speaker 4: Clear, like how many people could pickt uro own power
14:26
Speaker 4: out of the lineup?
14:29
Speaker 2: I would guess of average everyday Americans.
14:32
Speaker 4: Yeah, like what portion of Americans could pick your own
14:34
Speaker 4: power out of the lineup?
14:35
Speaker 2: Tucker?
14:35
Speaker 3: If I give you an over under a four percent
14:37
Speaker 3: taking the over the under over, it's tiny over an
14:42
Speaker 3: under of ten percent under, so like seven over eight
14:48
Speaker 3: and a half got it.
14:49
Speaker 4: So that is merely My point is, it's not political.
14:54
Speaker 4: It doesn't look political to me. But when you look
14:57
Speaker 4: at the timing of all that, plenty of pundits are
14:59
Speaker 4: going to be all over the TV stations in the
15:01
Speaker 4: news telling you that the only reason Jerome Powell has
15:04
Speaker 4: stopped cutting rates is because he hates Donald Trump. And
15:06
Speaker 4: I genuinely don't think anything could be further from the truth,
15:08
Speaker 4: but that's probably what you.
15:10
Speaker 3: Look I hate even engaging with this line of thinking
15:12
Speaker 3: because it's dumb. What benefit does ja Powell get from
15:19
Speaker 3: making his boss upset at him? Not even his boss,
15:22
Speaker 3: but like the because again, the FED is independent, and
15:26
Speaker 3: he says that, like, he can't fire me. But what
15:28
Speaker 3: does Powell get out of that. His term is up
15:31
Speaker 3: before like Trump's out of office, so it's not like
15:35
Speaker 3: he's gonna be renewed anyways. Not saying it makes sense.
15:40
Speaker 2: I don't know.
15:40
Speaker 3: I look at this and the other thing, just from
15:42
Speaker 3: a thought exercise perspective, is Okay, let's say that the
15:47
Speaker 3: FED decides, you know what, we're gonna do what President
15:52
Speaker 3: Trump wants, We're gonna cut interest rates more. What I
15:57
Speaker 3: remember that the interest rates that most Americans are act
16:00
Speaker 3: actually concerned about are long term ones that the FED
16:03
Speaker 3: doesn't control. Because the big concern on interest rates is
16:07
Speaker 3: how much does it cost to buy a car?
16:08
Speaker 2: How much does it cost to buy a house?
16:10
Speaker 3: And car loans typically track like anywhere from like the
16:13
Speaker 3: three to five year treasury plus you know, a whole bunch,
16:16
Speaker 3: and mortgages typically track the ten year give or take,
16:21
Speaker 3: you know, two to three percent on the on the upside.
16:25
Speaker 3: So ultimately, the thing that's kind of interesting about all
16:28
Speaker 3: this is, look, if the FED engaged in a bunch
16:31
Speaker 3: of cutting right now. Let's say they went out and said, Hey,
16:34
Speaker 3: you know what, December, we're gonna front run this. Actually
16:38
Speaker 3: President Trump wants us to cut interest rates more great,
16:40
Speaker 3: We're gonna take the FED funds rate down to two.
16:43
Speaker 2: Long term rates are going up. Long term rates are
16:45
Speaker 2: going up.
16:45
Speaker 3: And the reason why I want everyone to understand this,
16:49
Speaker 3: if the FED cuts to two percent right now, it
16:51
Speaker 3: basically says, yeah, we're gonna try to juice the economy
16:54
Speaker 3: and make it cheaper for people to buy things. In
16:56
Speaker 3: doing so, it generates a bunch of economic activity, which
17:00
Speaker 3: in turn potentially pushes up both growth and inflation, which
17:03
Speaker 3: means long term rates probably move up. If the Fed
17:07
Speaker 3: does something like that, we don't really the last forty
17:11
Speaker 3: years in the US, we haven't had to deal with
17:14
Speaker 3: this because inflation has been kind of non existent for
17:17
Speaker 3: that time. But if you talk to anyone who lives
17:20
Speaker 3: in a place like Brazil, or you talk to anyone
17:23
Speaker 3: who lives in a place like Vietnam or Thailand, places
17:28
Speaker 3: that are not as developed and that have more risk
17:31
Speaker 3: associated with their currencies. The ways that central banks have
17:36
Speaker 3: to behave is one where hey, if you cut at
17:40
Speaker 3: the wrong time when there's too much growth or inflation,
17:43
Speaker 3: you actually lose control of the long end of the
17:46
Speaker 3: yield curve because that growth or inflation is gonna get
17:48
Speaker 3: out of control. We haven't had to deal with it
17:51
Speaker 3: in the US because the growth has been slowing because
17:54
Speaker 3: we're getting older and the population is not growing as quickly,
17:57
Speaker 3: and inflation has largely not been a problem over the
18:00
Speaker 3: last forty years for any number of reasons that we
18:03
Speaker 3: can speculate on, but ultimately it doesn't matter. It just
18:05
Speaker 3: hasn't been a problem intoday's world, where inflation is kind
18:11
Speaker 3: of plateauing, you know, right around three percent, you say, yeah,
18:16
Speaker 3: I'm gonna cut interest rates. It doesn't necessarily move the
18:20
Speaker 3: long end down. It's it's not something where the long
18:23
Speaker 3: end is inherently correlated in that fashion. There look no
18:26
Speaker 3: further if you want evidence of this in the US J.
18:31
Speaker 3: Powell mid September September nineteenth, I believe it was, maybe
18:34
Speaker 3: it was the sixteenth. It was one of those two says, Hey,
18:37
Speaker 3: I'm cutting interest rates by half a percent. The ten
18:41
Speaker 3: year treasury since then is up two thirds of a percent.
18:46
Speaker 3: There's my evidence right right there. It's what's happened in
18:50
Speaker 3: the US for the last three months. Fed started cutting.
18:53
Speaker 3: What's happened to mortgage rates? They've gone up. They've gone up. So, yeah,
18:59
Speaker 3: you can't cut your way out of this situation that
19:03
Speaker 3: we're in right now. If a recession materializes, sure really works,
19:07
Speaker 3: go for it, have a couple of cuts. But otherwise, yeah,
19:12
Speaker 3: it's it's a different environment. That's why I think Powell's
19:15
Speaker 3: gonna signal, yeah, we're halting cuts because he kind of
19:17
Speaker 3: wants to stop the runaway of you know that that
19:20
Speaker 3: ten year because it's it's kind of troubling him. I
19:23
Speaker 3: think to take a quick break here. When we come back,
19:26
Speaker 3: we got Wall Street Watch after this.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter. Act
19:44
Speaker 1: TFE show breaking business news is always first right here
19:49
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:54
Speaker 1: Street Watch a complete look at what's moving markets. So
19:57
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: Well FED meeting week is upon US and markets are
20:04
Speaker 5: in positive territory. Aside from the FED Wallstree will be
20:08
Speaker 5: monitoring other economic data points due out this week, including
20:11
Speaker 5: retail sales tomorrow, housing starts and building permits on Wednesday,
20:15
Speaker 5: jobless claims on Thursday, and the core PC index on Friday.
20:20
Speaker 5: At the moment that now is up by forty eight
20:22
Speaker 5: points are a tenth of a percent. SMP five hundred
20:25
Speaker 5: is up by four tenths of a percent or twenty
20:28
Speaker 5: five points. In the NASZAC is up by three quarters
20:30
Speaker 5: of a percent or one hundred and fifty points. RUSTED
20:33
Speaker 5: two thousand and up by four tenths of a percent.
20:35
Speaker 5: Ten Youar Treasure Reel down by one basis point at
20:38
Speaker 5: four point three eight percent, and crude oil is down
20:43
Speaker 5: by about a third of a percent, rating just above
20:45
Speaker 5: seventy one dollars a barrel. Shares in super micro Computer
20:49
Speaker 5: down by four percent after Bloomberg reported on Friday that
20:53
Speaker 5: the data center center company had hired investment bank Evercore
20:57
Speaker 5: ISI to help it raise equity and decktcal capital. This
21:01
Speaker 5: comes after its auditor resigned previously in the fall, Concerns
21:04
Speaker 5: have now increased that super Micro might be delisted by
21:09
Speaker 5: the Nasdaq. Speaking of the Nasdaq, shares in micro Strategy
21:12
Speaker 5: jumping by nearly five percent following news of the company's
21:15
Speaker 5: addition to the NASDAQ one hundred. Elsewhere, Honeyware honey Well
21:20
Speaker 5: up by three percent after the industry giants said its
21:23
Speaker 5: board is exploring the possibility of separating its aero space division.
21:29
Speaker 5: After its twenty four percent leap on Friday on the
21:32
Speaker 5: heels of better than expected quarterly results. Broadcom shares are
21:35
Speaker 5: up another eight percent today. Ford Stock was downgraded by
21:39
Speaker 5: Jeffries to underperform from hold, with firm mentioned concerns of
21:43
Speaker 5: an inventory overhang along with valuation. Ford shares it down
21:47
Speaker 5: by three percent and for notable earnings this week. Micron
21:51
Speaker 5: Technology will report on Wednesday, followed by FedEx and Nike
21:57
Speaker 5: on Thursday. I'm Tucker Silvan, That's Wall Street Watch Mike.
22:01
Speaker 3: Every month we get the University of Michigan's Consumer Survey.
22:05
Speaker 3: One of the things that the most famous thing that
22:08
Speaker 3: they survey in that survey survey is confidence, where they
22:14
Speaker 3: basically say, you know, how confident are you in the
22:15
Speaker 3: economy now? And in the future and YadA, YadA. What
22:19
Speaker 3: we also get from this is they do break out
22:23
Speaker 3: their survey responses by political party, so you can see
22:26
Speaker 3: exactly how, you know, different political parties are viewing different
22:30
Speaker 3: items and also talking about, hey, you know, are you
22:34
Speaker 3: planning on spending more or or not?
22:37
Speaker 2: So.
22:37
Speaker 3: Unsurprisingly, the latest consumer confidence data shows that Republicans' views
22:44
Speaker 3: of their finances and the economy jump forty five points
22:48
Speaker 3: from about sixty to one hundred and five in November
22:51
Speaker 3: compared to October. Likewise, democrats outlook fell by the same
22:58
Speaker 3: exact amount to play eight point seven, which means here's
23:02
Speaker 3: here's what this means.
23:04
Speaker 2: If you are someone who.
23:06
Speaker 3: Voted Republican, your economy got twice as good overnight, and
23:11
Speaker 3: if you are a Democrat, your economy got twice as bad,
23:15
Speaker 3: which is again I'm I'm saying this facetiously, but ultimately
23:20
Speaker 3: what it means is that we're not actually viewing the
23:24
Speaker 3: economy even halfway objectively because quite honestly, in real terms,
23:31
Speaker 3: the economy can't change that much in a month.
23:34
Speaker 4: So if we are to take all this at face value,
23:40
Speaker 4: is this survey useful today? It's a big one, right,
23:46
Speaker 4: Like you know, it's an amazing data series because it
23:50
Speaker 4: goes all the way back to what nineteen forty something,
23:53
Speaker 4: nineteen sixty something.
23:54
Speaker 2: It is a.
23:55
Speaker 4: Long standing data series that you can readily use to
23:59
Speaker 4: check america feelings on the economy compared to any point
24:03
Speaker 4: in history. It doesn't need to be adjusted for inflation.
24:06
Speaker 4: It is a nice, long, continuous data series that has
24:10
Speaker 4: been in existence for a long time. It's been so
24:16
Speaker 4: and it's been Let's be clear, it's been useless for
24:19
Speaker 4: the last five years in terms of indicating longer than that,
24:21
Speaker 4: anything about the state of the economy longer than that.
24:24
Speaker 3: It's probably been borderline useless for the last twenty years,
24:29
Speaker 3: aside from a couple of you know, instances here and there.
24:34
Speaker 3: I'm looking at the long term, long ish term data
24:37
Speaker 3: on this. Let me see if I can go all
24:40
Speaker 3: the way back. No, that one's not going to be
24:43
Speaker 3: the right thing. I'm looking back to two thousand. So
24:47
Speaker 3: two thousand comes along, and basically through September eleventh, you
24:51
Speaker 3: had Republicans and Democrats basically saying the same things about
24:55
Speaker 3: the economy YEP. Immediately after that and through the remainder
24:59
Speaker 3: of of Bush two point Zeros term you had Republicans
25:04
Speaker 3: saying the economy was good and Democrats saying the economy
25:07
Speaker 3: was bad for the entire next six and a half
25:09
Speaker 3: years pretty consistently. Finally, everyone bottoms out in late two
25:15
Speaker 3: thousand and eight because everyone had to be like, man,
25:19
Speaker 3: this really is the worst, and yeah, okay, we got
25:23
Speaker 3: accurate readings there where pretty much everyone said the economy
25:26
Speaker 3: was horrible. You then continue through Obama's term, and during
25:31
Speaker 3: that time, Democrats still said the economy was bad, but
25:34
Speaker 3: they were rating it much more highly than Republicans. And
25:38
Speaker 3: then you get to Trump's first term, Republicans say everything's great,
25:42
Speaker 3: Democrats say everything's bad. You get to Biden's term, Democrats
25:45
Speaker 3: say everything's great, Republicans say everything's bad. So it hasn't
25:48
Speaker 3: had much meaningful signal in the last twenty five years now.
25:55
Speaker 4: And you also can't do much with it because it's
25:57
Speaker 4: not as though we can point to anything here where
26:01
Speaker 4: it shows oh yeah, and when Republicans say it's bad,
26:04
Speaker 4: they invest less to their portfolio in stocks. For example, Right,
26:09
Speaker 4: there's no correlation here. People just say, oh, I don't
26:11
Speaker 4: like the way the economy is heading, but I'm not
26:13
Speaker 4: going to change anything that I'm doing. So I'm getting
26:17
Speaker 4: to the point where I don't know how useful something
26:21
Speaker 4: like Michigan sentiment is other than being a coincident indicator
26:25
Speaker 4: of when the entire economy really sucks. Yeah, it doesn't
26:30
Speaker 4: even lead anything.
26:31
Speaker 3: No, you try to figure out what it means, and
26:33
Speaker 3: basically all you find is that everyone's just rooting for
26:35
Speaker 3: their own laundry, which is it's fine, like it is
26:38
Speaker 3: what it is. But basically, whichever party owns the presidency,
26:45
Speaker 3: like it's not even like the House or Senate matter,
26:47
Speaker 3: it's it's quite literally whoever has the presidency, people in
26:52
Speaker 3: that party say the economy's good, yeah, and people in
26:54
Speaker 3: the other one say it's bad.
26:55
Speaker 4: Pretty difficult to objectively look at twenty twenty four and say, wow,
26:59
Speaker 4: what a crap economy.
27:00
Speaker 2: This was, Well, you cat you have that.
27:02
Speaker 3: You go back at this historically over any time and
27:05
Speaker 3: be like, yeah, like, this isn't really an accurate picture
27:09
Speaker 3: in the last twenty five years here and look it
27:13
Speaker 3: is what it is in terms of hey, this used
27:15
Speaker 3: to have some signal and it just doesn't.
27:16
Speaker 2: Really at this point. But you know, the.
27:22
Speaker 3: It's really just not something that is producing a great
27:25
Speaker 3: signal at this point, because it literally changes on a
27:29
Speaker 3: dime every time you have a change of who's in
27:32
Speaker 3: power in the presidency.
27:33
Speaker 4: Do you think there's anything to these other trends that
27:35
Speaker 4: are being teased out here that there's a discussion of, Hey,
27:38
Speaker 4: do members of a party who took power spend differently
27:45
Speaker 4: in the aftermath of that? There's a study in Australia
27:48
Speaker 4: where the winners supporters were ten to fifteen percent more
27:51
Speaker 4: likely to buy a car according to polls. Here, when
27:54
Speaker 4: a voter's party matches the presidents, they're more likely to
27:57
Speaker 4: buy or sell a house as an example. I don't
28:02
Speaker 4: know that I actually buy any of that. I don't know,
28:06
Speaker 4: you know, like I don't know. Maybe, like do we
28:10
Speaker 4: see housing activity? This will be a really interesting one
28:13
Speaker 4: to measure, Like do we see a bunch of housing
28:15
Speaker 4: activity tick up in deeply red states?
28:19
Speaker 2: Maybe, right, that'll be an interesting one to take a
28:22
Speaker 2: look at.
28:22
Speaker 3: I guess yeah, Look, we'll be able to see it
28:25
Speaker 3: over the next twelve months.
28:26
Speaker 2: But it's just, uh, I don't know.
28:29
Speaker 3: Let's take a quick break here when we come back,
28:31
Speaker 3: when we talk a little bit about China's economy, because
28:33
Speaker 3: it's bad.
28:35
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28:43
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29:07
Speaker 3: We got a piece in the Wall Street Journal. It's
29:10
Speaker 3: titled China's Economy loses momentum. This implies that the Chinese
29:13
Speaker 3: economy have momentum originally. In fact, every object has momentums,
29:17
Speaker 3: just which question The question is what direction is that
29:20
Speaker 3: momentum going in? And for kind of the last few years,
29:24
Speaker 3: it's been down for Chinese economy, but you're you're continuing
29:28
Speaker 3: despite you know, at one point seemed like almost you know,
29:31
Speaker 3: daily announcements of new stimulus. Now it's back to like
29:34
Speaker 3: weekly announcements of new stimulus. There's just not that much
29:38
Speaker 3: going on in the Chinese economy and they can't figure
29:43
Speaker 3: out what buttons depressed in order to get things moving there.
29:46
Speaker 2: Yeah, there, you're right there.
29:48
Speaker 4: There was almost daily announcements of those changes to policy.
29:52
Speaker 4: And the question that we asked at the time, is
29:55
Speaker 4: are they going to follow through and take stimulut of
29:58
Speaker 4: steps that would be required to add actually juice the
30:00
Speaker 4: economy to a significant degree, which the Chinese have historically,
30:04
Speaker 4: especially Huging Ping, incredibly unwilling to do. And they involve
30:09
Speaker 4: things like we have in the United States, such as
30:12
Speaker 4: safety net programs that don't really exist there. And the
30:16
Speaker 4: answer seems to be that we're willing to subsidize certain industries,
30:19
Speaker 4: We're willing to make big investments, have banks make investments
30:22
Speaker 4: in certain areas that we control, but we are not
30:25
Speaker 4: going to take the step of creating a social safety
30:29
Speaker 4: net that would allow individuals to invest more readily or
30:32
Speaker 4: or let them feel more confident in doing so. And
30:35
Speaker 4: that's a pretty big distinction between China and a lot
30:38
Speaker 4: of the West.
30:39
Speaker 3: Well, and even if you look under the hood at
30:41
Speaker 3: some of the stimulus that they're doing, a lot of
30:44
Speaker 3: it is, hey, like we're gonna, you know, prop up
30:47
Speaker 3: some of our state owned enterprises and help you know
30:49
Speaker 3: them deal with their levels of debt. And it's kind
30:51
Speaker 3: of like, well, that's not really stimulus, that's bail out
30:55
Speaker 3: trying to shuffle the chairs on the deck of the Titanic, like,
30:59
Speaker 3: what are we really doing here? So I'm they may
31:04
Speaker 3: know what they need to do in order to help
31:06
Speaker 3: things economically, but they're just unwilling because of ideology. I think,
31:10
Speaker 3: as you noted to do so, or perhaps they see
31:14
Speaker 3: it as let's hold back some dry powder for what
31:18
Speaker 3: could be a looming fight with the United States under
31:21
Speaker 3: a Trump administration.
31:22
Speaker 4: I kind of doubt that, but you know, could that
31:25
Speaker 4: be part of it too. I guess if, hey, if
31:27
Speaker 4: we're going to be in a tariff battle with the
31:29
Speaker 4: United States come twenty twenty five, then let's save some
31:33
Speaker 4: of this dry powder of stimulus that we might actually
31:35
Speaker 4: need over the next few years.
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32:44
Speaker 3: Two different teriff related pieces both in the Wall Street Journal.
32:47
Speaker 3: The first one titled Americans are stockpiling to get ahead
32:49
Speaker 3: of tariffs. The second one CEOs want Trump to change
32:52
Speaker 3: course on tariffs He isn't budging. Let's tackle the first
32:55
Speaker 3: piece here. First, you've got people that are going out
33:01
Speaker 3: and stockpiling goods because they are concerned about tariffs impacting
33:04
Speaker 3: them at a household level. And again, in terms of
33:09
Speaker 3: like the stuff that you're seeing people doing here, I'll
33:13
Speaker 3: just quote from the piece because it's kind of wild
33:16
Speaker 3: Gerard Sarik is stocking his eight hundred square foot basement
33:19
Speaker 3: with as many bags of coffee, bottles of olive oil,
33:22
Speaker 3: and bulk packs of paper towels that will fit in
33:24
Speaker 3: there in preparation for Trump's taking office. What is it
33:28
Speaker 3: with the paper products?
33:29
Speaker 2: I don't know. We go every crisis now people start
33:32
Speaker 2: buying up toilet paper. What are we doing here? Bring
33:37
Speaker 2: me your finest imported paper towels.
33:40
Speaker 4: I don't get that one at all. I had a
33:44
Speaker 4: conversation with a client yesterday who lives in Vermont and
33:47
Speaker 4: therefore drives a Super yes and it's ten years old,
33:52
Speaker 4: it's starting to rust out. She's saying, you know, we're
33:54
Speaker 4: thinking maybe we'll just make this purchase over the next
33:56
Speaker 4: couple of months here because I don't know what tariffs
33:58
Speaker 4: are gonna look like.
33:59
Speaker 2: I don't want that price to go up. And yeah,
34:00
Speaker 2: I went through my mind.
34:01
Speaker 4: I'm like, all right, that Super is almost definitely mostly
34:05
Speaker 4: manufactured here in North America. But could she be right that, yeah,
34:10
Speaker 4: with looming tariffs on Mexico and Canada, that that price
34:12
Speaker 4: could go up? I suppose maybe, I still doubt it,
34:16
Speaker 4: but clearly this is front and center for people's mindsets
34:19
Speaker 4: at the moment it.
34:20
Speaker 2: Is and again the individual behavior.
34:23
Speaker 3: Look, we all have things that we think are gonna,
34:25
Speaker 3: you know, get more expensive or I totally understand this
34:29
Speaker 3: because when we did see in the first Trump term, hey,
34:32
Speaker 3: you know, one of the things he came out with
34:34
Speaker 3: at that point was it was a tariff on imported
34:36
Speaker 3: washing machines, and the prices did go up legitimately.
34:40
Speaker 2: So this is a thing.
34:42
Speaker 3: And quite honestly, I've been saying this since the election.
34:46
Speaker 3: Look at this is going to be a different Trump
34:49
Speaker 3: term than the first one. And the second piece about
34:51
Speaker 3: how he and his staff are talking about No, this
34:54
Speaker 3: is serious. We're going to be moving forward with these
34:57
Speaker 3: tariffs because this is what we believe to be the
35:00
Speaker 3: right thing. I think we have to understand that this
35:04
Speaker 3: is the case. So I'm not saying go out and
35:07
Speaker 3: buy up all the paper towels because for obvious reasons.
35:13
Speaker 3: But what I am saying is, yeah, especially if you're
35:16
Speaker 3: talking like big tip ticket purchases, I do kind of
35:20
Speaker 3: get it. Where if they are things that are imported, Yeah,
35:24
Speaker 3: there's some reasonability there as far as you know those considerations,
35:28
Speaker 3: Do you start buying next year's Christmas presents a year
35:30
Speaker 3: in advance. Probably not, because the cool ones for the
35:33
Speaker 3: grandkids aren't available yet for next year.
35:36
Speaker 4: Are we getting to I mean, you've insinuated this, and
35:39
Speaker 4: I wonder just how direct I think the Trump administration
35:42
Speaker 4: is being fairly direct with CEOs of companies.
35:45
Speaker 2: They're being direct with everyone, Mike.
35:47
Speaker 4: So that's my question is do they come out and
35:49
Speaker 4: say something along the line take a note from JFK
35:53
Speaker 4: like ask not what your country can do for you,
35:57
Speaker 4: but what you can do for your country, Like are
35:58
Speaker 4: we heading for that type of apps of the American
36:00
Speaker 4: public of Look, things are going to get more expensive,
36:04
Speaker 4: and acknowledgment that, hey, prices are going to go up
36:06
Speaker 4: in the short term based on what I'm proposing doing,
36:09
Speaker 4: and I want you all to hold on because this
36:12
Speaker 4: is what I envision for the future of the American economy.
36:16
Speaker 4: That's the piece that they're talking directly about what they're
36:20
Speaker 4: going to do, but at the same time not acknowledging
36:23
Speaker 4: the possibility that it does mean higher prices. And frankly,
36:27
Speaker 4: what we're seeing on the purchase side of things, or
36:29
Speaker 4: at least I don't know that we're seeing any direct
36:31
Speaker 4: evidence of big bulk purchases being made in advance. But
36:35
Speaker 4: that's right there speaking to inflation expectations. If people are
36:38
Speaker 4: buying subrews because they're worried about prices going up, then
36:41
Speaker 4: guess what prices of subrews will go up because people
36:45
Speaker 4: expect them to.
36:46
Speaker 2: And look, this is something. The closest that I think we've.
36:49
Speaker 3: Come is back in October Elon Musk, who you know,
36:53
Speaker 3: he's not in the incoming administration because the Department of
36:56
Speaker 3: Government Efficiency is not a real department of the government actually,
37:01
Speaker 3: but he said he was, you know, in an interview
37:05
Speaker 3: he said, yeah, this could cause some temporary hardship but
37:08
Speaker 3: lead to long term prosperity. And this is what I
37:11
Speaker 3: think the incoming administration believes is, hey, we're going to
37:16
Speaker 3: try to do the hard work in order to make
37:20
Speaker 3: things better for the long run, even if it hurts
37:22
Speaker 3: in the short term. Now, they haven't come out and
37:24
Speaker 3: say it said that directly, as you noted, but this
37:27
Speaker 3: is what I think they believe. Are they actually right,
37:31
Speaker 3: I don't know. I mean, this is this is a
37:33
Speaker 3: hard you know, this is a hard thing to try
37:36
Speaker 3: to do.
37:36
Speaker 1: It.
37:36
Speaker 3: It's got a ton of moving parts and the order
37:39
Speaker 3: the sequencing and the magnitude of it all matters in
37:42
Speaker 3: order to make sure that you're doing it right. So
37:44
Speaker 3: I don't know that I can sit here and say yes,
37:47
Speaker 3: it's definitely going to work, or no, it isn't right.
37:49
Speaker 3: But I don't think they're being coy about this and
37:53
Speaker 3: like pretending they're not going to do anything. I think
37:55
Speaker 3: from the conversations that I've had with people that have
37:58
Speaker 3: been engaged with the incoming administration, they've they've largely said, yeah,
38:03
Speaker 3: they're serious about this stuff, and you need to prepare
38:06
Speaker 3: for it. So I I.
38:09
Speaker 2: When when people tell me who they are, I try
38:11
Speaker 2: to believe.
38:12
Speaker 3: Them, and then you see what they actually do, and
38:15
Speaker 3: that's that's how you can actually tell what's going on.
38:17
Speaker 2: Quick break here.
38:17
Speaker 3: We got more coming up an hour two on the
38:19
Speaker 3: Financial Exchange