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How big of a rate cut will we see this week? · The Financial Exchange Show

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  Veterans Development Corporation. This is the Financial Exchange with Chuck
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  Zada and Mike Armstrong.
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  Speaker 2: Happy FED Week to everyone. It's Chuck, Mike and Tucker
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  with you. And on Wednesday of this week, at two
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  pm Eastern time, the Federal Reserve is going to release
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  their decision on interest rates as well as their updated
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  economic projections. And quite honestly, nothing matters economically until then,
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  so you don't really need to bother with anything else
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  that's going on for the next fifty two hours or so.
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  Speaker 3: So for the next fifty two hours, all you should
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  do is debate whether it's gonna be fifty or twenty five?
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  Is that?
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  Speaker 2: Is that the conclusion you come to, Chuck, I don't
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  think that's the conclusion that I come to. But I
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  do think that's the conclusion of what we're going to
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  end up having to do, because it's all that anyone
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  wants to talk about. Hey, is the Fed gonna go
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  twenty five of fifty this week? I kid you not?
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  Speaker 4: In U on the T box on this past Thursday,
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  that was the conversation.
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  Speaker 2: I know. I'm telling you, I have no I have
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  I have people in my life that have no thoughts
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  about finance at any point in their day normally, and
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  the questions are coming up, Hey, is that going to
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  be a quarter percent and a half percent? Second box,
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  they're asking me.
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  Speaker 1: I'm like, I don't know.
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  Speaker 2: Let me dial up Jay and see what he says.
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  Speaker 3: You know, my money is on splitting the difference thirty
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  seven and a half.
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  Speaker 2: I mean, it makes everybody for the first time. That
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  makes no one happy. That makes no one happy. So
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  in any case, FED is going to be cutting interest
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  rates this week. Let's let's get that out of the way.
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  There is there are very few certainties in life. The
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  FED is not going to hold interest rates steady this week.
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  That would be it's kind of where we are. That'd
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  be the financial news surprise, would be the upset of
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  the century. And this all started, by the way, in
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  terms of this renewed debate about twenty five or fifty.
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  It all started Thursday afternoon around one pm. Nick tim Morouse,
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  who affectionately is known as Nicky Leaks, which is kind
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  of a play on Wiki leaks.
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  Speaker 3: Is he really Oh yeah, you've never heard, never heard
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  of Nicky leaksh like that.
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  Speaker 2: Because he's kind of the Fed's mouth yes. When they
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  can't say something, they leak it through Nick. So he's
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  known as Nicky Leaks. And it's great, isn't it. Fuck
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  it's also kind of awful, but it's both. Yeah. But
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  so Thursday, around one pm he comes out with this
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  piece where he interviews four former FED members because remember,
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  the current FED members can't talk last week, they're not
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  allowed to because there's a blackout period heading into the
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  FED meeting. And so if you can't talk to current
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  FED members, what's the next best thing you can do, Oh,
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  let's interview former FED members. And all four of them
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  that he interviewed said, hey, you know what, there's a
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  real case for going fifty. And the takeaway from that,
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  at least what markets have said is, hey, hey, current
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  FED members can't say anything. But Tim Morouse is known
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  as someone who has his finger on the pulse of
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  the FED. You know. Typically, again, he's known as Nicky Leaks,
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  and so if he's getting former FED members to say this,
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  maybe there's something to the fact that this is a
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  trial balloon that's being floated to see if the market
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  can move in that direction and accept fifty basis points
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  as where the FED is going to go and lo
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  and behold. Over the last four days now we've seen
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  the probabilities for a half percent cut on the on
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  the FED funds rate. This week, they have gone from
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  I just want to make sure that I'm getting this
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  correct here, we've gone from a fifteen percent chance of
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  that happening to a sixty percent chance of that happening.
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  It's a pretty meaningful shift. Yes, it's a pretty meaningful
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  shift in a short period of time, and one that
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  still does leave us with some intrigue because normally at
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  this point leading up to a FED meeting, you're like
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  ninety to ninety five percent priced in, sometimes higher than that.
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  I guess you know.
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  Speaker 3: I've been making the point that this Federal Reserve to
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  a large extent, does not like to surprise anyone. Now,
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  most Feds haven't for quite some time had you know,
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  the position of surprising investors and surprising Fed watchers. But
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  this Fed especially has really forecasted what they're going to do.
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  My point to last week was that the twenty five
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  basis points, for no other reason, was the status quo.
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  That was what was being forecast, and so that was
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  what was going to get done. Now I'm wondering if
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  fifty is the is the least surprising move that the
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  FED could be making. I guess according to CME Watch,
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  it would be.
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  Speaker 2: Well, there's pros and cons to each approach, depending on
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  how you want to look at it. If the FED
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  cuts twenty five and if you want to message it
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  bullishly for markets, hey, we're cutting twenty five basis points
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  because we don't think the economy's got that bad. We're
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  willing to do more if we need to. Unemployment rate
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  dipped last month, but the economy is pretty good. We've
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  seen a few different things that have shown that maybe
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  there's a rebound happening, and we don't want to do
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  too much too soon. Yep. The bearish case to this,
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  if you want to make it, is, hey, the Fed's
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  not doing enough because the data has been worsening and
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  they're showing that they're behind the eight ball.
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  Speaker 3: They're behind the eight ball on the way up. Now
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  that behind the eight ball on the way down.
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  Speaker 2: On the other hand, if they go fifty bullush case, Hey,
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  you know what, the FED didn't think they were going
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  to do this, but they decided to because they realized that,
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  you know, it takes a while for monetary policy to
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  seep into the system. They're just being ultra cautious because
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  they don't want a recession and this is what's going
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  to help prevent it. That's the bullish case, Bear's cases. Hey,
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  a week ago, they were pretty content to, you know,
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  talk about twenty five basis points, and now they're going fifty.
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  Speaker 1: What changed?
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  Speaker 2: What are they seeing that we're not seeing? Yep. So
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  there's plenty ways to argument and argue it.
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  Speaker 3: And I have no idea which way the markets will
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  turn versus for one versus the other. And I guess
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  where that all puts it back is. I think that
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  what Jerome Powell says on Wednesday is once again far
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  more important than what he does with rates. Ultimately twenty
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  five versus fifty.
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  Speaker 2: I'm gonna say something that I never thought I would say, actually,
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  and that's I don't know if j Powell what he
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  says is going to get any interest. Quite honestly, not
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  not any. But I think it's third in terms of
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  what the Fed's are releasing on Wednesday. I think the
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  most app the most important thing that the Fed's gonna
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  release on Wednesday is the dot plot. And the dot
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  plot if you're not familiar with it. It's there's summary
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  of economic projections, and it shows the basically where the
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  Fed thinks they are going to see a number of
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  different metrics over the rest of this year, next year,
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  and into the future. So as an example, when we
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  look at the previous one that came out in June,
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  they released one of these every two meetings, they give
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  you change in GDP for the year, and they previously
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  thought that it was gonna come in at two point
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  one percent this year. Okay, do they think that growth
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  is gonna be higher or lower now? Unemployment rate they
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  thought it would be four percent by the end of this year.
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  Where do they show it going this year? Where do
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  they show it in twenty twenty five, where they were
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  projecting it at four point two percent. It's already at
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  four point two and on an upward trend. PCE inflation
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  quite honestly doesn't matter. It's a nothing burger because you're
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  not seeing any meaningful inflationary impulse right now. It's gonna
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  be somewhere in the mid twos over the next year
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  most likely, unless you get some kind of big surprise
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  core PC of E same boat. Again, it's not that
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  it shouldn't matter. It's just that it does it right now,
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  because that fight is not front and center here. The
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  other one that's gonna matter is, hey, what's the what's
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  the FED funds rate going to be? What are their
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  projections for this year and next year? At the June meeting,
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  FED fund rate was projected to be five point one
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  percent at the end of the year. Five point one
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  percent is one cut by the end of the year.
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  Now in March they thought it was going to be
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  down to four point six That was three cuts by
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  the end of the year. Where do they project it now?
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  And then next year, where do they think it's going
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  to be at the end of next year? So that
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  FED funds rate and the unemployment rate, in my opinion,
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  those are the ones that matter because the whether the
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  Fed cuts twenty five or fifty this week, Yeah, we
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  like everyone likes to talk about it and this and that,
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  but it's it doesn't matter like recession is not averted
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  or happens because of twenty five basis points in one
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  meeting agreed. What matters is how fast and far are
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  you going to cut overall? Which this should give us
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  some clarity on it, at least in terms of their
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  thinking right now and the unemployment rate, why that matters, Hey,
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  what's the Fed's tolerance for how high they're going to
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  let unemployment get? If they're projecting an unemployment rate of
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  anything above four and a half, I think it spooks
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  the heck out of markets. But the counter to that is, hey,
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  you can't rely on one hand, you can't project more
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  than that, because then you're like scaring markets if you
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  project lower? Are you being unrealistic? Are you being unrealistic?
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  And then is the market price in way more cuts
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  than they think are actually going to happen. So there's
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  there's kind of a little bit of a challenge here
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  and how the Fed's going to get through this. But
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  this is where I think the meat is because Powell
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  ultimately is going to say the same thing that he
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  always says, Well, we're data dependent and we're gonna, you know,
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  focus on doing what's right for the economy, and we
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  want to make sure that unemployment you know, we're working
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  with our dual mandate and YadA, YadA, YadA. That's what
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  that's what Jay does. Rarely do you get anything that's
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  surprising for him. But this in terms of hey, how
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  far and how fast are you gonna cut rates? And
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  how hig are you willing to let unemployment get juicy? Man, juicy.
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  It's it's like a it's like a big fat steak
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  that's gonna it's it's a big economic stake that we're
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  gonna get. It's a ribbi coming on on Wednesday afternoon. Yeah,
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  get your appuase ready, you know, get your A one
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  ready because that that's what we have to look forward
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  to this week. And it's it's gonna be juicy. I'm
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  telling like this, this is where the meat is. Pal's
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  gonna talk and like, yeah, the market might move based
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  on what he says, but ultimately, after even a day
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  of digestion of said economic steak, this is this is
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  where it's gonna be. I'm excited, I'm kind of I'm
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  also a little scared. I'm like ninety nine percent excited,
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  one percent scared. Maybe it's ninety nine scared one percent excited.
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  It's hard to tell, but that's what makes it so exase.
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  Speaker 3: I have a additional fed question for you when we returned,
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  because at the beginning of this hiking cycle, we had
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  this long, extensive debate about why isn't the Fed just
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  surprise everybody in hike by a few percentage points. I
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  want to have that same conversation now that we are
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  on the way down. We did that on Wednesday, but
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  we can do it again. Darn, it's fine, it's fine,
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  good tea before we do Yeah, let's do that.
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  Speaker 2: And then also I want to chat about Bill Dudley
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  after this as well, because Bill's been on an interesting
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  Speaker 2: Mike, do you know how many days it's been since
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  May thirtieth? One hundred, one hundred and nine. Okay, good estimation.
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  It's fantastic. I really like that for you. On May thirtieth,
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  Bill Dudley wrote, quote, the Fed thinks it's fighting inflation.
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  Think again. Even at more than five and a quarter percent,
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  the Central Bank's short term interest rate might not be
• 14:54
  high enough to cool the economy. On July twenty one fourth,
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  about two months later, I changed my mind. The Fed
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  needs to cut rates now. Waiting until September unnecessarily increases
• 15:08
  the risk of recession. Today again, these are all in
• 15:12
  Bloomberg from Bill Dudley, who is the former president of
• 15:17
  the Federal Reserve Bank of New York. Today, the Fed
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  should go big now I think it will. Bill Dudley
• 15:24
  has moved from hey, the Fed needs to raise interest
• 15:28
  rates at the end of May, to hey, we've got
• 15:32
  a cut rates by half a percent now, and quite honestly,
• 15:36
  there has not been that big of a shift in
• 15:39
  the economy over that time.
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  Speaker 3: I was gonna say, there doesn't seem to be a
• 15:42
  good consistency. I'm fine with people changing their mind on things,
• 15:47
  that's what we should do in the face of new abs, absolutely,
• 15:49
  one hundred percent. But it doesn't seem to be a
• 15:52
  consistency of thinking.
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  Speaker 2: How do you have a one percentage point swing in
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  where you think rates should be over three months? That's
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  that's that's tough. And look, this is more ammunition kind
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  of pointing towards Hey, the FED is probably gonna cut
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  half a percent, because all these former FED officials are
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  coming out and saying, yeah, you've got to do do
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  more now. But it raises the question of, hey, if
• 16:20
  you really thought that the economy was gonna get to
• 16:22
  this point now, you you really couldn't tell that three
• 16:27
  months ago, with all the tools that you have at
• 16:29
  your disposal, like things things move that quickly, that you
• 16:33
  had this big of a shift in your thinking. And
• 16:38
  I think that's the piece to me, that's that's troubling.
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  I could see, Hey, the FED doesn't need to do
• 16:42
  anything in May, which I think is kind of where
• 16:45
  we landed at that point to yeah, maybe you do
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  twenty five basis points, you know, maybe fifty if things
• 16:52
  are you know, looking dodgy or okay, But how do
• 16:54
  you go from hey, the Fed's got to the Fed's
• 16:57
  got a hike rates to hey, you've got to cut
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  by half a percent because things are getting dodgy. I
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  guess here's where.
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  Speaker 3: I will, I guess try and defend it, or at
• 17:08
  least put myself in his shoes.
• 17:10
  Speaker 2: In May, you had just come off of.
• 17:12
  Speaker 3: Really hot readings on inflation for April, March, and I
• 17:16
  believe February.
• 17:18
  Speaker 2: I think they probably averaged about zero.
• 17:20
  Speaker 3: Point four percent month of a month CPI and PCE rating.
• 17:24
  Speaker 2: I have them right here. Actually, if you're interested.
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  Speaker 3: In so we're talking about May here, so we definitely
• 17:30
  didn't have May inflation data.
• 17:31
  Speaker 2: So give me April, March, February and January. So we're
• 17:34
  doing just CPI like hempshine er, what do you want? Sure?
• 17:37
  So if you're going January CPI point three to one,
• 17:41
  then point four to four point three, eight point three
• 17:44
  to one, so declining, But like you wanted to see,
• 17:50
  is there anything there that's like, hey, you need to
• 17:52
  hike interest rates.
• 17:53
  Speaker 3: I don't think so, but yeah, it was a surprise
• 17:57
  and I wouldn't have a lot of to sway, but
• 17:59
  I'm trying to give it some form of justification there.
• 18:03
  And then you know, obviously what made him change his
• 18:05
  mind is the next two months at least headline CPI
• 18:07
  produced basically zero and negative point one.
• 18:10
  Speaker 2: Well, so this is what I'm getting at.
• 18:13
  Speaker 3: Yeah, you shouldn't allow those short term swings to completely
• 18:16
  change your mind.
• 18:17
  Speaker 2: Beyond that, Mike, you and I can look at CPI
• 18:21
  like we're two average human beings, and we can look
• 18:24
  at CPI and say, ooh CPI good or ooh CPI bad,
• 18:30
  And it feels like that's basically what Bill Dudley's doing here.
• 18:33
  Speaker 3: Yeah, as a Federal Reserve, former Federal Reserve board member
• 18:36
  right up until twenty eighteen, You've probably still got a
• 18:40
  whole staff working for you.
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  Speaker 2: You know, It's it's just something where what's the calculus
• 18:46
  that goes into this big of a shift in your
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  thinking in three months? And that's kind of problematic quite honestly,
• 18:57
  when you're talking about like, hey, the FED needs to
• 18:59
  raise rates in late in May to hey, the Fed's
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  got to cut half a percent. Now, okay, well why
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  am I What special insight do you have on the
• 19:13
  economy then, because it seems like all you've looked at
• 19:15
  is unemployment's going up and CPI is going down and
• 19:18
  that's what you should do.
• 19:20
  Speaker 3: Do you want my most pessimistic answer, Yeah, as a
• 19:26
  Tucker does as a paid opinionist for Bloomberg. If that's
• 19:31
  what he is. His jobs to make headlines and he
• 19:37
  doesn't know how to otherwise, Like, this is a headline, right,
• 19:42
  FED should go big? Now, I think it will. People
• 19:45
  are paying to read that.
• 19:48
  Speaker 2: I guess.
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  Speaker 3: I hope that's not the came I mean, I'm gonna
• 19:51
  take the pessimistic view on this one. Want to make
• 19:54
  headlines come out with extreme opinions. That's not new.
• 19:58
  Speaker 2: I guess it's possible. Then you've also got Greg Ipp,
• 20:02
  who is a Wall Street journal calmness saying interest rates
• 20:06
  to Hi, the FED cup I half a point. So again,
• 20:08
  these are the calls are growing on this, and the
• 20:13
  interesting piece is going to be, again not what the
• 20:18
  FED actually does Wednesday, but what they signal about where
• 20:22
  they're willing to go the next few months and what
• 20:26
  that path looks like that to me, is still going
• 20:29
  to be the action quick break here when we come back.
• 20:31
  It's Wall Street Watch.
• 20:42
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 20:44
  TFE show. Breaking business news is always first right here
• 20:49
  on the Financial Exchange Radio Network. Time now for Wall
• 20:54
  Street Watch a complete look at what's moving markets so
• 20:57
  far today right here on the Financial shall Exchange Radio Network.
• 21:02
  Speaker 4: Well, it's FED meeting week, and markets are starting the
• 21:05
  week off in mixed territory after last week's gains. The
• 21:09
  SMP five hundred is now less than one percent away
• 21:11
  from its July record, inching closer to a new all
• 21:14
  time high. Right now, the Dow is up by about
• 21:18
  a quarter percent, or one hundred and twelve points, SMP
• 21:21
  five hundred is off by about a third of a percent,
• 21:24
  and the NASDAC now down over one percent or one
• 21:27
  hundred and ninety points. For US two thousand is up
• 21:30
  by over thirty of a percent or nine points, and
• 21:33
  the let me see you here at ten year treasureeled
• 21:36
  is flat at three point sixty four percent, and crude
• 21:39
  oil jumping two and a half percent higher today trading
• 21:42
  just above seventy dollars a barrel. Apple is off by
• 21:46
  about three percent after analysts at both Bank of America
• 21:49
  and JP Morgan noted that shipping times could point to
• 21:52
  lighter demand for iPhone sixteen Pro models than the prior year. Meanwhile,
• 21:57
  Bloomberg News reported late on Friday that's struggling ship maker
• 22:01
  Intel is qualified for up to three and a half
• 22:04
  billion dollars in federal grants to make advance chips for
• 22:08
  the Pentagon. Intel stock is up today by about four percent.
• 22:12
  Sticking with the chip sector, where Morgan Stanley reduced its
• 22:16
  price target of Micron Technology by forty dollars to one
• 22:19
  hundred dollars, implying less than ten percent in upside from
• 22:23
  Friday's clothes, that stock is off by about three percent. Elsewhere,
• 22:27
  Pfiser announced plans to advance an experimental treatment for a
• 22:30
  wasting disorder and cancer patients into late stage studies following
• 22:34
  as successful mid stage trial. Pfizer shares are up by
• 22:37
  about one percent, and according to the Financial Times, contact
• 22:41
  lens provider Bausch and Lahm is working on a possible sale,
• 22:45
  potentially to catch the eye of private equity. That stock
• 22:49
  is jumping by about fourteen percent so far today. I'm
• 22:53
  Tucker Silvan. That's Wall Street Watch, Mike.
• 22:55
  Speaker 2: There's a piece in the Wall Street Journal talking about
• 22:59
  some of the some of the data that we're seeing
• 23:02
  suggesting that Americans are starting to fall more behind on
• 23:06
  paying their bills. It mentions that Wall Street is alarmed
• 23:11
  on this. And this was something that I did notice
• 23:14
  last week when I believe was Ally Financial gave a
• 23:19
  little bit of guidance as far as what they're seeing
• 23:22
  on their delinquency rates, and they said, look, they're they're
• 23:25
  worse than we thought they were going to be. And
• 23:28
  that coupled with there was a report from I think
• 23:31
  was JP Morgan last week as well, not so much
• 23:35
  talking about consumers and households having trouble with their loans,
• 23:43
  but this was much more. I think they guided that, hey,
• 23:46
  their net interest margin is going to be lower than
• 23:48
  they anticipated. And all of this that you're hearing from
• 23:51
  financials is kind of pointing towards just a much more
• 23:54
  muted environment than we had been hearing prior to the
• 23:58
  last couple months.
• 23:59
  Speaker 3: Yeah, I would agree there, and I think an important
• 24:02
  distinction on alarm bells on Wall Street that can spell
• 24:07
  a few different things, because I think we are getting
• 24:09
  some alarm bills from investors at specific companies who are saying, hey,
• 24:15
  like we did with Ally, for lenders that have a
• 24:18
  bunch of below I don't know, below credit worthy debt
• 24:23
  on their books. Maybe those are credit card holders or
• 24:26
  auto loans from subprime borrowers, things along those lines.
• 24:30
  Speaker 2: Yeah, we're a little bit concerned.
• 24:32
  Speaker 3: It's not jumping to the level of saying, hey, the
• 24:35
  consumer as a whole is in detrimental shape and watch
• 24:38
  out because every brand is going to suffer because of that.
• 24:41
  And so an important distinction there. And when we look
• 24:44
  at debt levels, they're absolutely on the rise. But in
• 24:48
  the aggregate, if you take a look at overall household
• 24:50
  debt and inflation adjusted terms, we're about three percent higher
• 24:54
  than where we were at the end of twenty nineteen.
• 24:56
  I don't want us to be higher at all, but
• 24:58
  we're not talking about some thirty percent debt bubble that
• 25:02
  we've experienced over the last few months here.
• 25:04
  Speaker 2: And when you look at ALLY Financial, just because this
• 25:07
  was the one that again reported last week and you
• 25:11
  kind of looked at it and said, okay, what does
• 25:13
  this mean. Actually, I don't have the updated presentation from them.
• 25:17
  This wasn't an earnings call. It was just a presentation
• 25:20
  they were giving at the Barclay's Global Financial Services Conference.
• 25:24
  But in terms of their business and really where the
• 25:28
  bulk of it is, most of it is in consumer lending. Yeah, auto's,
• 25:34
  you know, leases, things along those lines like that. That's
• 25:37
  the bulk of it, about eighty percent of it, And
• 25:40
  so that's where they're telling you that they're seeing weakness.
• 25:43
  But quite honestly, that also matches the data that we've
• 25:45
  been seeing showing that auto loans are one of the
• 25:47
  areas that has been weakening over the past you know,
• 25:50
  six to nine months in particular, and so if that
• 25:54
  is the case, I don't know how much more we
• 25:57
  learn there. So you've got two areas in in general
• 26:00
  that are showing weakness. It's autos and credit cards mortgages.
• 26:04
  You're not really seeing any meaningful uptick in delinquencies or
• 26:07
  anything like that, which is good because that's the area
• 26:10
  that really concerns you about, you know, the stuff that
• 26:14
  gets really bad in the economy like oh eight, But
• 26:16
  you can still be going through this de leveraging cycle
• 26:19
  in other areas that can create a meaningful slowdown in
• 26:23
  the economy and a recession even without it being you know,
• 26:26
  something that's as severe as two thousand and eight.
• 26:28
  Speaker 3: Yeah, I mean, I think a few things can be true, right,
• 26:30
  it is, And so an important stat inflation adjusted debt,
• 26:33
  it's just touched the highest levels since two thousand and nine.
• 26:38
  It's still over a trillion dollars shive to two thousand
• 26:41
  and eight peak.
• 26:42
  Speaker 2: M h. It's an important distinction. Yep, right, Like that
• 26:47
  is a big distinction that was adjusted for inflation.
• 26:49
  Speaker 3: You say, I'm not sure if that last trillion piece
• 26:52
  is adjusted for inflation. Okay, I think that. Yeah, So
• 26:56
  that's the answer. And by the way, it's not acting
• 27:00
  all these companies the same, right. Capital One is another
• 27:04
  credit card company that historically has served maybe lower credit
• 27:09
  quality consumers on average, and stock's been holding up just
• 27:12
  fine recently, and so it is going to vary company
• 27:15
  by company here in terms of what their exposure really
• 27:18
  looks like. But yeah, the growth in credit card and
• 27:21
  auto loan debt over the last few years is getting
• 27:24
  to a point where it should be of concern, especially
• 27:27
  to the companies that service them.
• 27:28
  Speaker 2: Do we all talk any more about household dead or
• 27:31
  anything along those lines? Kind of there? I think that's
• 27:33
  kind of the bulk of it. Let's talk about Boeing.
• 27:37
  They have really is just one thing after another for them,
• 27:41
  isn't it. And this one is not that they you know,
• 27:45
  built a plane that isn't performing the way they wanted
• 27:48
  it to. This is Hey, they thought they had reached
• 27:51
  an agreement with their workers for a new four year
• 27:54
  collective bargaining agreement twenty five percent overall wage increases over
• 27:59
  the course of that about six percent a year, and
• 28:02
  they thought they had agreed to it. The vote comes out,
• 28:06
  what was it Thursday that it was completed, so I
• 28:08
  think early Fridays when we got news of it Friday
• 28:10
  at midnight, I think people went on strike and more
• 28:13
  than ninety percent of Boeing union workers said no, we're
• 28:17
  not doing this. So it was a pretty resounding no vote, right,
• 28:21
  you know, it's not something where it's like, well, if
• 28:22
  we can just peel a few people off, you know,
• 28:23
  we can get there. No, this is you know, pretty
• 28:26
  pretty significant. And so you've got talks that are going
• 28:30
  to be resuming soon. But obviously if you've got their
• 28:33
  Seattle area workers on strike, remember the South Carolina factory
• 28:37
  for Boeing is not unionized, and so that is not
• 28:42
  part of this strike. But you look at this and
• 28:45
  you say, okay, we you know, have to figure out
• 28:48
  how to bridge the gaps that we have here. And
• 28:52
  I think that the Boeing workers quite honestly have some
• 28:55
  good arguments when they talk about what's going on. I'll
• 28:58
  just quote here from the New York Time. Mid ranking
• 29:01
  workers represented by the Machinist Union currently earn a minimum
• 29:05
  of twenty dollars an hour, which is in line with
• 29:07
  Amazon delivery drivers who do not belong to unions. I
• 29:11
  know that twenty an hours twenty five percent higher than
• 29:13
  the sixteen at the start of the contract from two
• 29:16
  thousand and eight. Inflation has been forty four percent cumulative
• 29:19
  since then, so your wages are up again.
• 29:22
  Speaker 3: This isn't really a fair comparison because we're just looking
• 29:24
  at the starting wage, but nonetheless, you know, starts mid
• 29:28
  ranking workers, so inflation's eating up forty four percent and
• 29:33
  your wages are up twenty five percent during the same
• 29:34
  time period. It is a pretty compelling argument. And I've
• 29:38
  been struggling with, hey, who really has the upper hand here,
• 29:40
  because Boeing does have a legitimate claim here that we
• 29:43
  do not have the money to pay you as much
• 29:45
  as you want to. But the piece that workers can
• 29:49
  hang over here one, there's no real threat of Boeing
• 29:53
  being able to shift work to South Carolina right now.
• 29:56
  Speaker 2: I don't think.
• 29:56
  Speaker 3: I don't think the safety companies would allow them to.
• 29:59
  They don't have the facilities to do it. There's just
• 30:01
  no possible way they can. Furthermore, the longer this goes
• 30:04
  on is New York Times points out like there's an
• 30:08
  actual possibility that Boeing's debt could be downgraded to junk
• 30:12
  if they don't resolve this relatively quickly. And that's a
• 30:16
  pretty looming, a looming threat to have over the company.
• 30:20
  Speaker 2: It's a real problem that they have. And I don't know.
• 30:24
  I mean, I do know what the answer is going
• 30:26
  to be. In order to solve this, They're going to
• 30:27
  have to pay more. It's just a question of where
• 30:29
  can they where can they meet workers on this?
• 30:32
  Speaker 1: Uh?
• 30:32
  Speaker 2: But that is where this is going to end up
• 30:36
  going here, I don't know it. Just imagine when did
• 30:41
  the new CEO start? It was like two months ago, No,
• 30:44
  not even it was less than that, less less than
• 30:46
  two months ago. I'm fairly certain. Maybe like August maybe, yeah,
• 30:51
  and this is what you're dealing with now, I mean
• 30:53
  August eight, August.
• 30:55
  Speaker 3: Okay, so first there's the star Liner. You can't get
• 30:57
  astronauts back from space. You make an embarrassed to be fair,
• 30:59
  that's started before the CEO, did they were just up
• 31:03
  there for like five months? Well, no, they're still up
• 31:05
  there actually, yeah. Yeah, So you got the.
• 31:08
  Speaker 2: Star Liner that you've been dealing with. Now you got this.
• 31:11
  What's next? Yeah, what's next. Let's take a quick break here.
• 31:15
  When we come back, let's talk Ford and China.
• 31:21
  Speaker 1: Miss any of the show. The Financial Exchange Show podcast
• 31:24
  is available on Apple, Spotify, and iHeartRadio. Hit the subscribe
• 31:28
  button and leave us a five star review. This is
• 31:32
  the Financial Exchange Radio Network.
• 31:42
  Speaker 2: All right, Mike, We got a great piece in the
• 31:44
  Wall Street Journal today. It's titled What scared Ford's CEO
• 31:47
  in China, and it talks about Jim Farley, who has
• 31:51
  gone to China a few times in the last couple
• 31:54
  of years to check out what Chinese car manufacturers are doing.
• 31:58
  And basically he's come back multiple times and been like, guys,
• 32:03
  we need to change what we're doing because we are
• 32:05
  absolutely going to get dominated by these cars if we
• 32:09
  don't adapt quickly. Yeah, that seems to be the conclusion.
• 32:13
  Speaker 3: And he also doesn't seem to be honing in on
• 32:17
  any one specific segment. I mean obviously electric vehicles, but
• 32:22
  whether it is the ultra low cost model that we've
• 32:27
  talked about that you know, in some of these cars
• 32:29
  made in China they don't even have like an entertainment
• 32:31
  system to you know, seventy seven thousand dollars luxury evs
• 32:35
  with you know, heated arm rusts. He's pretty concerned across
• 32:39
  the board that China is creating vehicles that are compelling
• 32:44
  in a way that that American auto makers are really
• 32:46
  not competing with right now.
• 32:48
  Speaker 2: And he's going to face a number of different challenges
• 32:51
  in trying to combat this. The first is just the
• 32:55
  general cost of trying to manufacture in the United States.
• 32:59
  You can't make a ten thousand dollars car that does
• 33:02
  what these ten thousand dollars Chinese cars do in the
• 33:06
  United States. You literally can't do it. You can make
• 33:08
  a ten thousand dollars car in the US. It'd probably
• 33:11
  be a good car, it'd probably be fine, but it
• 33:13
  would lack a lot of the bells and whistles that
• 33:16
  people want on it now, and it'd be smaller than
• 33:18
  most people want now. Other things, there is a legacy automakers.
• 33:23
  There's just a really slow development cycle that you see.
• 33:27
  You know, it takes five to seven years from start
• 33:30
  to finish to bring a vehicle to life. You got
• 33:33
  to figure out how to get that down to two
• 33:35
  to three, because that's what China is doing with their
• 33:37
  new models now. And the other piece on this is, hey,
• 33:42
  just from a price perspective, if you do want to
• 33:44
  try to compete in kind of that that mid range
• 33:47
  that China is trying to sell out in, like the
• 33:49
  thirty to forty thousand dollars range that're selling at overseas, hey,
• 33:54
  you probably have to make different vehicles than you're making now.
• 33:57
  And this is part of the reason why for I
• 34:00
  had to move away from an EV that was Explorer sized,
• 34:04
  because they said, look, we can't compete on price for
• 34:08
  something that's that size and also an EV. We're going
• 34:10
  to have to do something different here. And this again
• 34:16
  Farley I think correctly surmises. He says, Look, this is
• 34:19
  an existential threat.
• 34:22
  Speaker 3: It is just like Toyota was two or three decades ago.
• 34:26
  Speaker 2: More so could BA more so, and how they deal
• 34:30
  with this is going to be I think what determines
• 34:33
  where Ford and other US based automakers are five ten
• 34:37
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• 35:47
  Speaker 3: Chuck, do you find it interesting that this piece was
• 35:49
  I mean, this piece contains interviews with you know, higher
• 35:53
  ups at Ford currently, it's not all former executives.
• 35:56
  Speaker 2: What does it tell you.
• 35:56
  Speaker 3: That I mean Farley Maybe I'm not sure he didn't
• 36:01
  write the piece, but he clearly allowed for this information
• 36:05
  to get out that Ford feels well behind the eight
• 36:07
  ball when it comes to competition with China.
• 36:10
  Speaker 2: What does that tell you that Ford wants higher tariffs
• 36:12
  on China EV's coming into the country. Yeah, there's always
• 36:16
  a motive behind this. It's why am I reading this now?
• 36:18
  Companies don't generally put out something that paints them as
• 36:23
  being in a you know, kind of not great spot voluntarily, right,
• 36:28
  And so you say, Okay, why am I reading this now?
• 36:31
  And ultimately it's probably to try to build pressure for
• 36:35
  tariffs on Chinese vehicles coming into the United States.
• 36:39
  Speaker 3: Which I think is of all the arguments that I've
• 36:41
  seen for them, among.
• 36:43
  Speaker 2: The worst.
• 36:46
  Speaker 3: Like pretty good arguments that I can think of, like, hey,
• 36:48
  you don't want vehicles spying on you don't want this,
• 36:49
  that and the other. The argument of we can't compete
• 36:53
  because they are so much better at this than us
• 36:55
  is not a great argument.
• 36:56
  Speaker 2: No, if ultimately someone built a product better than you
• 37:02
  at a cheaper cost, and you shouldn't be in business,
• 37:05
  you deserve to lose. Yeah. Now, if you want to say, hey,
• 37:09
  the only reason they can build that product at that
• 37:11
  cost is because of giant state subsidies and it's not
• 37:13
  a level playing field, Okay, let's let's talk about that.
• 37:16
  Good argument, but not what this piece is about. The
• 37:18
  argument in this piece, and again they interviewed Jim Farley
• 37:21
  for this, and it was these cars are too good
• 37:24
  and we've got to do better. Yeah. The argument was not, hey,
• 37:29
  these cars are too good because they're being funneled billions
• 37:32
  of dollars by the Chinese government. Okay, that that's a
• 37:36
  more reasonable argument that it's not a level playing field,
• 37:38
  as opposed to, well, they got heated armress, how are
• 37:41
  we going to do that? But why do you need
• 37:44
  a heated armrest? Now? Arms get cold? Chuck, You know
• 37:47
  nobody you ever heard of. My arms are chili. The
• 37:51
  elbow has like no nerves in it on the outside.
• 37:54
  It doesn't even feel anything. You can pinch it and
• 37:56
  squeeze as hard as you want and nothing even happen.
• 38:00
  Speaker 4: I do like the steering wheel warmer, yes.
• 38:02
  Speaker 2: Because there are lots of nerves in your hands.
• 38:05
  Speaker 4: It's nice in the winter.
• 38:06
  Speaker 2: It's wonderful. I don't disagree. I finally, my my outback
• 38:09
  has one of those now, and it's.
• 38:10
  Speaker 4: Like a warm blanket.
• 38:12
  Speaker 2: I don't debate that.
• 38:13
  Speaker 3: Most of the features that are brought up in these
• 38:14
  things to me sound completely unnecessary, such as large. They
• 38:20
  had one of large touch screens with hand gestures that
• 38:23
  will track others, that will turn on your lights when
• 38:25
  you get home.
• 38:25
  Speaker 2: They won.
• 38:26
  Speaker 3: I think it was like in a coss Oil's diffuser. Yeah,
• 38:29
  essential oils difuser in the car.
• 38:31
  Speaker 2: Why do I need? Why do I want that? Yeah?
• 38:33
  Speaker 3: I agree that I don't need any of these things.
• 38:35
  But to Farley's point, there aren't any automakers even toying
• 38:41
  with it, so yeah, there's some innovation going on in China.
• 38:45
  Speaker 2: Why do I need ambient lighting with one hundred and
• 38:47
  twenty eight colors? Well? Have you ever been in cash
• 38:52
  Gap and wouldn't massage seats just put me to sleep
• 38:54
  while driving? Well, it's for your passengers. I don't know.
• 38:59
  Why do I want them to be that comfortable? You
• 39:01
  gotta stay awake on the road. Guys. Let's take a
• 39:04
  quick break here. We got our two coming up in
• 39:06
  just a little bit.