Latest / The Financial Exchange Show / Why are small caps rallying after Trump won the election?

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Why are small caps rallying after Trump won the election? · The Financial Exchange Show

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This is the Financial Exchange with Mike Armstone and Paul Lane.
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Speaker 2: Good morning, welcome back to the Financial Exchange. We're officially
1:19
one week out from US elections here and continues to
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be the main topic of conversation is what will the
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economy under Trump administration two point to zero look like?
1:30
And we'll be continued to dive in there. We've also
1:33
got a reading on inflation coming out tomorrow. The CPI
1:36
will be out Thursday, We've got our initial jobless claims,
1:39
and then Friday, a whole slew of different economic data,
1:42
import prices, Empire State manufacturing a big one from retail sales.
1:47
Is always important to look at industrial production, production, capacity, utilization.
1:53
But it continues to be a busy week of debating
1:56
what the Trump economy will look like. And we're also
1:58
welcoming back Paul to the show, who was off the
2:01
last couple of weeks. I can't remember why. Something about
2:04
a hospital visit and some screaming. From what I understand that.
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Speaker 3: Sounds really bleak.
2:09
Speaker 4: Uh.
2:09
Speaker 3: It was a positive, positive news. But in addition to
2:12
the family, so.
2:13
Speaker 2: New member of the Financial Exchange team and Armstrong Advisory
2:17
group family.
2:18
Speaker 3: If I make any slips or just completely go blank. Yeah,
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everyone knows why that lack of sleep and having my
2:28
head buried in diapers and bottles. Phil last week or
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so I heard, there was a presidential one.
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Speaker 2: Yeah yeah, yeah, yeah, Well, you know, congratulations from all
2:37
of us, Paul, Thank you so much doing your job
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to keep the US population growing, joining the UH joining
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the three Kids club, which which you know I'm also
2:47
a member of. So exciting stuff there. Stocks this morning
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edging slightly lower, really is kind of a vacuum of
2:54
data coming out right now. We've had earnings from Home Depot,
2:57
but other than that, just kind of waiting on appointments,
3:00
waiting on the final results of house races to see
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the makeup of Congress, and and you know, really you know,
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waiting on obviously specific policy to come from the Trump
3:10
administration regarding tariffs, taxes and everything in between. But you know,
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so far, there have been a few trends that have
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played out in markets over the last week other than
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just the general trend of markets moving higher on the
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election news. One would be the play out of financial
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stocks up. You've had you know, a few companies run
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by close advisors to the next president doing well Tesla
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in particular. Obviously, bank stocks have done quite well on
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some deregulation news and then generally a trend towards smaller
3:45
sized companies, and you know, theories abound as to why
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that might be. It's not terribly obvious why small cap
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companies would do better than large ones in a in
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a Trump environment, But a few of the theories that
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have been thrown out would be, Hey, if you do
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a bunch of deregulation as a percentage of you know,
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total firm revenue or total firm expenses, it's a lot
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more expensive for a small company to adhere to compliance
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and rules than it is for say, Goldman Sachs to
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comply with you know, all the sorts of rules and
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regulations that are out there, and that applies to energy companies, financials,
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all sorts of different companies. You also have the theory that, hey,
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you know, if you're a smaller sized company, you're probably
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doing more business within the borders of the United States,
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so maybe not as susceptible to tariffs should they come
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in the future. And then I guess the final piece
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on all of that. Nope, I lost the final piece
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so it was those two.
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Speaker 3: Can I post a question back to you, and this
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is a fall up on the head in the sand
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for the past week or so. Is Tesla's meteoric rise
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that we've seen over the course last week. Obviously we
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know how closely aligned Elon Musk is to President Trump,
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but the swell that they've seen is just astounding. And
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I just am trying to speculate to other than him
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being a close advisor and constituent with Trump, where how
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that's such a significant benefit to Tesla as a company monetarily.
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Speaker 2: So I guess one, I'm not sure there is a firm,
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firm connection here. I think a lot of it might
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be purely what you just speculately said is, hey, this
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is a key advisor to President Trump. He's going to
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have his ear, and you know, I think reasonably you
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can expect that policies towards a company like Tesla will
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be a little bit more favorable than if you had
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had a Harris administration moving in. I think that's a
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fair statement. Other things that come to mind, though, Let's
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say that you do see stiff tariffs on foreign automakers
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importing cars into the United States, the Hyundas, the Toyotas
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of the world, who are producing cars in Mexico and
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other parts of the globe. That doesn't affect Tesla very much, right,
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they do a lot, you know, pretty much all of
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the cars that they bring and sell into the United
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States are made here. Now, they also have a very
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big manufacturing plant in China, and so that would be
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the counterpoint on the Tesla argument as well. You know,
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if we're going to start hitting China with all sorts
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of trade issues, know that doesn't directly affect Tesla's business immediately,
6:18
because they're not producing those cars in China and importing
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them into the United States. But you can imagine a
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bit of a tit for tat here, right Elon Musk,
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for all the benefits of being close to Trump, may
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also be a target of the Chinese government if those
6:31
things compound substantial.
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Speaker 3: Yeah, the way I was thinking about is just in
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the EV space, there's already absurd tariffs in place, so
6:37
that we cannot import really any electrical vehicles from China as.
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Speaker 2: It is China, true, but Korea, you know, other nations
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do import them substantially. You know, what does that look
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like in terms of favorability towards Elon Musk and Tesla. Again,
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I think an open question, and you know, could you
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convince me that some of the rally has been just
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pure speculation without much thought to it. Yeah, absolutely sure,
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But you know, I think there are some arguments here
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that they could that they could substantially do better. The
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other piece would be I have a tough time believing
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that a Trump administration is going to have a lot
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of favorable economic policy towards reducing gas powered vehicles. So
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you know, where does that leave Elon Musk. But on
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the other hand, does Tesla need those substantial benefits at
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this point to get their business off the ground? Now
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they're already the largest ev producer here in the United States.
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They don't need the same subsidies that maybe a new
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Ford plant or new General Motors plant would need to
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get off the ground and compete. And so if that
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stuff goes away, maybe it comparatively leaves Tesla in a
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better position. Again, these are just pure speculation, But yeah,
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as you mentioned, the stock has popped what it.
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Speaker 3: Was twenty percent over the last five days, it seems
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from what I was just looking at, so.
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Speaker 2: Any others you've seen in markets to this point, right,
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I mean, you've seen a broad based rally, there's a
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general expectation of lower taxes, but other than that, I
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don't think anybody has a real firm grasp on what
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the overall Trump two point zero economy is going to
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look like yet, and that's reasonable, it's very early.
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Speaker 3: The tariffs piece is certainly something that we need to
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continue to pars through as much information as we get
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in regards to those issues and what those are going
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to look like. Obviously getting the final results on what
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the House is going to look like after all those elections,
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I believe I was reading that it's still four more
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seats that would be required in order to get a
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majority for the Republicans, but there's still eighteen races that
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have yet to be called, so that information is important. Certainly,
8:47
the small cap rally that we saw has been quite
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impressive ten percent over the last five days or so
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post election for those small caps, and then the overall
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market rally in general that we've seen. On the interest
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rate front, that's something that I certainly found interesting a
9:02
direct result after the election, where the US ten year
9:05
treasury spiked up to at one point a high of
9:08
four point seventy five percent, but I believe on closes
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four point four to three percent is the highest that
9:13
we saw on the US ten year treasury that subsided
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a little bit. Today we sit as the bond market
9:18
reopened after being closed yesterday at four point three eight percent.
9:22
It was four point three one percent ahead of the election.
9:24
So certainly on the interest rate side of things, that
9:28
is something interesting to follow. There was speculation that with
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Trump getting into office that was going to increase deficits
9:34
and spending, and that's why we saw a little bit
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of the run up on the US ten year treasure yields.
9:39
So that's something that certainly is a lot of focus
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because that has direct impact to a housing market that's
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been really itching for lower interest rates, and that's not
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what we saw in an initial, you know, kind of
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whipsaw reaction to the election results.
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Speaker 2: Let's take a quick break when we come back, we're
9:57
going to take a brief politics Trump two point oh break. Here.
10:01
We had earnings from Home Depot this morning. I want
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to dive in there as it is attached to interest
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rates and what we're seeing there. Quick break Home Depot earnings.
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Speaker 1: When we return, this is your home for the most
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11:08
Speaker 2: We were discussing interest rates a little bit before the
11:11
break here and you know, taking a look at recent moves.
11:15
On September sixteenth, on the ten year treasury, we reached
11:18
a recent low ten year Treasury got as low as
11:22
three point six one percent back on September sixteenth. Since
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then it has just been a solid push back upwards,
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and not entirely related to the the election, although you know,
11:35
some have theorized that this is in part related to
11:38
a Donald Trump trade but nonetheless, the ten year today
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sitting at four point three seven And I bring that
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up because it is the key driver of mortgage rates,
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which are now, according to Mortgage News Daily, sitting at
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six point nine to two percent on the thirty year fixed.
11:53
All that brings me to Home Depot earnings, which reported
11:56
before the bell today. Stock is off by about a
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quarter of a percent this morning. Having a reasonably solid
12:02
year in most years would be you know, knock them
12:05
to cover off the ball, but up eighteen percent so
12:07
far for the year and facing well, frankly, just facing
12:12
a slowdown is what Home Depot is dealing with right now,
12:15
and I think it can be largely explained by the
12:19
lack of housing market activity. But you know, Home Depot
12:23
really doing quite a bit to battle against that that
12:27
pullback and spending. But there really is only let's put
12:31
it this way, there's only so many twenty foot skeletons
12:33
you can sell.
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Speaker 3: It was incredible how popular it became.
12:39
Speaker 2: I couldn't see it all over town. Yeah you saw one, and.
12:41
Speaker 3: Then they just they'd exploded in popularity. But to your point,
12:44
to further in hone in on what home Depot strategy
12:47
has been. Obviously, we all know they did tremendously well
12:50
COVID in post COVID as everyone was locked inside and
12:53
there was a tremendous amount of focusing on spending on
12:57
durable goods. Now there's been a much greater larger on
13:00
consumer spending to leisure and hospitality, and that trend has
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still continued on through the end of twenty twenty four here.
13:07
So there's been a strategic pivot, not necessarily pivot, but
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maybe more enhanced focus on the professional side of things.
13:13
So half of home Depot's revenue comes from selling to
13:16
I'd hardly call myself a do it your selfer in
13:19
that camp, but well, let's say guys like Mike and I,
13:21
or maybe guys more sophisticated than at least I'll put
13:24
myself in the do it yourself bottom percentile there, And
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the other half of revenue comes from professionals, from contractors,
13:31
roofers and home pros, and they had made their biggest
13:34
acquisition earlier this year, acquiring SRS Distributors for eighteen point
13:39
twenty five billion, and that was putting more investment on
13:43
the home professional side of things, catering to those people
13:46
who do large scale jobs, who are contractors and roofers,
13:50
and that's where they've been focusing because there's more demand
13:53
on that segment and less so demand on the do
13:56
it yourself project side of things.
13:58
Speaker 2: Yeah, the chief financial officer was quote saying, the consumers
14:01
are deferring purchases waiting for lower rates, and I think
14:04
that was the key takeaway really across their business that
14:07
you know, there's just not the volume of stuff going
14:11
on because home equity line rates are high, mortgage rates
14:14
are high, and everybody well, frankly, everybody going into this
14:17
fall was expecting substantially lower rates come the spring and
14:21
probably was just waiting on things. Comp store sales were
14:24
down one point three percent, so there you're looking at,
14:27
you know, how did sales do in stores that were
14:30
open for the last twelve months, So you can really
14:32
you know, look at comparable stores and you know that's
14:35
not terrible, you know, given what we've seen with rates
14:38
and the anticipation of rates falling. I don't think seeing
14:40
your sales drop by one point three percent is really
14:43
a bad news story. Hence, while you're not seeing a
14:45
big sell off here, in fact, analysts were expecting more
14:48
like a three percent drop in sales. So that's pretty
14:52
solid performance to expectations. But quite frankly, in a market
14:58
where there's only like, I don't even know them most
15:00
recent number eight nine hundred thousand homes for sale, it's
15:03
going to be challenging for Home Depot to adapt to
15:05
that and to deal with it. I was talking to
15:08
someone the other day that was in a kind of
15:10
interesting position. So they had with a commercial property they had,
15:15
they had a balloon payment come due, and so they decided, hey,
15:17
short term, I'm just going to put this on our
15:19
home equity line of credit, and so they they bumped
15:22
up the home equity line. And so I was meeting
15:24
with them yesterday and their home equity line of credit
15:27
is sitting at seven percent. These days, they're getting refinance
15:30
options to turn this thing into a fixed rate mortgage,
15:32
which you know is always appealing with you know, when
15:35
you've got a big bucket of money sitting out in
15:37
that line of credit to say, Okay, I'm going to
15:39
lock in the rate here and just know my expected
15:41
schedule here I found interesting. But they were getting fifteen
15:46
year mortgage rate quotes at six and a half percent,
15:50
and I said, gee, I'm you know, it's tough because
15:52
I could see that six and a half percent going
15:54
up a little bit over the next few months. Right,
15:56
you might get that higher, so you might want to
15:59
lock it in now. But on the other hand, I
16:01
could also see the seven percent going down two six
16:03
and a half or below over the next few months,
16:05
And so what do you do in that scenario? And
16:08
it was a bit of a push in those circumstances.
16:11
But we're just in this uniquely strange period where the
16:15
FED seems to be on a path of lower rates,
16:17
although it's unclear how much, whereas longer term rates are
16:21
very much reacting immediately to this, you know, political scenario
16:25
and drome. Powell and the FED are saying, well, let's
16:27
wait and see what happens.
16:29
Speaker 3: Sure, and then you have all the subjects that we're
16:31
going to cover on the tariff side of things, where
16:33
you sit and say, gee, we're projecting all these rate cuts,
16:36
you know, heading into year end and perhaps going through
16:39
twenty twenty five, does that persist or is there inflationary
16:43
pressure from some of the economic measures that we may
16:46
see heading into next year.
16:47
Speaker 2: Yeah, so tremendous amount of I don't know, just continued
16:52
questions about the state of the US housing market and when,
16:56
if ever, it's going to shift back in the other direction.
16:59
To get the actual data point there, as of October
17:03
of this year, there were nine hundred fifty three thousand,
17:06
eight hundred and fourteen active listings for properties for sale
17:11
in the United States. Taking a look at that same
17:14
data point in October of twenty nineteen, there were one
17:17
point two million. So, I mean, we're climbing, we're heading
17:20
in the right direction, but you know, and that is
17:23
the highest we've seen since post COVID, So you know,
17:26
we're we are definitively heading in the right direction here
17:28
in terms of listings. But when you're still a good
17:32
what's that twenty five percent thirty percent lower than pre COVID,
17:35
you can see where it's tough for home depot to
17:37
continue in that direction.
17:38
Speaker 3: With mortgage rates on the thirty year fix. Looking at
17:41
the Saint Louis fed sitting at about six point eight
17:43
percent today. That reached a low of about six point
17:46
one back in September. So that's the other piece of
17:49
the equation is where is that thirty year.
17:51
Speaker 2: Going to settle? Oil price is moving up slightly as
17:54
OPEK is trimming their demand forecast for the fourth straight
17:58
month in a row. They're now expecting demands to grow
18:01
by only one point eight two million barrels a day
18:04
this year, followed by one point five four million barrels
18:07
a day for the next. We've talked a fair bit
18:10
about oil markets in the context of twenty twenty four
18:14
compared to decades past, and I've made the argument that frankly,
18:19
what OPEC does and says is not nearly as important
18:21
as where they were a few decades ago, with the
18:25
with America's ability to pump out more oil than the
18:27
Saudis these days. Nonetheless, what they do and say does
18:30
move markets here and there. Oil now sitting at sixty
18:34
nine dollars per barrel on West Texas crude. In terms
18:37
of gasoline prices around the Northeast as well as the
18:41
overall United States, you're now sitting an average just above
18:44
three bucks per gallon. Three dollars and eight cents is
18:47
the national average according to Triple A. Here in Massachusetts
18:50
are sitting at three dollars and four cents. I'm rounding
18:53
on these New Hampshire at two ninety seven, main at
18:55
three oh four, Vermont sitting at three thirteen, Rhode Island.
19:01
If I can manage to hover over you sitting over
19:03
at two ninety four, Connecticut at three oh five a gallon,
19:07
And let's get out to Oregon, which is sitting at
19:10
three fifty nine per gallon. Let's go ahead and take
19:15
a quick break here as markets are mainly just sitting
19:18
here in neutral territory for the moment. A little bit
19:21
of a flip happening in the Nasdaq will cover all
19:23
of that and more next with Wall Street Watch.
19:43
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
19:50
on the Financial Exchange Radio Network. Time now for Wall
19:55
Street Watch a complete look at what's moving market so
19:58
far today right here on the Financial Exchange Radio Network.
20:02
Speaker 4: Well, markets are mostly quiet and in mixed territory following
20:06
another day of record highs. As Wall Street awaits tomorrow
20:09
morning's Consumer Price Index, for another inflation reading at the
20:14
moment that I was down by a quarter of a percent,
20:17
SMP five hundred is down by only four points, and
20:20
the Nasdaq is up by fifteen points. Russell two thousand
20:24
is pulling back by about half a percent. Ten year
20:27
Treasury iel up by six basis points at four point
20:30
three six percent, and crude oil up over three quarters
20:34
of a percent, trading at sixty eight dollars in sixty
20:37
one cents a barrel. Home Depot down by one percent
20:40
after the home improvement retailer beat third quarter earnings expectations
20:44
and lifted its full year outlook. During the quarter, home
20:47
Depots saw customers purchase grills in other outdoor products and
20:51
also prepared for hurricanes in the Southeast. The company sales
20:55
climbed more than six percent on a year over year basis. Meanwhile,
21:00
e commerce platform operator Shopify also reported better than expected
21:04
third quarter revenue and said growth could be even higher
21:08
in the fourth quarter. Shopify shares surging by twenty five percent. Elsewhere,
21:15
Live Nation up by four percent. After the music and
21:17
entertainment company b third quarter earnings expectations but narrowly missed
21:21
on revenue following a big summer concert season this year,
21:26
and Live Nation said it anticipates more growth next year.
21:30
Honeywell jumping by five percent after Elliott Management disclosed a
21:34
five billion dollar stake in the industrial giant, recommending the
21:37
Honeywell pursue separation of aerospace and automation. Netflix this morning
21:42
said that more than fifty percent of its new signups
21:45
were for AD supported plans and countries that offer the option.
21:49
Netflix launched its ad supported plan two years ago and
21:52
has now reached seventy million global monthly active users for
21:56
that tier. Netflix up by one percent, and shares enticson
22:00
foods are up by twelve percent. After the poultry process
22:02
in companies earnings and sales beat forecasts in the third
22:06
quarter on Tucker Silvan, that's Wall Street Watch.
22:09
Speaker 2: Poultry processing is a tough couple of words to get through, Tucker.
22:12
That was good.
22:12
Speaker 4: Still of Shopify share surgeing.
22:15
Speaker 2: Yeah, yeah, yeah, good good work all around, good literation.
22:19
I want to jump back in here to you know,
22:21
the economic the economy that Donald Trump is going to
22:25
inherit come January of next year. We've you know, he
22:30
has spent the last several wow, several months on the
22:34
campaign trail really, I think portraying, as Bloomber points at,
22:38
portray in the US economy as this epic disaster in
22:41
need of radical action, and so I think there is
22:44
likely going to be an expectation that he take radical
22:48
action on the economy, and there's a few areas where
22:50
he's likely to do so. I would, as we've talked about,
22:55
we tend to take a very balanced approach on this
22:58
show when it comes to things, and i'veoted out I
23:01
recognize how much Americans hate inflation. It has, you know,
23:05
been the main reason I think that Americans have been
23:08
responding so poorly to surveys on how the economy is doing.
23:12
But what I would have pointed out several times is
23:14
that in terms of the key metrics that you would
23:17
look at to judge and economy, and let's say, compared
23:20
to our peers in the developed world, the American economy
23:23
is close to as good as it has been ever historically.
23:27
We've got unemployments sitting at four point one percent. We've
23:29
got GDP growth growing still in the three percent range,
23:33
although it's been slowing down.
23:35
Speaker 1: We have.
23:38
Speaker 2: What are there some key factors here.
23:39
Speaker 3: We've invalation that's come back down to a reasonable level
23:42
at two point four percent from where it was.
23:44
Speaker 2: Inflation that has been declining, a you know, labor force
23:49
participation rate, and a you know, worker to population ratio
23:53
that's nearly as high as it has ever been.
23:56
Speaker 3: Real wages have been up recently recently.
23:58
Speaker 2: Yeah, and so look, portraying the economy as an epic
24:03
disaster was clearly a successful political thing to run on,
24:07
right like. That worked very clearly based on the results
24:11
that we are seeing right now, and I can see
24:13
why it worked. The question is going to be, how
24:17
do you thread this needle of an economy that by
24:20
all accounts definitely slowing down over the last few months,
24:23
but does not have nearly as much capacity for investment
24:27
and by that I mean the ability for unemployment to
24:31
go substantially lower, for GDP to tick back up without
24:36
another surge in inflation. How do you thread that needle
24:39
of truly growing things while not reigniting the key economic
24:46
metric that clearly all Americans despise. It is going to
24:50
be an especially unique challenge for any administration, including the
24:53
Trump administration, to now go and tackle come January of
24:56
next year.
24:57
Speaker 3: No, I think you did a good job of laying
24:58
that out, you can really carve up the economy two
25:00
different ways. One side you pointed out low unemployment, inflation
25:04
that's come back down to reasonable levels, real rages have
25:07
done okay, and GDP growth has been in a real
25:10
relatively good position. However, if you want to argue the
25:13
other side of things, inflation is the first thing you're
25:15
going to hang your hat on that that punishment that
25:18
consumers have endured over the last couple of years has
25:21
left a permanent mark. And then you have a little
25:23
bit of a slowdown in hiring and a housing market that,
25:27
like you mentioned, it's been pretty frozen. Yeah it's come
25:30
back a little bit, but it's been a really challenging
25:32
housing market. Those are kind of the two sides of
25:34
the coin. But you're in a position where a lot
25:37
of promises have been made from an economic side of things,
25:40
and I thought that Bloomberg did an interest a good
25:43
piece here of pointing out that sometimes the best action
25:46
to take is is no action, and you can't do
25:49
that now. No, you can't not basically suicide right now
25:53
it is, but having a bipartisan or a split in
25:57
the House is something that they re friends back in
26:00
nineteen ninety four where President Clinton had tried to go
26:03
through a huge healthcare reform, but then in his second term,
26:06
the Republicans took over both houses and basically put it
26:10
at a gridlock where he was unable to institute any
26:12
domestic policy. And what you had come up a good
26:15
time for the US economy, and what you had come
26:17
out of that was nothing based on Clinton's innovation. It
26:21
was Silicon Valley establishing some of these transformative companies that
26:25
have presided over the US economy now for decades, in
26:28
Apple and Microsoft and others really make the economy boom.
26:33
And it's just not to say we're at that point
26:35
this time around, but it will be interesting to see
26:38
where we land from a policy perspective. But I would
26:41
agree with you can't really just go by with nothing
26:45
to do going forward in terms of a policy.
26:47
Speaker 2: Front now whenever there are pieces written about this, and
26:51
I would agree that. Look, if you look at the
26:53
policies that Donald Trump campaigned on higher tariffs, much lower taxes.
26:58
I'm not talking about just extent the twenty seventeen Tax
27:01
Cuts and Jobs Act. I'm talking about all the pledges
27:03
he made on tips over time, social security. Those things,
27:09
you know, you go and implement all of those, you
27:11
can talk about them being inflationary. There's been a lot
27:13
written about that. I will say that the pieces that
27:17
I've read that have been written have not been terribly specific.
27:19
So I do want to get specific on some of
27:21
this stuff for a moment, Because in twenty twenty two,
27:25
Americans faced nine percent year over year inflation. That was
27:29
a result. At the time, nobody really knew exactly what
27:33
was causing it, whether it was purely the shutdowns from
27:36
COVID and restarting an economy, whether it was all the
27:39
stimulus that was passed. It turned out, now that we've
27:43
had a few years to look at it, that the
27:45
shutdowns and the you know, the supply chain issues that
27:50
we faced during COVID were a far bigger cause of
27:53
that inflation than the stimulus checks, which also contributed. What
27:57
I will point out is I am worried about a
28:00
potential resurgence of inflation depending on what Trump's policies look
28:03
like over the next four years. I am not even
28:06
remotely concerned about nine percent inflation. I think that's next
28:09
to an impossibility. You have to make some really really
28:12
bad decisions to get us to nine percent inflation again,
28:16
and I don't think that's what we should be worried about.
28:18
And that's also why I dislike some of these pieces
28:21
is they tend to be a little bit of alarmist.
28:23
If we get to four percent inflation again, that would
28:26
be really bad, but it would be nothing like what
28:30
we saw in twenty twenty two. And so I have
28:32
to take a step back and really, you know, really
28:35
reframe some of this stuff, because I think what Americans
28:38
are dealing with over the last few years and why
28:40
they've been so dissatisfied is because prices on average moved
28:43
up a good twenty five percent over a four year
28:46
time period. I can't really envision a scenario where we
28:50
get there again. I can see where we get, you know,
28:53
three or four percent inflation. That would be bad. Rates
28:56
would go higher, it would cause all sorts of problems,
28:58
but tough for me to see the type of psychological
29:01
damage that was inflicted on the American public like we
29:04
saw from twenty twenty through twenty twenty Four's that's the
29:08
piece that I want to be clear about, is might
29:09
we see inflation again? Yeah? Is going to be nine percent?
29:12
Very very unlikely to get there anytime in the near future.
29:16
Let's take a quick break. When we come back, I
29:18
want to start digging into raff plants what this starts
29:21
to look like. My argument would be, you've kind of
29:23
got China on the ropes right now. Let's talk about
29:26
that and what it might look like from a Trump administration. Next.
29:30
Speaker 1: Text us at six one seven, three, six two one
29:33
three eighty five with your comments and questions about today's show,
29:36
and let us know what you think about the stories
29:38
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29:58
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30:08
Speaker 2: Without knowing the makeup of Congress, it's incredibly difficult to
30:11
know which tax priorities, which other economic priorities will be passed,
30:18
and which ones will not. But one that seems certain
30:20
is tariffs. The has been a lot talked about on
30:22
the campaign trail about the use of tariffs and how
30:25
Donald Trump views trade, which is fair trade over free trade.
30:29
I think is is you know, the term that has
30:32
been coined here, and I think more than likely front
30:35
and center is going to be China. There was, you know,
30:40
the key of the policy from twenty sixteen to twenty twenty.
30:43
Nothing that I have seen has indicated that Donald Trump
30:45
has had a change of heart when it comes to
30:47
trade with China, and so I think that is going
30:49
to be the crux of the issue. The thing that
30:52
has changed with China, in my view at least, has
30:55
been a bit of a bursting of the bubble over there, right,
30:58
You've had a real estate mark that's been in free fall.
31:01
Their economy has not recovered from COVID in the way
31:04
that the United States has. And my perspective on this
31:07
would be you've got kind of China on the ropes here.
31:09
If you really want to drive this home, there are
31:12
ways to do so. And I'll be interested to see
31:16
what the Trump administration two point zero approach to trade
31:21
with China is. What does this mean for TikTok? What
31:23
does this mean for you know, Chinese ev makers? And
31:28
I'll take the same approach that I have for a
31:31
while here, which is if your goal is truly to
31:35
drive change in China, then there's one thing that you
31:39
have to be able to do here in addition to
31:41
just you know, slapping tariffs on Chinese goods, it is
31:45
teaming up with Europe, Canada, and India to drive that
31:50
move home. And that's the piece I'm unsure that you know,
31:54
a Trump administration is willing to do here, and for
31:56
good reason, right like, Germany, for instance, has had very
32:00
close ties with China, and I can see why we
32:02
might want to object to that sort of thing. But
32:05
there seems to be recently a bit of a turn,
32:08
you know, you know, Europe has been getting more on
32:10
board with larger tariffs on Chinese evs. For example. India
32:15
kind of always drives its own path, but you know,
32:17
certainly not great relations with China and doesn't want to
32:20
see their Chinese made technology and electric vehicles within their borders.
32:25
And so can you once again thread this needle where
32:28
you say, hey, Europe, get in line. You know there
32:33
will be a number of strings attached to this. I'm sure. Yeah,
32:35
you've got to beef up defense spending, You've got to
32:37
do a whole bunch of other things. But can you
32:39
get a number of close allies in line to really
32:42
take it to China, because frankly, if you don't, if
32:45
you just go the same, you know, one point zero
32:47
version on tariffs on China and the United States goes
32:50
it alone, you're not going to change anything there. You
32:53
might hurt China's economy a little bit, but you're not
32:55
going to change how they view world exports and over
33:00
supplying the world with all sorts of products.
33:02
Speaker 3: It's a lot to really consider and try and parse through.
33:06
In particular, what is it going to be more of
33:09
a negotiating tactic these tariffs that are mentioned or certainly
33:14
we're going to see some tariffs, but the extent of
33:16
them and how much of them are negotiating taxes versus
33:19
how much of them are just going to be instituted
33:22
to raise revenue for the federal government. That's what you
33:25
need to continue to focus on. I thought, reading through
33:28
some of the information, what blew me away is that
33:31
the relatively small percentage of the federal revenue that comes
33:34
from tariffs in general, it is only two or three percent,
33:38
somewhere in that range. If you look at all the
33:41
revenue that the federal government had last year, less than
33:44
two percent of it was from tariffs. So even if
33:47
you were to jack up tariffs across the board at
33:51
ten percent from other importers out there outside of China,
33:54
sixty percent for China, it's not going to make a
33:57
huge dent into what the federal government derives from our
34:01
revenue perspective.
34:02
Speaker 2: No, certainly not. I mean the stuff that has been
34:04
talked about, by the way, you're talking about threatening tariffs
34:07
of sixty percent or more on goods from China, as
34:09
well as a universal ten to twenty percent levy on
34:12
imports from any country, And that's the piece that, again
34:18
in my view, has the ability to damage more than
34:21
help the United States. Again, it depends what your goal is. Right,
34:24
If you're just levering tariffs to try and pay for
34:26
tax cuts, then yeah, you do need to levery your
34:28
tariff on every imported good into the country and really
34:31
focus on that. If you're doing it because you say
34:35
China is not competing in a reasonable fashion in the world.
34:40
They are subsidizing many key industries and trying to export
34:45
their way out of recessions, and we want to change
34:47
that behavior, then yeah, slapping tariffs on imports from Mexico,
34:51
India and Europe is a terrible idea and won't drive
34:55
your message forward.
34:56
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36:12
Speaker 2: Paul, I know that we've been talking a fair bit
36:14
about Tesla and Elon Musk's role within the Trump administration
36:18
when it comes, but sneakily, General Motors has been really
36:25
taking front and center here in terms of what they've
36:28
been doing this year. Their stock so far this year
36:30
is up a whopping sixty percent, trouncing every other competitor
36:35
there for it is down ten percent. Byd the Chinese manufacturer,
36:39
They're up twenty seven percent, Toyota's down six percent, Honda's
36:42
down thirteen percent, Volkswagen down twenty eight percent, Nissan down
36:47
thirty six percent. I don't know what le Atto is.
36:50
I'm gonna skip them. Stilantis down forty two and a
36:52
half percent, Neo down forty four percent, Lucid down forty
36:56
seven and a half percent, Rivian down fifty four point
36:59
nine percent. Now, Tesla, in fairness is up a good
37:03
thirty eight percent. But General Motors has been doing something
37:07
I think unexpected and clearly better than their rivals here
37:11
in terms of really just back to basics. It's not
37:15
as though they've rolled out a whole new line of
37:17
vehicles that's been immensely popular. They're not participating in some
37:21
EV bubble that we are misidentifying here. Really, what it's
37:25
come down to is executing on what Americans want, which
37:31
is large trucks and SUVs that don't break down frequently
37:36
as has been the case with Ford's issues, and it's
37:39
been going well for them.
37:41
Speaker 3: This was a move that was made by CEO Mary
37:44
Barra to save her job. Let's be clear. I mean
37:46
because in January of twenty twenty two, there was a
37:49
tremendous amount of focus on automas, vehicles and evs, and
37:53
she pivoted very quickly with stock buybacks and like you said,
37:57
focusing on the core common season. It's turned around the
37:59
company stock and its fortunes over the most recent history,
38:03
and it's proven to be a prescient decision. But if
38:06
she kept going down that road, I think her job
38:08
would have been nixed at that point.
38:10
Speaker 2: Yeah, But I mean good for her for realizing that, hey,
38:13
this is this is where the industry is turning, and
38:15
we don't need to focus on that quite as much.
38:17
Quick break, but a lot more to cover in the
38:19
second hour of the Financial Exchange. We'll be back with
38:22
a full market recap right after this