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Will tariff deals come quickly now that the seal is broken? · The Financial Exchange Show

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Speaker 1: Zatith and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you here on a Friday.
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Speaker 2: There are nine Federal Reserve speakers set to talk today,
1:19
Speaker 2: and so we're just gonna call to day and go
1:21
Speaker 2: home time. Yeah, we're just gonna call it a day
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Speaker 2: and go home, because you know, like, how can you
1:25
Speaker 2: compete with that when you got nine members of the
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Speaker 2: Federal Reserve getting out there and chatting it up, including Well,
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Speaker 2: here's the thing, it's really only eight because John Williams
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Speaker 2: is scheduled for two different talks. He did one at
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Speaker 2: six fifteen this morning, waking up early at least, getting
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Speaker 2: after it early, and then he's gotten eleven thirty. I
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Speaker 2: believe that his schedule's clear for the afternoon. Do people
1:57
Speaker 2: get this joke? The force is strong with the swan.
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Speaker 3: Okay, we do it every once in a while. I
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Speaker 3: hope people get it.
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Speaker 2: I think people get it. Sometime we talk about John Williams.
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Speaker 3: Yeah, Okay, it's not the same John Williams. Is it?
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Speaker 3: It is?
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Speaker 2: He went from being a composer to working on the
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Speaker 2: Federal Reserve.
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Speaker 4: What do you think is a larger percentage of the
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Speaker 4: American public, those who care about when the Federal Reserve speaks,
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Speaker 4: or those who are currently in default on their student
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Speaker 4: loan debt.
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Speaker 2: The latter. It's not even close.
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Speaker 3: Yeah, because wait, wait.
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Speaker 2: It's five million people that are in default on student
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Speaker 2: loan debt.
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Speaker 4: Yeah, I think so. So what's that like two percent
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Speaker 4: of the adult population.
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Speaker 2: Yeah, the number of people that actually like know when
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Speaker 2: the Federal re like, not even care. The number of
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Speaker 2: people that know when the Federal Reserve speaks.
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Speaker 3: Eh, there's half a percent.
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Speaker 2: There's twelve of us, you know, it's it's you, me
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Speaker 2: and Tucker and nine other people something like that. Anyways,
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Speaker 2: I digress. Uh so, uh this morning, again, this is
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Speaker 2: our top story just because it's it's at the top
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Speaker 2: of the stack, so it's our top story.
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Speaker 4: It should be too. It's most important thing of the day.
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Speaker 4: I disconcur and I'll explain why.
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Speaker 2: Okay, headline from Bloomberg Trump says eighty percent China tariff
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Speaker 2: seems right ahead of talks. So here's why I don't
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Speaker 2: think this is particularly important is because we don't know
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Speaker 2: exactly what is going to happen this weekend. The Trump administration, specifically,
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Speaker 2: President Trump has had four different numbers that he's referenced
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Speaker 2: for tariffs this week. Yeah, one of which was we're
3:34
Speaker 2: not going to move off the one hundred and forty
3:36
Speaker 2: five percent. One of which was, well, we're going to
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Speaker 2: lower it maybe to fifty or sixty percent, and now
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Speaker 2: this at eighty. So my whole point is stop paying
3:45
Speaker 2: attention to what the President is saying on tariffs each
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Speaker 2: and every day, and instead pay attention to what they
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Speaker 2: are actually doing, because otherwise you're gonna drive yourself batty.
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Speaker 3: Oh, I agree.
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Speaker 4: I was just referring to this weekend's talks on China
3:57
Speaker 4: tariffs probably being the most important thing to have the
4:00
Speaker 4: economy in markets between now and Monday. Where it goes.
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Speaker 4: I don't think anyone has any real idea, but it
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Speaker 4: seems like they're coming down. I think it's kind of
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Speaker 4: meaningless if they come down to eighty percent. But it
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Speaker 4: seems as though the President is setting up the conditions
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Speaker 4: under which rates of tariffs can come down this weekend.
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Speaker 2: And everyone knows that, which is why I kind of
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Speaker 2: look at it and I go, so, what do you
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Speaker 2: do with that information? Then when everyone knows something, there's
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Speaker 2: no edge, there's nothing that you can do with it.
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Speaker 2: And so I think that the interesting thing to consider
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Speaker 2: is not, hey, what happens if tariff's come down to
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Speaker 2: fifty percent, because it's kind of what's being baked in
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Speaker 2: here to the market. We can talk about what it
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Speaker 2: means to the real economy and this and that, but
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Speaker 2: let's from a market perspective. The interesting things to consider are, hey,
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Speaker 2: what if they move more than that, if terrors come
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Speaker 2: down to twenty five percent? Or hey what if things
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Speaker 2: go off the rails and we're still sitting here Monday
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Speaker 2: Tuesday and they haven't budged Yep, you.
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Speaker 4: Know, distinct possibility that these negotiations look something similar to
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Speaker 4: when the President's.
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Speaker 3: Met with Zelenski.
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Speaker 4: So there's no real predicting how these negotiations go. But
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Speaker 4: look again, we do have to cover the change in
5:23
Speaker 4: tone over the course of the last week, and the
5:25
Speaker 4: change in tone over the course of the last week
5:27
Speaker 4: has been more conciliatory from the Trump administration.
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Speaker 2: Let's talk about this change in tone because there's two
5:34
Speaker 2: tones that matter. It's a two tone engagement. And I
5:37
Speaker 2: use that word engagement here because that's the word that
5:41
Speaker 2: China has been using for the last couple of days
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Speaker 2: in describing what they're heading into this weekend. Now, I
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Speaker 2: am not an expert when it comes to internal Chinese politics,
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Speaker 2: nor am I an expert in anything relating to Chinese language.
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Speaker 3: Doesn't even speak Mandarin.
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Speaker 2: I don't know what. I literally could not tell you
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Speaker 2: one word in Mandarin, not one, not even gonna try.
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Speaker 3: My entire Chinese language came from the movie Rush Hour.
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Speaker 2: It's probably wrong, then, yeah, probably wrong. So here's what
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Speaker 2: I do know from people that tell me these things,
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Speaker 2: that know something about China. What they inform is there's
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Speaker 2: a very specific reason that China is characterizing this as
6:27
Speaker 2: an engagement rather than as a negotiation, and that from
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Speaker 2: a Chinese perspective, they are not expecting to negotiate. They
6:36
Speaker 2: are expecting to talk about what a potential negotiation could
6:41
Speaker 2: look like. So on one hand, I look at that
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Speaker 2: and I go, okay, that could mean that maybe the
6:48
Speaker 2: market is overpricing We're what it's expecting to get this weekend.
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Speaker 2: You know, market might be pricing in like an eighty
6:55
Speaker 2: percent chance the tariffs come down to fifty percent, and
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Speaker 2: maybe the reality is closer to fifty fifty.
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Speaker 3: Yeah.
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Speaker 4: The way that they have phrased this engagement has been
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Speaker 4: if the United States would like to negotiate, then do
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Speaker 4: so in good faith and eliminate the tariffs prior to
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Speaker 4: us negotiating anything. That has been the pretty consistent messaging
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Speaker 4: from them. And so if we take that as the
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Speaker 4: Chinese perspective going into this, then maybe the takeaway is
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Speaker 4: that teriff rates do in fact come down this weekend,
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Speaker 4: but it's merely as a promising starting point to a
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Speaker 4: future negotiation.
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Speaker 2: The other way that you can read that is, look,
7:32
Speaker 2: the Chinese government obviously needs to present a certain image
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Speaker 2: to its domestic populace and doesn't want to be seen
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Speaker 2: as moving too far, and so that's why they use
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Speaker 2: the term engagement. And then after they can say, hey,
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Speaker 2: we started off, this was where we were gonna be,
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Speaker 2: but the US side blew us away with you know
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Speaker 2: what they were gonna be, you know, doing, and so
7:52
Speaker 2: we decided to, you know, move forward with X, Y
7:56
Speaker 2: or Z whatever.
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Speaker 4: What are the important things that the Chinese government wants
8:00
Speaker 4: other than just produce terrorists and continued trade.
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Speaker 2: Stop borrowing and stop bothering us.
8:05
Speaker 4: I think that I think they really want semiconductors. They're
8:09
Speaker 4: not gonna get it, no, but if they if we're
8:12
Speaker 4: talking about things that they are, you know, desperately seeking
8:15
Speaker 4: the Chinese want American technology products.
8:19
Speaker 3: What is it that the United States wants from China?
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Speaker 2: Uh, to go away? To just China not exist anymore, No,
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Speaker 2: not not exist, but just stop behaving the way you've
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Speaker 2: been behaving as it relates to trade. Like go away
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Speaker 2: and like act like a normal country as it relates
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Speaker 2: to trade. That's that's the simplest and cleanest way that
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Speaker 2: if Okay, if you actually want to know what the
8:43
Speaker 2: US government wants as it relates to China, it can
8:45
Speaker 2: probably be encapsulating four or five things, a couple of
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Speaker 2: which we saw in this UK deal from yesterday. Number one,
8:51
Speaker 2: stop producing way too much stuff and then just dumping
8:55
Speaker 2: it into the world every time that you realize you
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Speaker 2: produced way too much stuff, because that's not good for
9:00
Speaker 2: anyone's business. Number two, stop engaging in export fraud where
9:05
Speaker 2: you send stuff to another country in order to avoid
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Speaker 2: tariffs and then have it relabeled as made in country
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Speaker 2: X y z instead of made in China. So those
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Speaker 2: are a couple things. Number Three, hey, stop requiring these
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Speaker 2: joint ventures in China where you basically end up stealing
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Speaker 2: a bunch of intellectual property from foreign companies in order
9:25
Speaker 2: to grant them access to the Chinese market. Number four,
9:32
Speaker 2: let your currency float freely and stop using it as
9:38
Speaker 2: a way to maintain a trade surplus with US in
9:40
Speaker 2: perpetuity and instead, you know, allow your country to develop
9:45
Speaker 2: the way that otherwise would with the trade flows that
9:47
Speaker 2: are flowing into it. I think those are probably the
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Speaker 2: four big things that the US would want.
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Speaker 4: Fence and All's on that list too, but I think
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Speaker 4: it's more of a negotiating attacking.
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Speaker 2: Yeah. Yeah, And here's the thing on those four items.
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Speaker 2: If you are the Chinese government, things worked out pretty
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Speaker 2: well for you doing what you've been doing for the
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Speaker 2: last twenty thirty years. Why are you going to change?
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Speaker 2: You know, are you going to change just because of
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Speaker 2: a month of pressure on your economy?
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Speaker 4: The Chinese, the entire philosophy of your country has been
10:22
Speaker 4: based on the idea that it is a country that
10:26
Speaker 4: has taken advantage of and suffered for a century a
10:28
Speaker 4: generation of.
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Speaker 2: At the hands of westerners, at.
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Speaker 4: The hands of westerners, and so we will not allow
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Speaker 4: that to happen to us again. That's the entire Chinese
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Speaker 4: mantra in ideology. And therefore, changing something that's been working again,
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Speaker 4: to Chuck's point, fairly well for the last thirty years,
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Speaker 4: based on an ideology that's unrecognizable in the United States.
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Speaker 4: The ideology in China has been and continues to be
10:53
Speaker 4: that the government directs investment and provides for the people,
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Speaker 4: and that is very different from the United States and
11:01
Speaker 4: Western ideology of demand drives investment. Consumers and free markets
11:07
Speaker 4: drive investments, not the government. And I don't think you're
11:10
Speaker 4: going to shake them from that view based on a
11:13
Speaker 4: weekend negotiations.
11:15
Speaker 2: So I think ultimately what markets are looking for is
11:19
Speaker 2: some kind of step down. The one that's being talked
11:21
Speaker 2: about that even the New York Post floated yesterday is yeah,
11:24
Speaker 2: we're probably gonna see like a tariff raiate of you know,
11:27
Speaker 2: between forty five and sixty percent, somewhere in that range. Okay,
11:31
Speaker 2: that's like expected.
11:33
Speaker 3: Now.
11:35
Speaker 2: The thing that has the potential to move markets is
11:37
Speaker 2: if you get something outside of there. And again I
11:41
Speaker 2: don't know how you exactly you handicap you know what
11:43
Speaker 2: the chances of these things are, but that's kind of
11:47
Speaker 2: where we are heading into the weekend at this point.
11:51
Speaker 2: Let's take a quick break when we come back now
11:54
Speaker 2: that We've had a day to look through the details
11:56
Speaker 2: of the deal between the UK and you wes, Let's
12:01
Speaker 2: talk a little bit about what we found there and
12:03
Speaker 2: what we think that means for future negotiations with other
12:06
Speaker 2: countries as well.
12:08
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12:14
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13:05
Speaker 2: All right, let's talk a little bit about this deal
13:08
Speaker 2: between the US and UK, because I think it helps
13:11
Speaker 2: to inform my thinking on where we're going with other
13:15
Speaker 2: countries here, so key starting points. Just background, the US
13:22
Speaker 2: runs a trade surplus with the UK, yes, twelve billion
13:25
Speaker 2: dollars last year. We sent them twelve billion dollars more
13:28
Speaker 2: in stuff than they sent us. Other things of note,
13:33
Speaker 2: the US and the UK, we've got some pretty close
13:36
Speaker 2: historical ties all the way back to the point where
13:38
Speaker 2: we literally fought each other over America, did we and
13:41
Speaker 2: we won? It was a long time ago, but two
13:45
Speaker 2: hundred and fifty years next year. By the way, Mel
13:46
Speaker 2: Gibson was there two hundred and fifty he was. He
13:49
Speaker 2: was He's ledger to rest in peace. But in any case,
13:54
Speaker 2: some really close historical ties. I mean you talk about
13:56
Speaker 2: like fighting alongside each other in World War One, World
13:59
Speaker 2: War TI two, all the way up through you know,
14:02
Speaker 2: Gulf War one, the Afghanistan War. I mean, yeah, these
14:06
Speaker 2: are countries with like deep, deep, you know, historical ties.
14:10
Speaker 2: I would you even get to like language and governance
14:13
Speaker 2: and stuff like that.
14:14
Speaker 4: I would argue the only country you can put in
14:16
Speaker 4: the same category would be Canada.
14:18
Speaker 2: It's it's a short list. I have like a top
14:22
Speaker 2: five that I would put there that also again just
14:24
Speaker 2: because of like language reasons, includes Australia. You probably put
14:29
Speaker 2: Japan in the conversation, but probably in the next tier,
14:34
Speaker 2: same with Germany and France. Other than that, I don't
14:36
Speaker 2: know who else you would include in that list. So
14:38
Speaker 2: it's a very short list, huge areas of strategic cooperation, military, intelligence, economic.
14:45
Speaker 2: So you put all this together and you say, Okay,
14:47
Speaker 2: this is gonna be one of the easiest deals to
14:49
Speaker 2: negotiate and should receive some of the most favorable terms agreed.
14:52
Speaker 2: So here's the interesting thing in terms of what the
14:54
Speaker 2: deal actually says. First, not a deal that is going
14:59
Speaker 2: through Congress for full fledged congressional approval. So it's not
15:02
Speaker 2: a true, you know, free trade agreement or any kind
15:05
Speaker 2: of trade agreement. It is basically a handshake deal on
15:09
Speaker 2: tariffs between leaders, which is fine, Like, it's not good
15:12
Speaker 2: or bad, it just is just.
15:14
Speaker 3: It's also not permanent because of that.
15:16
Speaker 2: Correct, it can always be amended by either side at
15:18
Speaker 2: any point in time or by the next leader of
15:21
Speaker 2: the country. Correct, here's what's going on. The UK gets
15:25
Speaker 2: to export jet engines and aerospace parts to the US
15:28
Speaker 2: with no tariffs. They also get to export one hundred
15:30
Speaker 2: thousand cars a year at ten percent rather than the
15:32
Speaker 2: twenty five percent global auto tariff, and they get to
15:35
Speaker 2: export steal to the US at zero percent. There also
15:38
Speaker 2: is a mutual reduction of tariffs on ethanol and beef,
15:41
Speaker 2: so US farmers get a little bone thrown to them
15:43
Speaker 2: as far as hey, you can export a little bit
15:45
Speaker 2: more easily to the UK, but the ten percent tariffs
15:49
Speaker 2: on all other imports from UK, the UK stays in place. Yep,
15:53
Speaker 2: still in place. So what do we actually make of this?
15:58
Speaker 2: The first is it's a really minor adjustment in the
16:01
Speaker 2: tariff rate. It's not something that is huge by any means.
16:04
Speaker 2: It's not dramatically reducing that terif rate that the UK
16:08
Speaker 2: is going to.
16:09
Speaker 3: Pay to the United States.
16:10
Speaker 2: There are some carve outs that they have, Obviously, the
16:13
Speaker 2: biggest one is that aerospace piece, where it's about a
16:16
Speaker 2: ten billion dollars a year export business to the US,
16:20
Speaker 2: largely to Boeing Because if you're not familiar with them,
16:23
Speaker 2: Rolls Royce the automaker who sells, you know, really expensive cars.
16:26
Speaker 2: They also make jet engines. They're one of like a
16:28
Speaker 2: couple major jet engine providers in the world, and they
16:32
Speaker 2: do sell to Boeing and to Airbus for use on
16:35
Speaker 2: their planes.
16:36
Speaker 4: Correct me if I'm wrong. Because of this surplus, the
16:38
Speaker 4: UK was not included on the list of reciprocal tariffs
16:41
Speaker 4: that came out back on April second, and so this
16:45
Speaker 4: was not something where we needed to start at twenty
16:48
Speaker 4: percent and negotiate our way down here. What we knew
16:51
Speaker 4: was that ten percent was in place a few months ago,
16:54
Speaker 4: and it's largely still in place.
16:55
Speaker 2: So here's where I think I end up landing on this,
16:58
Speaker 2: the ten percent blanket tariff. That's a minimum globally. The
17:01
Speaker 2: Trump administration wants to raise money via tariffs, potentially to
17:06
Speaker 2: help pay for, you know, some of the tax cuts
17:07
Speaker 2: they're looking to push through, but they view this as
17:11
Speaker 2: a revenue raiser. It is absolutely something that they want
17:14
Speaker 2: to keep out there.
17:15
Speaker 3: Yep.
17:16
Speaker 1: Uh.
17:17
Speaker 2: So you say, okay, the UK is you know, the
17:19
Speaker 2: easiest one of these to negotiate. You start getting into
17:22
Speaker 2: countries that have closer economic ties with China, and this
17:25
Speaker 2: is where I think the meat is. The US wants
17:28
Speaker 2: to try to isolate China. The airplane parts. The thing
17:31
Speaker 2: is a key piece here to me, which is, look,
17:34
Speaker 2: we'll give you the ability you want to build your
17:37
Speaker 2: you know, your country through exporting jet engines, fine sell
17:40
Speaker 2: them to us. We will give you the best terms
17:42
Speaker 2: out of anyone. And by the way, the UK has
17:45
Speaker 2: wanted to do this for a while. They've been negotiating
17:47
Speaker 2: on that jet engine piece for like ten years with
17:50
Speaker 2: the US. Fine, here you go. This is the carrot
17:53
Speaker 2: to the stick. You want this, you got it, But
17:56
Speaker 2: you're gonna deal with US if you're a country with
17:59
Speaker 2: colaster ties to China, countries like Vietnam, Malaysia that have
18:03
Speaker 2: really you know, big import exports with China and also
18:06
Speaker 2: are you know, really heavily at risk of China trying
18:10
Speaker 2: to dump product into them that they then gets rerouted
18:13
Speaker 2: to the US. Teriff rates probably aren't gonna end up
18:16
Speaker 2: landing at ten percent, I would think, not fifteen to
18:19
Speaker 2: thirty probably feels right. It might take longer to negotiate,
18:23
Speaker 2: so don't be surprised if this is something where that
18:25
Speaker 2: ninety day waiver of the reciprocal tariffs maybe get another
18:29
Speaker 2: ninety day or one hundred and eighty day that comes
18:30
Speaker 2: on the back of it.
18:31
Speaker 4: Because think of how long this one negotiation seemed to sick.
18:35
Speaker 4: We don't know how long they were negotiating behind the scenes.
18:37
Speaker 4: But my guess would be pretty immediately, starting in April,
18:41
Speaker 4: this negotiation started.
18:43
Speaker 3: And we are not done yet.
18:45
Speaker 2: Correct.
18:45
Speaker 4: This was the framework for a deal to be made
18:48
Speaker 4: that has not been executed or signed in any way. Again,
18:51
Speaker 4: it's kind of a handshake agreement between leaders, so it
18:54
Speaker 4: might not need to be executed in the same way
18:55
Speaker 4: that a congressional deal would be. But it took seemingly
18:59
Speaker 4: a month to get this one done.
19:02
Speaker 2: Now you'll probably again some of those ones that I referenced,
19:05
Speaker 2: you know, whether it's Japan, Australia, you may get a
19:08
Speaker 2: few of these popping up over the next couple weeks
19:10
Speaker 2: or so, because I think that the frameworks are likely
19:13
Speaker 2: to be pretty similar, but some of these other ones
19:16
Speaker 2: are going to be more challenging. I mean, if you're
19:18
Speaker 2: Vietnam and one of the key US asks is, hey,
19:21
Speaker 2: we're going to really push back on the amount of
19:23
Speaker 2: you know, stuff that you do with China. It's a
19:25
Speaker 2: much bigger deal for them than it is for the UK.
19:28
Speaker 2: And this is before we even get to the EU,
19:30
Speaker 2: and you know how they have some very deep China
19:32
Speaker 2: ties at this point. S take a quick break here
19:35
Speaker 2: when we come back. Wall Street watches next.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch a complete look at what's moving market so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network. Well.
20:00
Speaker 5: Markets are now flat after yesterday's rally, one day after
20:04
Speaker 5: a trade agreement between the US and UK, as Wall
20:09
Speaker 5: Street aways developments from trade talks this weekend between the
20:12
Speaker 5: US and China in Switzerland. This morning on truth Social,
20:16
Speaker 5: President Trump posted that eighty percent tariffs on China seems
20:20
Speaker 5: right right now. The Dow is off by fifty four points,
20:23
Speaker 5: just over a tenth of a percent, SMP five hundred
20:27
Speaker 5: is down by only six points, and the Nasdaq is
20:30
Speaker 5: down by merely ten points. RUSS two thousand is up
20:33
Speaker 5: just over a third of a percent. Ten year treasure
20:35
Speaker 5: Field for treating two basis points now at four point
20:38
Speaker 5: three four percent, and crude oil up three quarters of
20:42
Speaker 5: a percent, trading at sixty dollars in thirty seven cents
20:46
Speaker 5: a barrel. More travel demand worries have emerged after travel
20:49
Speaker 5: booking platform Expedia saw its quarterly revenue come up short
20:53
Speaker 5: of street expectations. Expedia also issued soft guidance as it
20:58
Speaker 5: saw weaker than expected ravel demand two and from the
21:02
Speaker 5: US that stocked down by eight and a half percent. Meanwhile,
21:07
Speaker 5: social media company Pintrest swung to a profit and guided
21:10
Speaker 5: for higher than expected revenue this quarter, helping ease concerns
21:14
Speaker 5: that trade policy would potentially hurt spending on digital advertising.
21:19
Speaker 5: Pinterest is jumping by eight percent. Elsewhere, shares in buy Now,
21:23
Speaker 5: Pay Later platform A firm down over eleven percent after
21:28
Speaker 5: its revenue guidance disappointed. A firm also said it would
21:31
Speaker 5: start a partnership with Costco after a lost Walmart in March.
21:36
Speaker 5: Lift shares popping by twenty one percent after the ride
21:39
Speaker 5: hailing company swung to an unexpected quarterly profit. Lift also
21:44
Speaker 5: increase its share buyback plan to seven hundred and fifty
21:48
Speaker 5: million dollars and shares in Monster Beverage up by one
21:51
Speaker 5: percent after the energy drink maker saw its first quarter
21:55
Speaker 5: revenue fall short of analyst's estimates. I'm Tucker Silvan. That's
21:59
Speaker 5: Wall Street.
22:00
Speaker 3: Watch Mike.
22:01
Speaker 2: There's a piece in Bloomberg. It has the headline key
22:05
Speaker 2: s and P five hundred model turns bearish for the
22:10
Speaker 2: first time. So Bloomberg wrote this about their own model,
22:15
Speaker 2: and it sounds like it must be a very key model.
22:18
Speaker 3: Then have you ever heard of this model? Chuck?
22:21
Speaker 4: No, yeh, it's the equity market Regime model, which is
22:26
Speaker 4: a Bloomberg intelligence model that tracks the benchmark stockage and
22:29
Speaker 4: clusters periods into three phases, green, yellow, and red. Effectively
22:33
Speaker 4: is all you need to know. And as you can imagine,
22:35
Speaker 4: the red is not so good, the green is pretty good.
22:38
Speaker 4: It fell into the red category recently. Okay, So I
22:43
Speaker 4: guess what I think this falls into that same category
22:47
Speaker 4: of stories that we've covered before, which is, if any
22:50
Speaker 4: story like this makes you completely upend your view on
22:53
Speaker 4: markets or the economy, then either you must have a
22:58
Speaker 4: lot of context and work for Bloomberg enough to know
23:01
Speaker 4: that this model exists and you really follow it, or
23:05
Speaker 4: you should in which case you already knew that this
23:07
Speaker 4: turned red, or you should ignore this story entirely.
23:10
Speaker 3: Is my general takeaway.
23:12
Speaker 2: Yeah, I just this is what you like what you're
23:15
Speaker 2: about to do with it? Where it's like, okay, like,
23:18
Speaker 2: do they update you every day whether it's red, yellow,
23:20
Speaker 2: or green? The answer is no, but they maybe if
23:23
Speaker 2: you subscribe to a Bloomberg terminal for ten grand a year? Uh,
23:27
Speaker 2: more than double that?
23:28
Speaker 3: Really? Yeah, that's what Bloomberg terminal is going for.
23:30
Speaker 2: More than double that?
23:31
Speaker 3: Wow? Yep, wow, yeah, that's a lot of money.
23:34
Speaker 2: Yeah, inflation, you know, right, it's yeah.
23:37
Speaker 4: So, yes, we are apparently in a red regime in
23:39
Speaker 4: this Bloomberg intelligence model. The biggest warning was that the
23:43
Speaker 4: sess and P five hundred clothes below it's two hundred
23:46
Speaker 4: day moving daily moving average in March, the first time
23:48
Speaker 4: since November of twenty twenty three. Again, if that means
23:53
Speaker 4: nothing to you, then ignore this story entirely.
23:58
Speaker 2: It brings us to our next piece from the Wall
24:00
Speaker 2: Street Journal, why this stock market bounce won't hold subheadline.
24:05
Speaker 2: After Liberation Days, stocks fell a lot, perhaps too much.
24:09
Speaker 4: We were talking about today's market bounce because that one
24:11
Speaker 4: did start positive and is now negative.
24:12
Speaker 2: They've now rebounded a lot, perhaps too much. So, I mean, look,
24:20
Speaker 2: here's here's the deal. I work in the investment business,
24:25
Speaker 2: you do, I've done that for almost sixteen years, and
24:31
Speaker 2: I have absolutely no idea, no idea where the stock
24:37
Speaker 2: market is going to be six twelve, twenty four months
24:42
Speaker 2: from now. I don't have a price target for it.
24:45
Speaker 2: I don't know the exact path that's going to follow
24:47
Speaker 2: to get there. I have some ideas about what I
24:50
Speaker 2: think might happen, but I've seen enough and I'm humble
24:53
Speaker 2: enough to know that all kinds of weird stuff can
24:56
Speaker 2: happen that you don't expect, and you don't have any
25:00
Speaker 2: idea whether you're actually gonna be right or not. In
25:03
Speaker 2: this business, If you're right fifty five percent of the time,
25:07
Speaker 2: you're a rock star.
25:08
Speaker 3: You're war.
25:09
Speaker 2: If you're right sixty percent of the time, you are
25:13
Speaker 2: like deified as like some kind of savant.
25:17
Speaker 3: Yes.
25:17
Speaker 2: So the fact that, yeah, like I can look out
25:21
Speaker 2: at the horizon now and be like, yeah, there's still
25:23
Speaker 2: some high tariffs in place, and even if the China
25:25
Speaker 2: ones come down a little bit, it's still gonna be,
25:27
Speaker 2: you know, tough, and you know there's still this you
25:29
Speaker 2: know issue that you're gonna have with supply chains. I
25:32
Speaker 2: can look out and say that all those things are true,
25:34
Speaker 2: But I can also envision a world in which I
25:38
Speaker 2: don't know, something unexpected happens and all of a sudden,
25:42
Speaker 2: we're sitting here, you know, at the end of the
25:46
Speaker 2: year and we're like, man, how'd the S and P
25:47
Speaker 2: five hundred get to seven thousand?
25:49
Speaker 3: Yeah?
25:49
Speaker 2: I could also see a world where we're like, oh,
25:51
Speaker 2: how to get to like four thousand? Each of those
25:54
Speaker 2: are possible through a unique set of circumstances. And what
25:58
Speaker 2: what anyone in this business will tell you is you're
26:00
Speaker 2: always trying to look at the probabilities that something will happen,
26:03
Speaker 2: not just this is what's going to happen.
26:06
Speaker 3: Yeah.
26:07
Speaker 4: I think maybe an important reminder that the Wall Street
26:10
Speaker 4: Journal article title at least reminded me of was that
26:14
Speaker 4: it is a typical for recessions and market dow turns
26:19
Speaker 4: to go the way they did in twenty twenty two
26:21
Speaker 4: and twenty twenty. As a reminder, in twenty twenty the
26:24
Speaker 4: market turned down and over the course of about three
26:27
Speaker 4: weeks by thirty three percent, marked by more than one
26:32
Speaker 4: freezen trading due to the volatility, and then bounced back
26:36
Speaker 4: either faster or nearly as fast as it fell in
26:40
Speaker 4: two thousand and eight in the dot com bubble.
26:42
Speaker 2: Twenty twenty two was a much more normal sell off,
26:44
Speaker 2: like it took place over like ten months.
26:47
Speaker 4: Yep, it lasted a little bit longer, but again it
26:51
Speaker 4: had recovered itself in what six months?
26:54
Speaker 3: Yeah, so not terribly long time. Oh eight.
26:57
Speaker 4: As an example, a fifty five fifty three percent full
27:01
Speaker 4: draw down on the S and P five hundred, defined
27:03
Speaker 4: by several periods where the stock market rallied in between
27:06
Speaker 4: there and it took a good year and a half
27:08
Speaker 4: to get to that bottom. The dot com bubble similarly
27:12
Speaker 4: behaved that way. And so one of my words dot
27:15
Speaker 4: com bubble, I mean you want to last it longer
27:17
Speaker 4: and defined by even more volatility and spikes in price.
27:21
Speaker 2: I mean you want to talk about well and not
27:22
Speaker 2: just that the dot com bubble. It took you fifteen
27:26
Speaker 2: years to get back above water, right at least if
27:29
Speaker 2: you're talking about the tastocks.
27:30
Speaker 3: Yeah, you know.
27:31
Speaker 4: So the the point that I'm attempting to make here
27:34
Speaker 4: is it has been a long time since we have
27:38
Speaker 4: collectively as US investors experienced a market draw down, not
27:44
Speaker 4: of that magnitude, but of that typical.
27:47
Speaker 3: Yeah, tip is typicality where it is? Now?
27:50
Speaker 4: This is what we do on the typicality change does
27:53
Speaker 4: that's three of normal end markets. And if you are
27:58
Speaker 4: going into this one expecting just a rapid bounce back,
28:02
Speaker 4: you might get it.
28:03
Speaker 3: But that is a typical of.
28:05
Speaker 4: Markets when they are experiencing a growth slowdown or a recession.
28:09
Speaker 4: If you are investing today, maybe on your own, maybe
28:13
Speaker 4: with a professional, and you are uncertain of how you
28:18
Speaker 4: are preparing for what could be a prolonged period of downturn,
28:24
Speaker 4: what the President has described as potentially a period of
28:27
Speaker 4: economic difficulty for the United States, ask yourself, Hey, do
28:31
Speaker 4: I understand how my portfoliould react? And do I understand
28:34
Speaker 4: how I, as a worker or a retiree and prepared
28:38
Speaker 4: for that personally? Give the folks at Armstrong Advisory Group
28:41
Speaker 4: if call if you would like a second opinion on that,
28:44
Speaker 4: the numbers eight hundred three nine three for zero zero one.
28:48
Speaker 4: You can book a consultation online as well at Armstrong
28:50
Speaker 4: Advisory dot com, but the number for the Armstrong Advisory
28:54
Speaker 4: Group eight hundred three nine three for zero zero one.
28:58
Speaker 1: The proceeding was paid for by arms Strong Advisory Group,
29:01
Speaker 1: a registered investment advisor. Nothing in the ad or in
29:03
Speaker 1: any Armstrong guide a specific financial, legal or tax advice.
29:06
Speaker 1: Consult your own financial, tax into state planning advisors before
29:09
Speaker 1: making any investment decisions. Armstrong may contact you to offer
29:12
Speaker 1: investment advisory services.
29:14
Speaker 2: So speaking of things that are unexpected. Yesterday, apparently, and
29:20
Speaker 2: this is according to reporting from the Wall Street Journal,
29:24
Speaker 2: I'll quote here, the President, who rejected a quote millionaire
29:27
Speaker 2: tax April twenty third, is now considering backing a tax
29:30
Speaker 2: structure that would return the top individual income tax rate
29:33
Speaker 2: to thirty nine point six from thirty seven percent for
29:36
Speaker 2: people making over two and a half million dollars, according
29:39
Speaker 2: to people familiar with the White House. Now this also
29:43
Speaker 2: then this morning, I wish I had the president's exact quote,
29:46
Speaker 2: because it was a good one. It was something along
29:48
Speaker 2: the lines of I'm not sure whether or not this
29:51
Speaker 2: would be a good idea or a bad idea, but
29:53
Speaker 2: I think it would be a bad idea. But Republicans
29:55
Speaker 2: can do it if they want to. I think was
29:57
Speaker 2: like the gist of the quote, which I just thought
29:59
Speaker 2: was fantastic. But look, here's the deal. You have Congress
30:05
Speaker 2: trying to figure out how to get a tax bill
30:08
Speaker 2: across the finish line.
30:10
Speaker 4: There are rules that they must follow. They're thinking about
30:12
Speaker 4: changing some of those rules, but even that is difficult
30:15
Speaker 4: in terms of how you do this. And there's a
30:18
Speaker 4: looming threat by the way that if they are way
30:21
Speaker 4: too wild in changing these rules and running up the deficit,
30:25
Speaker 4: which is, you know, typically what tax cuts do then
30:28
Speaker 4: the the economy, you know, the markets could get punished
30:31
Speaker 4: from the bond perspective. We saw that back in early April,
30:34
Speaker 4: and it would not be surprising to have that repeated.
30:36
Speaker 4: So they're kind of under the gun, and this has
30:38
Speaker 4: been one of the ways they have come up with
30:41
Speaker 4: to offset the costs of you know, maybe you know,
30:45
Speaker 4: expanding the salt cap, or no tax on security, no
30:50
Speaker 4: tax on overtime.
30:51
Speaker 2: Like, there's a lot of considerations that would decrease the
30:53
Speaker 2: amount of revenue coming in. And so they're kind of
30:57
Speaker 2: sitting there being like, Okay, what can we do. Is
31:00
Speaker 2: this something that is possible or not. Here's all I'll
31:03
Speaker 2: say about this. Note it put it in the back
31:07
Speaker 2: of your mind. See where things are in a couple months. Yeah,
31:09
Speaker 2: Because there's so many proposals floating around out there, I
31:13
Speaker 2: have no idea what's going to happen and what isn't.
31:17
Speaker 2: Ninety nine percent of the stuff that ends up getting
31:19
Speaker 2: discussed does not end up making it into final bills.
31:23
Speaker 2: You can have all kinds of twists and turns that
31:25
Speaker 2: happen here. So at this point, I don't really get
31:30
Speaker 2: that excited or worked up about anything in either particular direction,
31:33
Speaker 2: just because it's a lot of noise until it starts
31:37
Speaker 2: getting closer to the finish line. Agreed, Just take a
31:39
Speaker 2: quick break. When we come back, we'll talk about the
31:42
Speaker 2: two hundred and thirty three US cities where starter homes
31:45
Speaker 2: cost more than a million dollars.
31:47
Speaker 1: Gosh, the global trade warriors in full swing. How long
31:52
Speaker 1: will it last? Is anyone's gas? Keep it here for
31:55
Speaker 1: the most up to date information plus breaking news every
31:58
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32:52
Speaker 2: Peace from Zillo that I got a few problems with.
32:58
Speaker 2: The headline is in two hundred and thirty three cities,
33:00
Speaker 2: even a starter home costs a million dollars. And so
33:04
Speaker 2: here's the first part. Here's how they define a starter home.
33:08
Speaker 2: It's a home that is amongst the lowest third of
33:11
Speaker 2: home values in a given region. Okay, I'm not sure
33:16
Speaker 2: that that's actually a starter home, because you could have
33:19
Speaker 2: a place that, as an example, might be in the
33:22
Speaker 2: lowest third of home values, but it could be like
33:26
Speaker 2: because there's no first floor and it collapsed into the basement, Like,
33:30
Speaker 2: that's not really a starter home. It's not you know,
33:33
Speaker 2: it's like a tear down, you know. So I don't
33:36
Speaker 2: really love the methodology to begin with. On top of that,
33:41
Speaker 2: there are parts of not necessarily every state, but there's
33:47
Speaker 2: parts of there's certain towns that are just not starter
33:50
Speaker 2: home towns. Like you don't suddenly go to Nantucket and
33:55
Speaker 2: are like, Wow, I'd love to have a starter home here,
33:58
Speaker 2: like sure, so would everyone, but you can't do that
34:01
Speaker 2: because there's only so much land on Nantucket. So of
34:04
Speaker 2: course it's not going to be affordable for you to
34:07
Speaker 2: just move there for a starter home if you want
34:11
Speaker 2: to be more reasonable than that, okay too, Like to
34:15
Speaker 2: those people in the Boston area, you don't just sit
34:19
Speaker 2: there and say, hey, I just graduated from college, I'm
34:21
Speaker 2: twenty four, I put away ten thousand dollars. Let me
34:24
Speaker 2: go buy a place in Weston. For people in New York,
34:28
Speaker 2: you don't sit there and say, hey, you know what,
34:31
Speaker 2: graduated from college, like I'm ready to settle down start
34:34
Speaker 2: a family, Like, let me find you know a great
34:37
Speaker 2: place in the hampton Port, Connecticut, you know, like, let's
34:40
Speaker 2: move to the Hamptons. Like no, like that's not reasonable.
34:44
Speaker 2: So I think some of this is, you know, skewed,
34:47
Speaker 2: just because like there are places that are really expensive
34:50
Speaker 2: where you wouldn't expect to find starter homes. Now there's
34:54
Speaker 2: also California, and gosh, here's the deal with California. So
35:01
Speaker 2: two hundred and thirty three towns. I did a little research,
35:04
Speaker 2: and I hope these numbers are right because they're from Wikipedia. Okay, nationwide. Mike,
35:09
Speaker 2: do you know how many towns there are in the
35:10
Speaker 2: United States? No, I'm not even going approximately twenty thousand. Okay,
35:15
Speaker 2: do you know how many are there are in California?
35:17
Speaker 3: Nineteen thousand, three thousand, it's all of them.
35:20
Speaker 2: It's about five hundred. Okay, so about a quarter of towns,
35:25
Speaker 2: one hundred and thirteen towns in California have starter home
35:29
Speaker 2: prices above a million dollars. Now, what I can tell
35:32
Speaker 2: you is that it's not really possible that a quarter
35:36
Speaker 2: of California is like so desirable that there should be
35:42
Speaker 2: no starter homes for under a million dollars there. Rather,
35:44
Speaker 2: I think we can conclusively say that the California real
35:47
Speaker 2: estate market is broken for a number of reasons, the
35:49
Speaker 2: biggest one being I forget what the proposition was called
35:51
Speaker 2: when it passed back in the eighties, but it's basically, hey,
35:54
Speaker 2: if you live in your home, we're not going to
35:57
Speaker 2: raise your property taxes. And so basically no inventory comes
36:00
Speaker 2: to market and everything that is out there.
36:02
Speaker 3: It's basically rent control for the entire state.
36:04
Speaker 2: Correct, And so the California market is horribly broken. So
36:08
Speaker 2: outside of California, there's only one hundred and twenty towns
36:11
Speaker 2: out of the remaining nineteen thousand in change that have
36:15
Speaker 2: this issue. If less than one percent of the towns
36:19
Speaker 2: in the country have this issue, it's not really an issue.
36:23
Speaker 3: Well.
36:24
Speaker 4: I think that there is in large portions of the
36:27
Speaker 4: country a housing affordability issue. I think we've covered that.
36:31
Speaker 4: I think that remains true. But this is not what
36:35
Speaker 4: This doesn't define it. I don't think this gives you anything.
36:38
Speaker 4: But I did the math. I don't think you were
36:39
Speaker 4: on the show a few weeks ago, Chuck, when I
36:41
Speaker 4: did the math on the median home in Dedham, Massachusetts.
36:47
Speaker 4: And I know our listeners are all over the place,
36:49
Speaker 4: but the town of Debdham has been known for a
36:52
Speaker 4: long time as like a working class community. It's not Wellesley.
36:57
Speaker 4: It is not what's like the nice school district in
37:00
Speaker 4: New Hampshire, like by Bedford or Rye. New Yeah, it's
37:04
Speaker 4: not one of these really luxury towns. But it's close
37:07
Speaker 4: to Boston. It's easy to commute to. It abuts the
37:10
Speaker 4: city of Boston. The median home for sale Endetam, which
37:14
Speaker 4: was I think three beds and two baths, was one
37:16
Speaker 4: point seven million dollars, not possible for most people. To,
37:20
Speaker 4: you know, stay within the cfp's guidelines of how much
37:23
Speaker 4: you should be spending on housing as a percentage of
37:25
Speaker 4: your income, and buy that home. I think the math
37:28
Speaker 4: I did was you as a household needed to be
37:30
Speaker 4: making around four hundred thousand dollars, which is not the
37:34
Speaker 4: case for most people. And so look, there are pockets
37:38
Speaker 4: all over the country and in Eastern Maschists, especially where
37:41
Speaker 4: housing is unaffordable for a large swath of Americans. There
37:45
Speaker 4: is a massive portion of Florida where housing is quite
37:49
Speaker 4: affordable and is about to get a lot more affordable
37:51
Speaker 4: because of just how onerous it has gotten to maintain
37:55
Speaker 4: buildings there and ensure them and make sure that they
37:59
Speaker 4: don't become a disaster every time a hurricane rolls around.
38:03
Speaker 4: And so I think overall we will actually see home
38:05
Speaker 4: prices fall in the United States this year.
38:07
Speaker 2: Let's take a quick break before we get to hour two.
38:11
Speaker 2: We get some great stories coming up, including the tale
38:15
Speaker 2: of the boy who ordered seventy thousand lollipops on Amazon.
38:18
Speaker 2: You're not gonna want to miss that. After this