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Could tariffs lead to higher insurance prices? · The Financial Exchange Show

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Speaker 1: Mike Armstrong and Mark Vandetti.
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Speaker 2: Good morning, Happy Friday, and pardon me, welcome back to
1:14
Speaker 2: the Financial Exchange. We have markets in selloff mode this
1:18
Speaker 2: morning on the on the tale of two news stories today.
1:23
Speaker 2: The first was the jobs report released this morning at
1:25
Speaker 2: eight thirty am. Generally a good news story there, with
1:28
Speaker 2: one hundred and forty three thousand jobs created in the
1:31
Speaker 2: month of January, unemployment rate edging down to four point
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Speaker 2: zero percent, up from a twelve month previous understanding high
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Speaker 2: at four point three percent. You know, major job growth
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Speaker 2: across sectors. Go ahead.
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Speaker 3: Mark, it's been so low for so long. I don't
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Speaker 3: think we appreciate exactly how extraordinary unemployment at or around
1:50
Speaker 3: for never mind below four percent is. We were there
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Speaker 3: a little bit in the very late twenty tens, but
1:56
Speaker 3: you have to go all the way back to the
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Speaker 3: late nineties, and that was briefer than the current episode,
2:01
Speaker 3: and then before that to the late nineteen sixties. It's
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Speaker 3: really extraordinary.
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Speaker 2: Yeah, unemployment rate as low as it is right now.
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Speaker 2: To your point, we got there briefly prior to COVID.
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Speaker 2: We never got there before the Great Recession. We did
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Speaker 2: get there prior to the dot com bubble. But than that, yeah,
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Speaker 2: other than that, getting down to those levels. To Mark's point,
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Speaker 2: last time that happened was late nineteen.
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Speaker 3: Sixty and it went on for several years. The sixties
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Speaker 3: was a remarkable run and it ended very badly. The
2:29
Speaker 3: Fed kept policy too easy for too long, and current
2:33
Speaker 3: policy makers are very conscious of that mistake. Obviously.
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Speaker 2: So if I continue to read stories from people saying
2:37
Speaker 2: watch out because this labor marker doesn't as strong as
2:39
Speaker 2: it looks, just give me a break.
2:42
Speaker 3: Like the White House came out with a statement this morning.
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Speaker 2: I don't think that's what Connor Sen sounds like. By
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Speaker 2: the way, I'm sorry, that's interesting voice for Connor.
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Speaker 3: If Connor was a listener, he's tuned out permanently. Between
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Speaker 3: me and you dumping on him. I've got to correct,
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Speaker 3: or at least point out that this is flatly inaccurate,
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Speaker 3: because there were some news channels which I won't name,
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Speaker 3: that are just going to report this uncritically. The White
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Speaker 3: House said this morning, today's jobs report reveals that the
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Speaker 3: Biden economy was far worse than anyone thought. I'm not
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Speaker 3: going to read the rest of it because that pretty
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Speaker 3: much captures the tone, but that is so utterly ignorant.
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Speaker 3: You don't have to give Biden credit for the low
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Speaker 3: unemployment rated watch. It would have happened had Trump been reelected.
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Speaker 3: To economic growth and right, I mean plus or minus
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Speaker 3: a half of percent. Probably maybe Biden ran the economy
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Speaker 3: a little too hot with that last stimulus package. But
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Speaker 3: there's very little the president, any president, can do to
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Speaker 3: influence the forces that drive economic growth and thus unemployment
3:38
Speaker 3: and even inflation unless you make a big unforced error.
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Speaker 3: This type of response I think is unhelpful, and they'll
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Speaker 3: probably just keep repeating it, and then it'll get amplified
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Speaker 3: by their cheerleaders at their favorite news network, and enough
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Speaker 3: people will accept it that it'll become somehow truth and
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Speaker 3: it's not really it's really quite inaccurate revisions that we're
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Speaker 3: sad to see this.
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Speaker 4: It's so dumb, said it's it's I'm not surprised if
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Speaker 4: this is where we are. It's said, it's it's dumb
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Speaker 4: because it's dishonest, and it also overused term, but it is.
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Speaker 4: It also just furthers the emotional investing that people do
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Speaker 4: all the time. Labor market again, revisions came out not
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Speaker 4: substantial changes in twenty twenty four. It looks like on average,
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Speaker 4: there are about twenty thousand fewer jobs created per month
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Speaker 4: in twenty twenty four than was previously understood.
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Speaker 2: Not a huge shift. The big piece of information from Michigan,
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Speaker 2: the University of Michigan does their monthly consumer sentiment survey.
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Speaker 2: They're the big change that we saw was expectations for
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Speaker 2: inflation bumping up by a full percentage point from three
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Speaker 2: point three percent all the way up to four point
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Speaker 2: three percent. That is a meaning now that is bad news.
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Speaker 3: If the White House started to comment on something, they
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Speaker 3: should have commented on that. That is playing in that
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Speaker 3: on the last Guy plane.
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Speaker 2: Bad news. The markets have been kind of all over.
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Speaker 2: When we started talking just three minutes ago, the Naszac
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Speaker 2: was off by more than one percent, the SMP was
4:59
Speaker 2: closing in right now, Dow off two hundred and twenty
5:02
Speaker 2: one points or half a percent, SMP off thirty points
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Speaker 2: or half a percent, in the Nasdaq off one hundred
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Speaker 2: and seventy points, a little more than eight tenths of
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Speaker 2: one percent. Bond yields up on all this data, so
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Speaker 2: we'll see where things go. But it's been fairly shoppy
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Speaker 2: in early trading so far. Speaking of all these inflation expectations,
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Speaker 2: just one other area. We've been talking a lot about
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Speaker 2: insurance recently because of the la wildfires, and just another
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Speaker 2: area of inflation and teriffs that I hadn't really considered
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Speaker 2: peace from the Wall Street Journal, teriffs could lead to
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Speaker 2: higher insurance prices for US consumers and businesses. And on
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Speaker 2: the surface, this doesn't make any sense, right, we don't
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Speaker 2: import our insurance costs from Canada or Mexico. They would
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Speaker 2: not face any sort of direct tariff. But when you
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Speaker 2: think about what insurance is, which is providing you with
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Speaker 2: money when things are destroyed or go wrong. If all
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Speaker 2: of a sudden it costs a whole lot more to
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Speaker 2: build those things that get destroyed, then yeah, you can
5:57
Speaker 2: see those insurance costs go up. And I would like
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Speaker 2: they say that the primary reason auto insurance rates have
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Speaker 2: gone up so much over the last several years has
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Speaker 2: been because of the cost of repairing vehicles has gone
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Speaker 2: through the roof over the course of the last dec.
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Speaker 3: I hadn't made that connection myself. I was an interesting angle.
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Speaker 2: Yeah, nor had I. So it's just a different angle
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Speaker 2: that I hadn't really considered. And yeah, if you see
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Speaker 2: lumber costs go through the roof. Then it's going to
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Speaker 2: be more costly to rebuild a home. It's going to
6:23
Speaker 2: be more costly to repair a car because of the
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Speaker 2: parts coming from Mexico and Canada that could face tariffs. Again.
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Speaker 2: I have some doubts as to whether or not those
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Speaker 2: tariffs are ever going to go into place. But just
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Speaker 2: one more piece that we wouldn't necessarily expect prices to
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Speaker 2: move because insurance is a domestic industry.
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Speaker 3: This all just makes the Fed's job. I know we
6:43
Speaker 3: said this at least I did, probably too many times
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Speaker 3: in the last hour, but their job got a lot
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Speaker 3: more complicated this morning, not just because of this story,
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Speaker 3: but the unusually strong employment numbers and the consistently strong
6:56
Speaker 3: strength in the labor market. A big jump in a
6:58
Speaker 3: huge jump in inflation expectations. We know expectations feed into
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Speaker 3: the inflation process and the looming and this is probably
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Speaker 3: going to be a persistent threat of tariffs for the
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Speaker 3: next several years, no matter who the president is. They're
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Speaker 3: now a prominent tool in the chief executive's toolkit.
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Speaker 2: I was going to ask a question, but it looks
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Speaker 2: like somebody's already answered it. Online I'm going to ask, anyway,
7:27
Speaker 2: do you think State Farm will have a Super Bowl
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Speaker 2: commercial this year?
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Speaker 5: I saw that they weren't like they initially planned to
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Speaker 5: with Old Jake from State Farm thinking, but I think
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Speaker 5: they backed off on it.
7:37
Speaker 2: Yeah, So I was wondering about this with Vinnie Penn
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Speaker 2: this morning openly on air. Hey, you know, will they
7:42
Speaker 2: actually air a Super Bowl ad? And I don't know
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Speaker 2: who this source is. Sportico is reporting that State Farm
7:49
Speaker 2: pulled their twenty twenty five Super Bowl ad, probably entirely
7:54
Speaker 2: because of the Los Angeles wildfire. State firm State Farm
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Speaker 2: was all in on California. They were the largest issuer
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Speaker 2: of insurance in twenty twenty two in State Farm was
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Speaker 2: in the state of California, accounting for more than twenty
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Speaker 2: percent of that California market. And then promptly in twenty
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Speaker 2: twenty five they began pumping the brakes, and maybe pumping
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Speaker 2: isn't the right word. They began slamming on the brakes
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Speaker 2: in their insurance market, and you saw them non renew
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Speaker 2: or cancel thousands of policies. Just months before the January fire,
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Speaker 2: the insurer canceled around thirty thousand homeowners, including ninety five
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Speaker 2: hundred in the neighborhood that burned last month. Many of
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Speaker 2: those ended up on the state run insure of last resort.
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Speaker 2: And you know, as always there are questions after one
8:44
Speaker 2: of these types of crises, state farms getting a very
8:47
Speaker 2: close look in terms of their practices. Now, one I
8:50
Speaker 2: don't state Farm didn't know that a wildfire was coming
8:53
Speaker 2: to California months before they started canceling policies. They also
8:57
Speaker 2: weren't canceling policies in as far as I know, in
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Speaker 2: the middle of fires raging in the area. So I
9:03
Speaker 2: don't think either of those two things were happening. But
9:06
Speaker 2: the allegations are that, look, this company, which by the way,
9:10
Speaker 2: State Farm Insurance of California is a completely different subsidiary
9:17
Speaker 2: without access to the assets of State Farm the insurance company,
9:21
Speaker 2: which that's concerning and misleading. They spun off their Florida
9:25
Speaker 2: and California businesses because they said, wow, these things could
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Speaker 2: just go belly up if you know what hits the fan.
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Speaker 2: But the California market in particular was being pretty aggressive
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Speaker 2: with issuing policies of the course the last few years.
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Speaker 2: Raken and Doe and then found themselves quickly in a
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Speaker 2: place where they could not sustain that if a big
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Speaker 2: wildfire came around. The only piece of this that I
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Speaker 2: find pretty concerning and maybe somewhat misleading is the fact
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Speaker 2: that the California unit of State Farm gets to license
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Speaker 2: the brand, the logo, and the name of State Farm
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Speaker 2: while being a completely different insurance company. So State Farm,
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Speaker 2: the nation's largest home and auto insurance company, has more
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Speaker 2: than ninety million customers nationwide, a million home policies in California,
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Speaker 2: and a strong credit rating and a surplus of well
10:12
Speaker 2: over one hundred billion. The California unit of State Farm,
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Speaker 2: which is a completely separate entity that can go bankrupt
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Speaker 2: on its own, was heavily in the red even before
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Speaker 2: the latest fires, So that part, to me, is pretty questionable,
10:28
Speaker 2: and I do blame State Farm, but I also blame
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Speaker 2: the California State regulator for again allowing this type of practice,
10:36
Speaker 2: refusing to update premiums, refusing to let insurers use the
10:40
Speaker 2: most up to date mapping and forecasting software when it
10:44
Speaker 2: comes to wildfire risk. And yeah, State Farm is going
10:49
Speaker 2: to bear a lot of the blame here, but frankly,
10:51
Speaker 2: I think a lot of it lands with the insurance commissioner.
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Speaker 3: I think it's an example of a problem that the market,
10:56
Speaker 3: if you let it work, could fix. It would result
10:58
Speaker 3: in some uncomfortably high premiums.
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Speaker 2: Some really difficult truths, right exactly.
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Speaker 3: We're all going to be faced with this over the
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Speaker 3: next few decades, not to the extent that California is
11:09
Speaker 3: or some other markets that are subject to extreme forces
11:13
Speaker 3: of nature that are being amplified.
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Speaker 2: By Yeah, this is not a solution that has there
11:18
Speaker 2: are some problems that have no real market solution. And
11:23
Speaker 2: there's are ones, let's see.
11:27
Speaker 3: Not getting into public goods and like national defense and
11:29
Speaker 3: all the all the classic examples.
11:31
Speaker 2: It's electricity, I guess access to water and electricity.
11:35
Speaker 3: So those I would call those public public and the
11:38
Speaker 3: main ones that need a monopoly to provide.
11:41
Speaker 2: Yeah.
11:41
Speaker 3: But other than that, and it could just be because
11:43
Speaker 3: it's my religion. I don't think there's much that markets
11:45
Speaker 3: can't figure out. You may not, like you said, Mike,
11:47
Speaker 3: the solutions might be uncomfortable, they might be inequitable, but
11:51
Speaker 3: the market will fix it.
11:52
Speaker 2: Yeah, And that has, more than much else, been the
11:55
Speaker 2: main problem in California and Florida, which is the state
12:01
Speaker 2: has basically encouraged non market solutions allowing people to build
12:05
Speaker 2: in areas that are very risky and should otherwise be
12:09
Speaker 2: unaffordable to build and live.
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Speaker 3: Yeah, that's what the price signals meant to do. It's
12:14
Speaker 3: meant to tell you no, no, don't build there.
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Speaker 2: Let's take a quick break. When we come back, going
12:19
Speaker 2: to have a little bit of trivia next on the
12:20
Speaker 2: Financial Exchange, followed by Amazon's earnings. That's next.
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13:39
Speaker 2: Am I like overheating right now? Or was that the
13:41
Speaker 2: fastest you've ever spoken? Tucker?
13:44
Speaker 5: Sorry, that was quick.
13:45
Speaker 2: No, no, not the temperature you were just not wrapping out?
13:48
Speaker 5: Now I am hot when you said hot?
13:50
Speaker 1: Now, I am hot?
13:51
Speaker 2: Fair enough, so I turn on the air conducted. Amazon stock,
13:53
Speaker 2: by the way down about three and three quarters of
13:56
Speaker 2: percent this morning on yesterday's earning news. Overall, they joined
14:01
Speaker 2: the crowd of giant tech companies that in total plan
14:05
Speaker 2: to spend over three hundred billion dollars on AI in
14:09
Speaker 2: twenty twenty five. That includes the likes of Amazon, Meta, Microsoft,
14:13
Speaker 2: and Alphabet, who have all reported their earnings so far.
14:17
Speaker 2: Any key takeaways on these earnings calls for you for
14:20
Speaker 2: you Mark, not Matt. Your name's not Matt.
14:24
Speaker 3: Don't have is there a Matt?
14:26
Speaker 2: I was quickly going to speaking to a Matt yesterday
14:28
Speaker 2: and we've got a mat around here somewhere. Well, yeah,
14:31
Speaker 2: he's never done radio.
14:32
Speaker 3: But nonetheless, okay, Mark, all right, it is interesting that
14:38
Speaker 3: they can't keep up with demand for AI infused cloud
14:44
Speaker 3: server based services. The issue is not that people don't
14:48
Speaker 3: want what they're selling. It's that people want more of
14:51
Speaker 3: the latest and they can't make it fast enough. That's
14:54
Speaker 3: my kind of it, and this is true of all
14:56
Speaker 3: the big cloud providers.
14:59
Speaker 2: Yeah right, I think there's Yeah, they missed slightly on
15:03
Speaker 2: those earnings, and you're right, it is mainly from a
15:05
Speaker 2: capacity issue rather than a demand issue, and so that
15:08
Speaker 2: is telling and interesting. The biggest takeaway that I have
15:11
Speaker 2: from all of this, you know, I was very curious
15:15
Speaker 2: about what types of questions we're going to be asked
15:17
Speaker 2: and how these companies were going to direct answers to
15:20
Speaker 2: the question of what does the deep seek innovation due
15:24
Speaker 2: to your business. They were all asked that question, and
15:28
Speaker 2: I think by and large the answer was, we don't
15:32
Speaker 2: know yet, but we're going to keep pouring money into
15:34
Speaker 2: investment because this is where this is where the money
15:36
Speaker 2: is going to be made, regardless of the innovations on
15:39
Speaker 2: deep seek.
15:39
Speaker 3: And if deep Seak has indeed found a short cut,
15:42
Speaker 3: granted it's standing on the shoulders of what other a
15:46
Speaker 3: alpus call them engines have done, but it's a shortcut, nevertheless,
15:50
Speaker 3: which could significantly reduce the capacity demands of something like
15:54
Speaker 3: this and thus spending demand. It's a little odd to
16:00
Speaker 3: me that they're not hedging a bit. Well, maybe we
16:03
Speaker 3: don't need one hundred billion, maybe we only need twenty
16:06
Speaker 3: five fifty or some sort of moderately more conservative estimate
16:11
Speaker 3: over the same timeframe. Why are they not hedging at all?
16:14
Speaker 2: Yeah?
16:15
Speaker 3: Why are they still going full full, full steam?
16:17
Speaker 2: I think the old model. I think that the answer
16:20
Speaker 2: that they would provide you would be Look, this shortcut
16:23
Speaker 2: that deep Seek found, if it ends up being as
16:25
Speaker 2: true as they are claiming, opens up the demand for
16:29
Speaker 2: even more AI at a cheaper price, and we will
16:31
Speaker 2: be the beneficiaries because we will be the ones providing
16:34
Speaker 2: the computing power to a larger range of customers. I'm
16:38
Speaker 2: just not sure I buy that argument yet, but that
16:41
Speaker 2: seems to be the case. Is they're saying, Look, lower
16:44
Speaker 2: prices just means more demand, more consumers buying this stuff,
16:48
Speaker 2: and you know, more people wanting to do this because
16:51
Speaker 2: you'll be more accessible, not less, and therefore the total
16:54
Speaker 2: pie will grow. I call that into question a little
16:58
Speaker 2: bit because the fact to the matter was, up until
17:02
Speaker 2: we knew what we think we know about Deepseek, which
17:04
Speaker 2: came out now two weeks ago, the status quo was
17:08
Speaker 2: if you are not a multi trillion dollar company, you
17:11
Speaker 2: can't afford to play that. That was the truth of
17:15
Speaker 2: it is, if you don't have a few trillion dollars
17:18
Speaker 2: not in market cap, or a few billion dollars to
17:21
Speaker 2: spend on R and D and the latest and greatest
17:24
Speaker 2: employees to be able to research this stuff, then you're
17:27
Speaker 2: not going to have any role in developing the next
17:29
Speaker 2: AI tool. And so Microsoft, Meta, Google, Amazon all sat
17:36
Speaker 2: there in a place where there wasn't much competition from
17:40
Speaker 2: the development of the eventual AI tools that people want
17:43
Speaker 2: to use. I think, and this is very early to
17:47
Speaker 2: be able to guess, but I think that this innovation
17:51
Speaker 2: opens up the door for many companies that are a
17:54
Speaker 2: lot smaller to compete. And that's what's fascinating to me,
17:59
Speaker 2: which I think is a good thing for development, for innovation,
18:06
Speaker 2: and potentially a terrible thing for existing dominance tech players,
18:09
Speaker 2: but only potentially, not certainly.
18:11
Speaker 3: I guess maybe they're so committed they feel like they
18:14
Speaker 3: can't turn back, or the market expects them to continue again,
18:17
Speaker 3: full steam ahead with what i'll call the old model,
18:20
Speaker 3: even though they might be premature.
18:21
Speaker 2: Yeah, and I think I think By and Lawge you're
18:24
Speaker 2: right in terms of why they responded the way they
18:25
Speaker 2: did is because what else are you gonna say. We're
18:27
Speaker 2: already hundreds of millions, billions of dollars into this. We
18:31
Speaker 2: can't suddenly seem like they're well, let's changed course.
18:34
Speaker 3: Are they? Are they whistling? I'm asking a rhetorical question here,
18:37
Speaker 3: but are they just whistling past the graveyard on this
18:39
Speaker 3: Their plants haven't changed in the past six weeks, but
18:41
Speaker 3: the landscape may have changed dramatically.
18:44
Speaker 2: Maybe, But I have no evidence that they actually believe
18:46
Speaker 2: that they're whistling past the graveyard. I don't think they're
18:48
Speaker 2: just wondering.
18:49
Speaker 3: If that's not motivated. I'll play psychologists here and say,
18:52
Speaker 3: is this motivated reasoning? Can you just are you choosing
18:54
Speaker 3: not to see that all this sunk cost is something
18:58
Speaker 3: you may have to walk away from, or that somebody
19:00
Speaker 3: be able to replicate what you've done much more cheaply.
19:03
Speaker 2: That's about the ten trillion dollar question, is it Mark?
19:06
Speaker 2: It's about the ten trillion dollar question that we can't
19:08
Speaker 2: possibly answer. So that's the rap on the big tech
19:12
Speaker 2: earnings that we saw so far, and a lot more
19:14
Speaker 2: to come obviously in coming weeks and months as they
19:17
Speaker 2: navigate the new technology. Let's take a quick break when
19:21
Speaker 2: we come back, a little bit of Tesla news, further
19:25
Speaker 2: bad news in terms of sales numbers. We'll cover that next.
19:41
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20:07
Speaker 5: All Right, trivia question today was what year did Amazon
20:11
Speaker 5: go public? I'll be nineteen ninety seven, ipoed on May
20:15
Speaker 5: fifteenth of that year at eighteen dollars a share.
20:19
Speaker 2: Yeah.
20:20
Speaker 5: Greg from Fitchburg, mass is our winner today. Excuse me
20:24
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20:27
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20:30
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20:35
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20:36
Speaker 2: Tesla, which is down a little bit today about one
20:39
Speaker 2: and a quarter percent, is being reported that their Chinese
20:42
Speaker 2: vehicle sales fell eleven and a half percent for probably
20:47
Speaker 2: several reasons, but one of them being intense competition from
20:50
Speaker 2: Chinese rival BYD, which saw two hundred and ninety six
20:57
Speaker 2: thousand sales of pure electric and plug in hybrid Vida
21:00
Speaker 2: last month, which is up forty seven percent year over year. Furthermore,
21:05
Speaker 2: earlier this week were reported that Tesla's sales in Germany
21:08
Speaker 2: pluged plunged fifty nine percent in January. So my main
21:14
Speaker 2: question is very simply this, If you can't sell your
21:17
Speaker 2: cars in Europe, and you can't sell them in China,
21:20
Speaker 2: where are you going to sell these cars? Because I
21:22
Speaker 2: don't think you're going to have, you know, great results
21:25
Speaker 2: selling electric cars in Africa where the infrastructure is no good.
21:29
Speaker 2: I don't think you're going to have a lot of
21:30
Speaker 2: results in Latin America would be my guess. And US
21:34
Speaker 2: sales have been plateauing on evs for years, So why
21:40
Speaker 2: why should I be optimistic about your future? Is my
21:42
Speaker 2: main question when it comes to Tesla, who stock, by
21:45
Speaker 2: the way, is up now ninety seven percent over the
21:47
Speaker 2: course the last twelve months.
21:48
Speaker 3: Yeah, the amazing thing is that Tesla management has convinced
21:52
Speaker 3: shareholders that none of this matters. An analysts too, Apparently
21:56
Speaker 3: most of them have buy ratings on this company. Is
21:58
Speaker 3: it a car company? Is it an AI company? Is
22:00
Speaker 3: it a is it a yeah, cab company, and an
22:05
Speaker 3: autopiloted cab company.
22:07
Speaker 2: We damn well better have some robots and self driving
22:10
Speaker 2: cars post haste if this is going to continue. But
22:13
Speaker 2: I don't know. Maybe I'm missing the boat on US sales,
22:16
Speaker 2: but I've voiced this before. I'm worried about Tesla's US
22:20
Speaker 2: sales because half the country doesn't like this administration very much,
22:25
Speaker 2: not half, maybe forty percent.
22:28
Speaker 3: To endear himself to anybody's yeah, he seems to be
22:33
Speaker 3: trying to alienate the maximum number of people.
22:38
Speaker 2: Well, I don't know about that. I think he is
22:40
Speaker 2: doing a pretty successful job of coozing up to conservatives.
22:45
Speaker 3: Yeah, but historically.
22:46
Speaker 2: They don't buy evs, So I just I don't know
22:49
Speaker 2: what this means for Tesla. It's a lot of looming questions,
22:52
Speaker 2: and I think it is an important pivot point for Tesla.
22:55
Speaker 2: Maybe they are on the verge of a technological breakthrough
22:58
Speaker 2: that I haven't seen, but a bit of a boy
23:02
Speaker 2: who cried Wolfe syndrome when it comes to Tesla on
23:04
Speaker 2: those innovative breakthroughs, because they've been promising a lot of
23:06
Speaker 2: technological stuff for a decade.
23:08
Speaker 3: Since when has ideological appeal ever been a good business strategy?
23:12
Speaker 3: I can't think of a company and he's not trying overtly.
23:16
Speaker 3: I don't think. Although he is effectively doing this, he's
23:19
Speaker 3: not overtly marketing to people who are more what he
23:24
Speaker 3: would call conservative. I would call myself conservative. I don't
23:26
Speaker 3: know what these people are. They're not traditional conservatives, but anyway,
23:30
Speaker 3: I'm splitting hairs. It's just an odd marketing strategy, Mike.
23:33
Speaker 3: I've never seen a company say shop here unless you're libertarian.
23:38
Speaker 2: Yeah, seems like a weird, weird decision.
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24:43
Speaker 2: Scott Besson seems to be attempting to calm markets, and
24:47
Speaker 2: I have to say that so far the commentary from
24:49
Speaker 2: Besson himself has been about the most consistent and kind
24:54
Speaker 2: of as anticipating. We talked a lot about this Treasury
24:56
Speaker 2: Secretary pick leading up to it, but very consistent and
25:00
Speaker 2: very straightforward in terms of his goals when it comes
25:03
Speaker 2: to the Treasury. The furthest out that I think he's
25:06
Speaker 2: had to go is commenting on Elon Musk's and Doja's
25:10
Speaker 2: access to the Treasury Department. But you know, he has
25:13
Speaker 2: not massively pivoted in terms of where they're going to
25:16
Speaker 2: issue new debt. He has not massively pivoted on his
25:19
Speaker 2: view on the Federal Reserve or commenting on it, and
25:21
Speaker 2: so seems to be delivering some degree of calm to market.
25:24
Speaker 3: Treasury secretary should be seen. Name five of them historically,
25:28
Speaker 3: I'm not and I'm not I'm going to put you
25:30
Speaker 3: on the spot.
25:31
Speaker 2: Yelling, yell, n yelling, and manouche are the three that okay,
25:37
Speaker 2: So that's.
25:37
Speaker 3: Probably most people don't pay too much attention to it.
25:40
Speaker 3: Does anybody remember who? I don't know? George W. Bush's
25:43
Speaker 3: first Treasury secretary. It was a failure. He lasted like
25:46
Speaker 3: a year. Nobody remembers it. Was the chairman of el Coach,
25:49
Speaker 3: do you no? I remember only that he was the
25:52
Speaker 3: chairman of and it was viewed as being apoll O'Neil
25:55
Speaker 3: was his name. Excuse me, but you'd be hard pressed
25:59
Speaker 3: who was Will Clintons first Treasury secretary. Bob Rubin was
26:01
Speaker 3: the famous one. No nobody remembers Lloyd Benson's Treasury secretary
26:04
Speaker 3: for like a year and a half. My point is,
26:06
Speaker 3: it shouldn't matter. It should be a job twyet, door
26:10
Speaker 3: go ahead.
26:10
Speaker 2: It should be a quiet job where you are making
26:13
Speaker 2: sure the plumbing of the US economy works. There you go.
26:16
Speaker 3: That's what I'm just gonna say.
26:17
Speaker 2: That's that's all they have to do. And Bob's job,
26:20
Speaker 2: by the way, Clinton's, it's all you have to do.
26:22
Speaker 3: Clinton's next to last Treasury secretary got it absolutely right.
26:26
Speaker 3: He presided over orderly issue ince and management of US debt,
26:31
Speaker 3: and when asked something that was outside of his lane,
26:34
Speaker 3: specifically the US dollar, which is not exactly outside of
26:37
Speaker 3: his lane, his response was always the same. And I
26:39
Speaker 3: know I say this every time I'm on, but Bob
26:41
Speaker 3: Rubin used to say, a strong US dollar is in
26:43
Speaker 3: the United States interest, full stop, end of sentence, no
26:46
Speaker 3: further commentary.
26:46
Speaker 2: And if I were not mistaken, best just repeated that yesterday.
26:49
Speaker 2: Didn't he smart?
26:50
Speaker 3: He knows he's a finance guy, and he when asked
26:52
Speaker 3: about the Federal Reserve. The Clinton administration, which set the
26:56
Speaker 3: tone for this in the modern era, used to famously
26:58
Speaker 3: respond with, we don't come on the Federal Reserve. It's
27:01
Speaker 3: an independent entity. I suspect Bessant would respond with something similar,
27:05
Speaker 3: and he tried to sort of walk back some of
27:09
Speaker 3: some other administration officials comments about Fed independence, he said,
27:12
Speaker 3: Besson said something like, and I thought this was pretty
27:14
Speaker 3: deft on his part. Oh, no, no, we meant we
27:17
Speaker 3: want influence over longer term interest story, which is a
27:20
Speaker 3: perfectly conventional thing to say. So so far, like you said,
27:24
Speaker 3: I think he's off to a by the standards of
27:26
Speaker 3: some of the policy swings we've seen over the past
27:29
Speaker 3: few weeks, off to a pretty good start.
27:32
Speaker 2: Another tax announcement that falls into the same range of
27:37
Speaker 2: Scott Besant and Treasury and his previous roles. The Trump
27:40
Speaker 2: administration is apparently and I very much doubt this goes anywhere,
27:44
Speaker 2: taking aim once again at the private equity favorite tax
27:49
Speaker 2: perk of carried interests. So, to make a long story short,
27:52
Speaker 2: carried interest is a bit of a tax loophole that
27:55
Speaker 2: allows those who work in deal making areas such as
27:59
Speaker 2: private equities such as venture capital and hedge funds, to
28:02
Speaker 2: avoid paying ordinary income taxes on the majority of their
28:05
Speaker 2: earnings and instead pay capital gains taxes, and if you
28:08
Speaker 2: are at all familiar with the tax code, you'll know
28:10
Speaker 2: that capital gains are always taxed at a lower tax
28:14
Speaker 2: rate than ordinary income. This has been looked at and
28:19
Speaker 2: attempted to be amended by Democrat administrations, very few Republican administrations,
28:24
Speaker 2: but once again getting a look from the Trump administration.
28:26
Speaker 2: And I just find it again interesting that in terms
28:31
Speaker 2: of economic stuff that we've heard about thus far from
28:33
Speaker 2: the Trump administration, it's been budget cuts, tax increases, and
28:39
Speaker 2: tariff increases. You want to know why markets are shaky,
28:43
Speaker 2: where's the tax cuts? Where are the market shaky? They
28:47
Speaker 2: haven't been shaky by the reason when they're when they're
28:49
Speaker 2: responding to things like tariff increases, it's because it's not
28:52
Speaker 2: being accompanied by it. And I'm just I'm surprised that
28:56
Speaker 2: you're hearing the reporting on the do away with carried interest,
29:01
Speaker 2: which I'm.
29:01
Speaker 3: Fining to cut something, Michael, raise revenue, signing like that.
29:04
Speaker 2: If you're going to raise revenue, I think this is
29:05
Speaker 2: a great place to go.
29:06
Speaker 3: After nobody's going to defend private equity.
29:08
Speaker 2: But it's not being accompanied by and by the way,
29:11
Speaker 2: this is going to allow us to waive the taxes
29:14
Speaker 2: on Social Security like we were hoping to do so.
29:17
Speaker 2: It'll be fascinating.
29:18
Speaker 3: That is why they're doing it, though, to pay for
29:19
Speaker 3: his other tax cuts promise.
29:21
Speaker 2: But those tax cut promises are not coming to fruition
29:24
Speaker 2: as quickly as I think they were home.
29:26
Speaker 3: I'll give the Trump administration credit on this. It is
29:29
Speaker 3: a loophole. Many, as you mentioned, have talked about reforming it,
29:32
Speaker 3: including him in his first term. Ye didn't muster the
29:35
Speaker 3: will to were weren't able to for whatever reason. I'd
29:36
Speaker 3: be shocked if this actually went through. Private equity is
29:40
Speaker 3: quite influence and they throw around a lot of money.
29:44
Speaker 3: But these are exactly the types of, as you put it,
29:46
Speaker 3: loophole that they should be looking at closing. Good good
29:48
Speaker 3: for them. Unfortunately, he's going to open about fifty other
29:50
Speaker 3: loopholes with taxes on tips and raising the salt cap
29:54
Speaker 3: and whatever the heck else he was promising in the
29:56
Speaker 3: last six week giveaway bonanza of the campaign. They're gonna
30:00
Speaker 3: open up twenty loopholes for everyone they close. But good
30:02
Speaker 3: for them. This is a sensible one to try to close.
30:04
Speaker 2: Let's take a quick break when we come back. Paul
30:07
Speaker 2: Lamonica from Baron's joining us to talk Etsy next to
30:09
Speaker 2: the Financial Exchange.
30:11
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31:12
Speaker 2: Joining us now is Paul Lamonica from Baron's talking to
31:15
Speaker 2: us about Etsy and in order to talk about Etsy. Paul,
31:18
Speaker 2: we got to talk a little bit about these new
31:20
Speaker 2: rules on Chinese imports. I'm hoping you can do a
31:23
Speaker 2: better job than I did yesterday of attempting to explain
31:26
Speaker 2: the deminimus exemption of imports into the United States. Thanks
31:31
Speaker 2: for coming on.
31:32
Speaker 6: Yeah, thank you very much.
31:33
Speaker 1: Yeah.
31:34
Speaker 6: I mean, at the end of the day, really there
31:36
Speaker 6: had been this exemption on quote unquote cheaper goods, you know,
31:41
Speaker 6: goods costing under eight hundred dollars, you know, had been
31:45
Speaker 6: allowed to enter the US duty free. And Trump is
31:47
Speaker 6: getting rid of that exemption. So the companies that had
31:53
Speaker 6: benefited from that, a lot of Chinese e commerce companies
31:56
Speaker 6: like Shine and Timu owned by PDD and Ali Express
31:59
Speaker 6: by Ali Baba. You know, they could get hit and
32:03
Speaker 6: that might be a benefit for you know, US company Etsy,
32:09
Speaker 6: which you know does not have to worry about these
32:13
Speaker 6: tariffs and as much or competition as maybe as much
32:16
Speaker 6: competition from some of these Chinese e commerce giants.
32:20
Speaker 2: Paul, after the Super Bowl commercial, I think it was
32:23
Speaker 2: three years ago, I did test out I don't remember
32:26
Speaker 2: if it was Temu or Shane and bought a winter
32:29
Speaker 2: coat that I pretty much never wear anymore. But do
32:33
Speaker 2: we have a sense for just how much these companies
32:36
Speaker 2: were selling products in the United States dollar wise? And
32:39
Speaker 2: you know, if these new exemptions go in, I assume
32:41
Speaker 2: that we'll take a massive hit and and truly open
32:44
Speaker 2: up a door for the likes of Amazon and Ets.
32:46
Speaker 2: Do you know how big these sales were?
32:48
Speaker 6: Yeah, I mean I don't have the numbers in front
32:50
Speaker 6: of me right now about what the amount of sales
32:53
Speaker 6: in the US is, but needless to say that, you know,
32:57
Speaker 6: consumers had been flocking to the sites. You know, you know,
33:01
Speaker 6: you were obviously not the only one looking for you know,
33:04
Speaker 6: cheap apparel. You know, the lore of bargain goods is
33:08
Speaker 6: something that investors, I'm sorry, consumers always like. You know,
33:13
Speaker 6: it's a reason why you know, companies like Walmart and
33:16
Speaker 6: you know, TJX, George Marshall's and TJ Max why they're
33:19
Speaker 6: continuing to thrive as well. You know, there's been a
33:23
Speaker 6: lot of talk about how even wealthier consumers are looking
33:27
Speaker 6: to save a buck as well. So anyone that can
33:30
Speaker 6: offer you know, merchandise at the discount has been benefiting.
33:34
Speaker 6: And you know Etsy obviously does that as well, but
33:36
Speaker 6: now they potentially have you know, a lot less competition
33:40
Speaker 6: going forward, or maybe it's going to be tougher for competition.
33:43
Speaker 2: So obviously Etsie's been around now for quite some time.
33:47
Speaker 2: But for those that aren't intimately familiar with it or
33:49
Speaker 2: haven't used the platform before, what's the typical type of
33:52
Speaker 2: thing people shop for on there? It's a it's a
33:54
Speaker 2: network of marketplaces, but it seems on the surface quite
33:57
Speaker 2: a bit different than say in Amazon.
34:00
Speaker 6: Yeah, I mean collectibles, handmade goods, or remember a couple
34:04
Speaker 6: of years ago, Etsy stock got hit when Amazon announced
34:08
Speaker 6: a marketplace that was similar to Etsy. But you know,
34:12
Speaker 6: it's a lot of people setting up shops selling you know,
34:17
Speaker 6: a handmade handcraft goods that are you know, are not
34:20
Speaker 6: necessarily going to be you know, a huge, you know,
34:26
Speaker 6: you know, expensive type of item, but you know it's
34:29
Speaker 6: the classic volume game, and you know, and ets he
34:32
Speaker 6: gets a cut from the sellers. So that is why
34:36
Speaker 6: this is the company that has done really well in
34:39
Speaker 6: the past couple of years. But you know, I think,
34:43
Speaker 6: you know, the hope is that etsie stock can finally
34:46
Speaker 6: get a boost as well.
34:48
Speaker 2: To that point, the ETSI stock down about twenty five
34:51
Speaker 2: percent over the course of the last year, presumably on
34:53
Speaker 2: a lot of this new competition. Any conjecture from analysts
34:57
Speaker 2: or just your to date what we've seen in terms
34:58
Speaker 2: of a versal there.
35:01
Speaker 6: Yeah, Etsy has you know, made you know, a bit
35:04
Speaker 6: of a comeback recently. I think on the hopes that
35:08
Speaker 6: you know, the crackdown on Chinese competitors will help. Stock's
35:11
Speaker 6: not that expensive. It's about twenty two times earnings estimates,
35:15
Speaker 6: so about in line with the market multiple. And you know,
35:20
Speaker 6: some analysts are saying that you know that there's even
35:24
Speaker 6: you know, US companies that it competes with that you
35:28
Speaker 6: know it will be able to benefit at their expense.
35:31
Speaker 6: You know, one analyst in the story I wrote, you'll
35:34
Speaker 6: mention that Wayfair, the home furnishings retailer, you know, they
35:38
Speaker 6: could get hit by tariffs more than say Etsy is.
35:41
Speaker 6: They have about fifteen to twenty percent of sales exposure
35:44
Speaker 6: you know, goods from China. Etsy doesn't really have that
35:47
Speaker 6: much exposure. And you know Etsy is you know, a
35:50
Speaker 6: cheaper stock than some other e commerce companies like you know, Chewi,
35:54
Speaker 6: which is another company that some analysts have said they
35:59
Speaker 6: think will be able to hold up better because of tariffs,
36:02
Speaker 6: because pet food and drugs for pets are largely made
36:07
Speaker 6: in the US, supposed to abroad.
36:09
Speaker 2: Paul Amnica from Barons joining US today talk a bit
36:13
Speaker 2: about Etsy and the changes to tariffs on Chinese made goods. Paul,
36:17
Speaker 2: thanks so much for joining us. Appreciate it. Touch you next,
36:19
Speaker 2: thank you have a good one. I want to talk
36:22
Speaker 2: about fishing. Mark That all right by you? The pH
36:26
Speaker 2: kind of fishing. The tests on fishing if you are
36:29
Speaker 2: out of the workforce, they are getting so entertaining and unique,
36:34
Speaker 2: but apparently making a lot of people fairly angry. So
36:38
Speaker 2: if you don't know what I'm talking about, if you
36:41
Speaker 2: have been out of the workforce for a few years,
36:43
Speaker 2: you might not be familiar. But the attempts by bad
36:48
Speaker 2: actors to gain access to company systems and take them over,
36:51
Speaker 2: lock them down, and then demand ransom for unlocking them
36:55
Speaker 2: have gotten so successful and so rampant that companies now
36:59
Speaker 2: test their employees. And I actually just got one of
37:01
Speaker 2: these this morning. It was it looked like a password
37:07
Speaker 2: reset that I had requested from a system that I use,
37:11
Speaker 2: and it said, you know, we got your password reset request,
37:13
Speaker 2: click this link to reset your password. I looked at
37:16
Speaker 2: the email address that it clearly wasn't from a system
37:18
Speaker 2: that I used, so reported it as spam, and a
37:22
Speaker 2: little congratulations went up on my screen, saying, hey, good job,
37:25
Speaker 2: this was actually a test from your IT department. But
37:28
Speaker 2: those IT departments are getting fairly creative. One of them
37:31
Speaker 2: sent an email to a professor at a university saying
37:35
Speaker 2: that there was an ebola outbreak at their university. Another
37:39
Speaker 2: one sent a phishing test. What was it? Some? Oh yeah.
37:44
Speaker 2: A NASA staffer apparently was brought to tears from a
37:48
Speaker 2: phishing test promising the employee chance to win a trip
37:50
Speaker 2: to the Kennedy Space Center to view the final launch
37:53
Speaker 2: of the Space Shuttle, which was pretty cool. But I
37:57
Speaker 2: have to tell you.
37:58
Speaker 3: I had a launch of the Space Shuttle.
38:00
Speaker 2: I have to tell you I don't think you should
38:03
Speaker 2: be upset about this because this is actually what's required
38:07
Speaker 2: to prevent this stuff. It's horrifying and I'm all in
38:10
Speaker 2: favor of it. Quick break for the entire weekend. Market's
38:13
Speaker 2: pretty strongly negative territory now with the NASDAC off more
38:16
Speaker 2: than a full percentage point, we'll be back at it
38:18
Speaker 2: on Monday. Have a great weekend, everybody,