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If the Fed loses its independence, what happens to inflation? · The Financial Exchange Show

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  Speaker 2: Happy Friday, everybody, you made it. Congratulations the first time
• 1:18
  Speaker 2: I worked like a full week and a few weeks
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  Speaker 2: just because of conferences and other things that I've had.
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  Speaker 2: So I'm just breathing a big sigh of relief. Hope
• 1:25
  Speaker 2: everybody's having a great day out there. It looks like
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  Speaker 2: we're having a good weekend ahead of us. So get
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  Speaker 2: out there, do some apple picking and and come back
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  Speaker 2: refreshed on Monday. But a lot of stuff to cover today.
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  Speaker 2: We had a FED meeting this week. We've got ongoing
• 1:39
  Speaker 2: talks between the President and Chinese President Hu jing Ping.
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  Speaker 2: This morning, just six minutes ago, we got some state
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  Speaker 2: level unemployment data that we're going to dig into. So Mark,
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  Speaker 2: where do you want to start today? Wants to start
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  Speaker 2: on the Fed?
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  Speaker 3: Always?
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  Speaker 2: Do you even need me to YEA? So the Fed?
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  Speaker 2: What did they do earlier this week? They cut rates
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  Speaker 2: just as anticipated. All eleven of twelve voting members voted
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  Speaker 2: for a twenty five basis point rate cut. And then
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  Speaker 2: you had the new guy, Steven Myron question for the
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  Speaker 2: fifty and no big surprise there. The President's been calling
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  Speaker 2: for three hundred basis points of rate cuts. I'm not
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  Speaker 2: terribly surprised that he wanted to buck the trend and
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  Speaker 2: push for the lower rates, and nonetheless you now have
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  Speaker 2: the FED moving forward with their twenty five basis point cut.
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  Speaker 2: I'm sure that the meeting itself was interesting and dramatic
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  Speaker 2: to set the context for people, right. You have new
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  Speaker 2: guy Stephen Myron, who's a bit controversial only because he
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  Speaker 2: hasn't resigned from his post at the Economic Council, so
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  Speaker 2: he's the first person who's part of the White House
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  Speaker 2: still since I think the nineteen twenties or nineteen thirties
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  Speaker 2: to serve on the FED. Generally speaking, you get a
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  Speaker 2: point to the Fed. You resigned from your other job.
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  Speaker 2: He's instead taking a leave of absence. You have Lisa Cook,
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  Speaker 2: who the President is trying to fire, has not successfully
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  Speaker 2: yet done so, but has now appealed it to the
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  Speaker 2: Supreme Court, who may weigh in on it any day,
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  Speaker 2: but she was able to vote at that meeting. And
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  Speaker 2: then you have j Powell, who seems to be running
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  Speaker 2: things fine, but let's call it what it is. You know,
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  Speaker 2: when your boss has a limited time where he's still
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  Speaker 2: going to be your boss, I think it's natural to
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  Speaker 2: pay a little bit less attention to said boss. And
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  Speaker 2: that's the case of j Powell, right he is out
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  Speaker 2: as FED chair in it may of next year. May
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  Speaker 2: of next year, so I won't call him a lame duck.
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  Speaker 2: But he's getting there in terms of his role on
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  Speaker 2: the Federal Reserve. So while I'm sure it was interesting,
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  Speaker 2: the results were pretty standard and boring on what would
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  Speaker 2: like to see.
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  Speaker 4: Monetary policy is a mess right now. FED independence is
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  Speaker 4: in peril. It's because politicians, namely the President, has injected
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  Speaker 4: himself into it. You may think that's the right thing.
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  Speaker 4: You may think our elected officials should have more of
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  Speaker 4: a say, maybe even a direct say, in monetary policy.
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  Speaker 4: That's fine, let's have that debate. But we're going about
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  Speaker 4: it the wrong way. A witch hunt, to use his
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  Speaker 4: favorite phrase against Lisa Cook on very flimsy. As we're
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  Speaker 4: learning by the day. Here more evidence dribbles out that
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  Speaker 4: these charges allege well, charges haven't been brought yet. Maybe
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  Speaker 4: that's evidence that they're flimsy. So Mike policy is a mess.
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  Speaker 4: The Fed's cutting into a growing economy with elevated inflation.
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  Speaker 4: Under normal circumstances that would be incredibly risky. Add the
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  Speaker 4: political dynamic, and we're setting the stage here for a
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  Speaker 4: big mistake by the FED, clearly an avoidable one to
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  Speaker 4: the extent that it is politically driven, possibly bigger than
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  Speaker 4: the one they made in early twenty twenty one.
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  Speaker 2: Well, look, all of this said, we will see I think,
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  Speaker 2: as I've said before, my view is, well, we'll justify,
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  Speaker 2: we will see about it. Yeah, we will see about
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  Speaker 2: whether or not the FED embarks on a severe rate
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  Speaker 2: cutting path that sparks more inflation. I think that's the
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  Speaker 2: only piece that I would say is up for debate.
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  Speaker 2: Is the FED pressure from the White House to cut rates? Yes?
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  Speaker 2: Is there independence being threatened? Yes, we're grateful threatened.
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  Speaker 4: There's a member of the White House serving on the
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  Speaker 4: FOMC that's not just threatened. The rubicon has been crossed.
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  Speaker 4: We no longer have an independent Federal Reserve. If this
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  Speaker 4: doesn't have inflationary consequences, nothing for will arguably right.
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  Speaker 2: And so that's the piece that I think is under
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  Speaker 2: question is will this have inflationary consequences for all of us?
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  Speaker 2: And what do we do as investors or as people
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  Speaker 2: that are looking at the economy if this is what?
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  Speaker 2: If this is the potential threat here. If they FED
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  Speaker 2: is under threat of no longer being independent, where where
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  Speaker 2: do things go? There? But to the point I think
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  Speaker 2: you would agree we are seeing weakness in the labor market.
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  Speaker 2: I do think J. Powell is genuine in his perception
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  Speaker 2: of weakness in the labor market, and genuine in his
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  Speaker 2: view that hey, rates should come down, not because the
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  Speaker 2: President says so, but because I actually think.
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  Speaker 4: I think they are responding to political pressure. I think
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  Speaker 4: there is an argument for reducing There's plenty of serious economists,
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  Speaker 4: more certainly with more impressive credentials than I have, have
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  Speaker 4: made the argument for a rate cut. But you also
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  Speaker 4: can't deny the response to political heavyheadedness that's maybe driving
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  Speaker 4: the timetable, the tempo, and the remarks of some policy
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  Speaker 4: makers Mike and Moreover, you know, there's probably there's an
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  Speaker 4: equally good argument against rate cuts. Underlying inflation remains elevated.
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  Speaker 4: Underlying inflation is something that FED controls directly through their
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  Speaker 4: control of the money supply. GDP is growing, according to
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  Speaker 4: now casts like those produced by the Atlanta and New
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  Speaker 4: York Federal Reserve Banks, at potential or above potential rates,
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  Speaker 4: out or above trend. If you prefer there's a strong
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  Speaker 4: argument for not cutting. We're exposing the economy to supply shocks.
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  Speaker 4: We're reducing the labor force. Fat is a supply shock
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  Speaker 4: that pushes output down and prices up. There are other
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  Speaker 4: examples too, that are policy driven. You may like those policies,
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  Speaker 4: that's fine, but they are they are supply shock, so
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  Speaker 4: to speak, in nature. So there's just as good an
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  Speaker 4: argument for not cutting MIC, and you're not hearing that
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  Speaker 4: from the chair or the FOMC, which is why I
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  Speaker 4: feel like they're making another mistake, compounded by political factors.
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  Speaker 2: This time. Let me talk about one area where I
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  Speaker 2: think we are seeing some of that pushback, which was
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  Speaker 2: the step. So every other FED meeting they put together
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  Speaker 2: their summary of economic projections and in there you get
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  Speaker 2: a number of different things, but one of them is
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  Speaker 2: the dot plot on where members think that rates will
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  Speaker 2: need to go by calendar year. They do it for
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  Speaker 2: end of this year, end of next year, end of
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  Speaker 2: I think twenty seven and twenty eight, which quite honestly.
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  Speaker 3: I don't know, and then so called longer term.
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  Speaker 2: Yeah. I can't imagine why anybody would think that a
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  Speaker 2: FED member forecasting where rates should be in twenty twenty
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  Speaker 2: eight is terribly useful.
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  Speaker 4: But economists need to distinguish between short and long term,
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  Speaker 4: and you got to draw the lines.
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  Speaker 3: So it's sort of a.
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  Speaker 2: So in terms of what investors are anticipating, just to
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  Speaker 2: you know, kind of throw it out there, investors are
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  Speaker 2: saying right now that they anticipate two more rate cuts
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  Speaker 2: prior to December thirty. First, I'm gathering this from the
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  Speaker 2: Chicago Mercantallics Change, who has their fed watch tool, which
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  Speaker 2: basically weighs out how how different people are betting on
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  Speaker 2: this thing, and there is an eighty two point three
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  Speaker 2: percent likelihood that rates are half a percent lower by
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  Speaker 2: your end, meaning two more cuts from here. On the
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  Speaker 2: other hand, when you look at the summary of economic projections,
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  Speaker 2: there is a tendency for more rate cuts. The median
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  Speaker 2: is showing, hey, you know, we would see rate cuts
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  Speaker 2: further and landing in this target range. But the point's
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  Speaker 2: been made that it's actually not so clear because when
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  Speaker 2: you look at the median, that's what you get, But
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  Speaker 2: in fact, what you get is a group of six
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  Speaker 2: members that thinks that the cut that was just done
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  Speaker 2: is the last one that's needed. Another group of nine
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  Speaker 2: that thinks that we need two more cuts and then
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  Speaker 2: so you get into a median here where it's somewhere
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  Speaker 2: in between. But it's not so clear to me, and
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  Speaker 2: we don't know which members are are sitting where. I
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  Speaker 2: think we know where Stephen Myron is, but you know,
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  Speaker 2: we don't know which of those dots represent voting members.
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  Speaker 2: And to that end, yeah, I think there is some
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  Speaker 2: as I would expect different opinions in terms of where
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  Speaker 2: things go from here.
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  Speaker 4: It doesn't even matter if they don't cut again, real
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  Speaker 4: Fed funds, which is the nominal rate you see quoted
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  Speaker 4: in the newspaper, four percent is the target. Although they
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  Speaker 4: quoted they stated as arrange now less underlying inflation, real
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  Speaker 4: Fed funds might be point five percent. It sure as
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  Speaker 4: hell ain't more than one percent? Is that enough? Or
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  Speaker 4: is that restrictive? Is it neutral? Is it lacks? It's
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  Speaker 4: probably lacks at this point that worries me because GDP
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  Speaker 4: is a pen. Now, this this is gonna sound stupid
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  Speaker 4: if in six months the economy is in recession. Yeah,
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  Speaker 4: those who are arguing for and there's an argument for it.
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  Speaker 4: I'm not denying the argument for easing policy more aggressively
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  Speaker 4: right now, but I submit that you will have been lucky,
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  Speaker 4: not right due to skill. If you argued for easing
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  Speaker 4: right now, you're making a guess. You're saying the labor
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  Speaker 4: market's going to continue to weaken, the economy is going
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  Speaker 4: to continue to deteriorate. We can't know that today. All
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  Speaker 4: we know today is that GDP is growing at least
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  Speaker 4: in line with potential or trend if you prefer, inflation
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  Speaker 4: remains elevated. Those are the facts. Anything else's speculation. This
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  Speaker 4: aggressive drive to lower rates today is probably mostly politically motivated,
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  Speaker 4: clearly in the case of Moran, who's just a puppet
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  Speaker 4: less obviously, but probably also in the case of the
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  Speaker 4: rest of the FOMC, who are trying to protect themselves
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  Speaker 4: insulate themselves from incoming fire from the administration.
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  Speaker 2: Let's take a quick break when we come back. Two
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  Speaker 2: pieces on all of this that I want to focus
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  Speaker 2: on a little bit more. One would be the implications
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  Speaker 2: of what Mark just said, if they continue cutting into
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  Speaker 2: what's maybe an inflationary environment, what exactly ends up happening.
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  Speaker 2: Two seeing some deja vu when it comes to long
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  Speaker 2: term rates. I want to set the context for that
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  Speaker 2: because last fall we went through pretty similar things in
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  Speaker 2: terms of timing on rate cuts, and similar things on
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  Speaker 2: in terms of timing on long term bonds and mortgage
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  Speaker 2: rates and everything else. We'll be connecting those dots next
• 11:04
  Speaker 2: here on the Financial Exchange.
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  Speaker 2: All right, Mark last fall, The Fed embarked on a
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  Speaker 2: rate cutting cycle. We started off in September. They found themselves,
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  Speaker 2: I guess, in their own opinion, a little bit behind
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  Speaker 2: the eight ball on cutting. So they started off with
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  Speaker 2: a fifty basis point cut back in September of twenty
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  Speaker 2: twenty four, and followed it with two more cuts in
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  Speaker 2: October or early November, I don't remember which, and then December.
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  Speaker 2: So they cut a full percentage point between September and
• 12:35
  Speaker 2: December of last year, going from what was it five
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  Speaker 2: and a quarter down to four and a quarter until
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  Speaker 2: this week, until this week where we cut more. But okay,
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  Speaker 2: so that's the context is they move FED funds rates
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  Speaker 2: down by that percentage point, as I mentioned, started in September,
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  Speaker 2: ended in December. In September, I'm looking at September thirteenth,
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  Speaker 2: the average thirty year fixed rate mortgage back in back
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  Speaker 2: then was six point one four percent September thirteenth. This
• 13:05
  Speaker 2: is according to Mortgage News Daily. By the way, if
• 13:07
  Speaker 2: you're looking to follow along at home, by January, by
• 13:11
  Speaker 2: December thirtieth of twenty twenty four, that same thirty year
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  Speaker 2: fixed rate mortgage was sitting at seven point zero six percent.
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  Speaker 2: How why I thought the FED was lowering rates. I
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  Speaker 2: think this is important to.
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  Speaker 4: Actually absolutely, it's a great teachable moment.
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  Speaker 2: So what the FED is controlling when they move rates.
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  Speaker 2: They have other mechanisms too, but when they move rates,
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  Speaker 2: they are controlling effectively influencing the very short end of
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  Speaker 2: the curve. And they're not even actually controlling the rates.
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  Speaker 2: They don't do this by dictate. They do this by
• 13:38
  Speaker 2: market action of buying securities and moving things around. But
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  Speaker 2: that's what they are targeting is those short term interest rates,
• 13:45
  Speaker 2: and so they might influence things like your credit card rates,
• 13:48
  Speaker 2: your home equity line of credit. They could influence how
• 13:51
  Speaker 2: much you get paid at the bank on a CD
• 13:53
  Speaker 2: or money market five ime, righting thought about that prime rate. Yeah,
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  Speaker 2: it influences all of those shorter term or floating interest
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  Speaker 2: rates that you see on all these different types of things.
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  Speaker 2: What it does not do is influence at all the
• 14:09
  Speaker 2: longer end of the curve. If the FED chooses to,
• 14:12
  Speaker 2: the FED could utilize tools to try and influence that
• 14:15
  Speaker 2: they have in the past. Many other central banks do
• 14:18
  Speaker 2: what's called yield curve control. That's not typical of the
• 14:21
  Speaker 2: US Central Bank, but they haven't here, And so what
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  Speaker 2: we just saw in the fall of last year, was
• 14:28
  Speaker 2: the Fed cut rates, but long term rates went up.
• 14:32
  Speaker 2: Why does that happen? Mark, I guess just give you theory.
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  Speaker 4: Yeah, like you said, Fed controls the money supply influences,
• 14:37
  Speaker 4: basically controls short term interest rates. It could buy instead
• 14:41
  Speaker 4: longer term treasury bonds. If you think about the FED
• 14:44
  Speaker 4: buying and selling short term treasury bonds of bills. Technically,
• 14:47
  Speaker 4: that's the easiest way to think about the FED exerting
• 14:50
  Speaker 4: indirect control over demand, which is what it's trying to do.
• 14:52
  Speaker 4: By the way, the Fed indirectly controls overall demand nominal
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  Speaker 4: demand before inflation nominal GDP really, which we don't talk
• 15:01
  Speaker 4: about a lot. We always talk about real GDP. But
• 15:03
  Speaker 4: FED controls though they don't target. Used to talk about
• 15:06
  Speaker 4: doing so it's faded. They target nominal GDP. You could
• 15:10
  Speaker 4: think about it that way for all intents and purposes.
• 15:12
  Speaker 4: So longer term interest rates, why might they go up
• 15:15
  Speaker 4: if the FED cuts rates? Well, one theory says long
• 15:18
  Speaker 4: term interest rates are a function of expected future short
• 15:24
  Speaker 4: term interest rates, which your in turn a function of
• 15:26
  Speaker 4: expected future short term inflation. Think about it this way, Mike,
• 15:29
  Speaker 4: You could buy it you could buy. Well, you could
• 15:31
  Speaker 4: buy a ten year treasury bond note technically and sit
• 15:35
  Speaker 4: on it and collect your coupons twice a year over
• 15:38
  Speaker 4: the next ten years, and then collect the face value
• 15:41
  Speaker 4: at the end. Right, you should do that. You could
• 15:42
  Speaker 4: sit on it, go fishing forget about it.
• 15:44
  Speaker 2: Yep.
• 15:44
  Speaker 4: You could instead buy a one year treasury Would that
• 15:47
  Speaker 4: be a bill?
• 15:49
  Speaker 2: Yep? Right?
• 15:49
  Speaker 4: You could buy a one year When it matures, you
• 15:52
  Speaker 4: re up if you will roll it over whatever you
• 15:54
  Speaker 4: want to term you want to use for that reup
• 15:55
  Speaker 4: in a year reup and a year reup in a year.
• 15:57
  Speaker 2: These questions make more money reup than I will holding
• 16:01
  Speaker 2: for ten years.
• 16:02
  Speaker 4: In reasonably competitive markets where prices are set regularly and
• 16:07
  Speaker 4: people can transact freely, the rates of return on those
• 16:10
  Speaker 4: two strategies should be the same. You shouldn't be able
• 16:12
  Speaker 4: to earn more over time by buying a ten year
• 16:14
  Speaker 4: and sitting on it versus buying a one year and
• 16:16
  Speaker 4: rolling it, rolling it, rolling it, rolling it until year ten.
• 16:20
  Speaker 4: This is the expectations theory of the so called yield
• 16:23
  Speaker 4: curve of the term structure of interest rates. So if
• 16:27
  Speaker 4: if logo term interest rates are going up in response
• 16:30
  Speaker 4: to a fadcut. What you could infer from that is
• 16:33
  Speaker 4: the market expects by the market I mean all of us,
• 16:35
  Speaker 4: but the average all of those that participates and participate
• 16:38
  Speaker 4: in capital markets, and that includes you. If you have
• 16:40
  Speaker 4: a four to one K plan with a target date
• 16:42
  Speaker 4: fund or a bond fund. People think short term interest
• 16:45
  Speaker 4: rates will have to be higher than they are today
• 16:47
  Speaker 4: at some point in the future, maybe due to higher inflation,
• 16:51
  Speaker 4: may yeah, any number of factors. That's what's expected. Then
• 16:56
  Speaker 4: there's the so called term premium, the X factor risk.
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  Speaker 4: There may be left out of left field things that
• 17:03
  Speaker 4: push interest rights up at some point in the future.
• 17:05
  Speaker 4: You're more exposed to those if you hold a ten
• 17:08
  Speaker 4: year bond than you are a one year bond. Therefore
• 17:11
  Speaker 4: you should be compensated for that risk. So there are
• 17:14
  Speaker 4: a couple different components, Mike, to that that explanation of
• 17:18
  Speaker 4: long versus shorter term rates.
• 17:20
  Speaker 2: So obvious question is, Mike, why are you bringing up
• 17:22
  Speaker 2: with the FED did last year? Not relevant? It is
• 17:25
  Speaker 2: a year ago. So on Tuesday of this week, that
• 17:28
  Speaker 2: same measure, the thirty year fixed rate mortgage on Tuesday
• 17:31
  Speaker 2: of this week was sitting at six point one three percent.
• 17:36
  Speaker 2: Since then since the FED cut rates, we have now
• 17:38
  Speaker 2: seen that average thirty year fixed rate spike five twenty
• 17:43
  Speaker 2: five or so basis points. We're up now to six
• 17:45
  Speaker 2: point three seven percent on that thirty year fixed rate mortgage.
• 17:49
  Speaker 2: That's a fairly big jump over two days.
• 17:51
  Speaker 3: That's bigger than I expect.
• 17:52
  Speaker 2: That's a fairly big jump over two days. Now, there's
• 17:55
  Speaker 2: other influences here, but you've seen something similar. You know,
• 17:58
  Speaker 2: if I take a look at, let's see what we
• 18:00
  Speaker 2: did on the ten year treasury yield as well, just
• 18:03
  Speaker 2: to kind of set this, that's up ten So the
• 18:07
  Speaker 2: ten year treasury from Tuesday of this week is up
• 18:10
  Speaker 2: ten basis points compared to the thirty year fixed rate mortgage.
• 18:14
  Speaker 2: So again, a lot of different things could be at
• 18:16
  Speaker 2: play here, but I take your point that the Fed
• 18:20
  Speaker 2: right now, no matter where you sit, is cutting into
• 18:23
  Speaker 2: what many would describe as fundamentals in the economy that
• 18:27
  Speaker 2: are at least questionable as to how weak they are.
• 18:31
  Speaker 2: Right Unemployment sitting at four point three percent, you have
• 18:34
  Speaker 2: stock markets hitting all time highs. The financial conditions are
• 18:38
  Speaker 2: not definitively weak.
• 18:41
  Speaker 4: My god, through the opposite, aren't they? Objectively speaking? Just
• 18:44
  Speaker 4: go with the facts. Unemployment four point three percent GDP
• 18:47
  Speaker 4: according to the Atlanta Fed, growing at over three percent.
• 18:50
  Speaker 4: That's fifty percent more than the trend rate. Jobless claims
• 18:54
  Speaker 4: they spike last week. Everybody panic, they came back down.
• 18:56
  Speaker 3: Whoop?
• 18:56
  Speaker 4: Somebody fat finger dating things in Texas by what may
• 19:00
  Speaker 4: of economic health or financial market conditions? Do do do?
• 19:05
  Speaker 3: Does the uh?
• 19:06
  Speaker 4: Does the overall picture scream for for the FED? Stimulating
• 19:10
  Speaker 4: demand when we're cutting labor supply by the way, right.
• 19:15
  Speaker 2: So if I read just purely, like without talking to people,
• 19:18
  Speaker 2: what I what I read into these moves would be Yeah,
• 19:23
  Speaker 2: investors might be a little bit more concerned about inflation
• 19:26
  Speaker 2: than they are a giant recession right now, quick break,
• 19:29
  Speaker 2: 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 Street.
• 19:53
  Speaker 1: Watch a complete look at what's moving markets so far
• 19:56
  Speaker 1: today right here on the Financial Exchange Radio Network.
• 20:00
  Speaker 5: Well as a FED filled week wraps up. Marcus today
• 20:03
  Speaker 5: are seeing more gains as Wall Street monitors developments from
• 20:07
  Speaker 5: the call between President Trump and Chinese President Gi this morning.
• 20:12
  Speaker 5: At the moment the Dow is up two tenths of
• 20:14
  Speaker 5: one percent, or ninety six points higher. SMP five hundred
• 20:17
  Speaker 5: dollars up two tenths of one percent or fifteen points.
• 20:21
  Speaker 5: Nasdaq is up nearly half a percent or ninety eight
• 20:24
  Speaker 5: points higher. Russell two thousand dipping into negative territory Tenure
• 20:29
  Speaker 5: treas reeled up two basis points at four point one
• 20:32
  Speaker 5: two seven percent, and crude oiled down about a third
• 20:35
  Speaker 5: of one percent, trading at sixty three dollars and thirty
• 20:38
  Speaker 5: four cents a barrel. FedEx shares rising over two percent
• 20:42
  Speaker 5: after the delivery giants said it expects a one billion
• 20:46
  Speaker 5: dollar terror related hit to its annual earnings. As for
• 20:50
  Speaker 5: the previous quarter, FedEx posted stronger than expected results. Meanwhile,
• 20:55
  Speaker 5: home builder Lennar saw its profit decline for a fourth
• 20:59
  Speaker 5: straight quarter as its sales for the previous quarter miss forecast.
• 21:03
  Speaker 5: Earnings did, however, beat expectations. Lenar's shares are down about
• 21:07
  Speaker 5: two percent, well after its stock surged twenty two percent
• 21:11
  Speaker 5: yesterday in reaction to Nvidia's five billion dollar investment in
• 21:15
  Speaker 5: the company. Intel shares are pulling back about one percent today. Furthermore,
• 21:21
  Speaker 5: City downgraded the stock to sell from neutral. Saying Intel
• 21:25
  Speaker 5: stock is pricing in success in its leading edge foundry
• 21:28
  Speaker 5: business that it believes has minimal chance to succeed elsewhere.
• 21:33
  Speaker 5: JP Morgan upgraded its price target of Apple stock to
• 21:36
  Speaker 5: two hundred and eighty dollars from two hundred and fifty
• 21:39
  Speaker 5: five dollars per share, with firm said demand for the
• 21:42
  Speaker 5: tech giants new slate of iPhone seventeen's is strong based
• 21:46
  Speaker 5: on early sales across Asia. Apple shares are up over
• 21:50
  Speaker 5: one percent, and children's book publisher Scholastic posted a wider
• 21:55
  Speaker 5: quarterly loss as schools delayed or pulled back on purchases
• 21:59
  Speaker 5: due to un certain federal and state funding, sending that
• 22:02
  Speaker 5: stock down by fourteen percent. I'm Tucker Silvan. That is
• 22:06
  Speaker 5: Wall Street Watch.
• 22:07
  Speaker 2: Scholastic is a publicly traded company. How do they even
• 22:13
  Speaker 2: still exist? Sorry? That just maybe laugh for a minute. Sorry.
• 22:18
  Speaker 2: I want to focus on China and trade because quite honestly,
• 22:22
  Speaker 2: I don't. We haven't really had to talk about it
• 22:25
  Speaker 2: for like thirty days, which has been quite pleasant. But
• 22:29
  Speaker 2: the President and the President Trump and President Xi Jinping
• 22:33
  Speaker 2: spoke over the phone today probably about a number of
• 22:38
  Speaker 2: different subjects. There's been an announcement of a TikTok framework
• 22:43
  Speaker 2: deal for how that is going to continue to operate
• 22:46
  Speaker 2: in the United States. I know that this is a
• 22:48
  Speaker 2: big issue for big contingents of voters in the United States.
• 22:54
  Speaker 2: It just has no market or economic impact, and I
• 22:57
  Speaker 2: don't use it personally, so I just can't bring my
• 23:00
  Speaker 2: self to care all that much. But it looks like
• 23:02
  Speaker 2: something is going to happen there. The piece that I
• 23:04
  Speaker 2: care about has always been data privacy and security, and
• 23:09
  Speaker 2: there's been a lot of questions as to whether or
• 23:10
  Speaker 2: not this deal actually fixes those problems. I'm unsure about that,
• 23:15
  Speaker 2: but again, we don't even know what the framework exactly
• 23:18
  Speaker 2: looks like, so we will have to wait and see
• 23:20
  Speaker 2: the other big deadlines just to keep I guess on
• 23:23
  Speaker 2: your calendar. So the heightened tariffs are currently looking at
• 23:29
  Speaker 2: deadlines of November tenth and November twenty ninth when it
• 23:31
  Speaker 2: comes to China, when it comes to all these reciprocal tariffs,
• 23:35
  Speaker 2: meaning we set into a ninety day suspension of these
• 23:37
  Speaker 2: higher levels and on November tenth, those those higher levels
• 23:41
  Speaker 2: are due to go back into place. If I'm China,
• 23:45
  Speaker 2: I'm probably not terribly interested in negotiating at this point.
• 23:50
  Speaker 2: In time, as the Supreme Court is currently reviewing whether
• 23:53
  Speaker 2: or not the President even has the power to implement
• 23:55
  Speaker 2: reciprocal tariffs. As a reminder, he's using a raw a
• 24:00
  Speaker 2: law that's you know, basically says, hey, we're in a
• 24:03
  Speaker 2: national emergency, and therefore I'm using tariffs as a tool.
• 24:09
  Speaker 2: The Trump administration is currently being sued by I don't
• 24:12
  Speaker 2: even remember who questioning whether or not a it's a
• 24:15
  Speaker 2: national emergency, and B even if it is, whether or
• 24:18
  Speaker 2: not they can use tariff. So if I'm chan Jingping,
• 24:20
  Speaker 2: I'm not going to go negotiate some giant trade deal
• 24:23
  Speaker 2: if I don't even know. Hey, well this needs to
• 24:25
  Speaker 2: be ratified by US Congress and all sorts of big
• 24:28
  Speaker 2: picture questions. In the background, we also have all these
• 24:31
  Speaker 2: rare earth discussions. But again, it seems to me that
• 24:36
  Speaker 2: while there is going to be an ongoing race to
• 24:38
  Speaker 2: domestically produce rare earth materials, and probably every country is
• 24:43
  Speaker 2: thinking the same thing, it has not been rearing its
• 24:47
  Speaker 2: ugly head again, which I take as I guess good
• 24:50
  Speaker 2: news on the trade side between the United States and China.
• 24:53
  Speaker 2: I know I've just been talking at you, Mark, before
• 24:55
  Speaker 2: I go on to Nvidia. Do you have anything else
• 24:57
  Speaker 2: to mention on China?
• 24:58
  Speaker 4: And do you other than to say I'm here infrequently
• 25:01
  Speaker 4: many of you would say thank God. So I'll just
• 25:03
  Speaker 4: point out if the purpose of it, I just.
• 25:06
  Speaker 3: Meant the audience, yeah, eighty percent of the audience, small sliver.
• 25:10
  Speaker 4: If the purpose of all these frantic trade scrambles and
• 25:16
  Speaker 4: the helter skelter tariff's on, tariff's off, if the purpose
• 25:19
  Speaker 4: is to lower the trade deficit, it's not working out
• 25:22
  Speaker 4: year over year July to July, which is the latest
• 25:25
  Speaker 4: we have for the trade balance, that's goods and services
• 25:28
  Speaker 4: we are if you think the trade I'll just give
• 25:31
  Speaker 4: you the facts. The trade deficit is twenty billion dollars
• 25:34
  Speaker 4: worse year over year than it was last year.
• 25:37
  Speaker 3: If you want to look.
• 25:37
  Speaker 2: At that China specifically overall.
• 25:39
  Speaker 4: I'm just talking overall, because I don't think anybody's going
• 25:41
  Speaker 4: to care if by if the deficit, if the bilateral
• 25:46
  Speaker 4: deficit country to country improves with China but deteriorates elsewhere,
• 25:50
  Speaker 4: the focus, I think is on the trade deficit that's
• 25:53
  Speaker 4: gotten worse year over year by twenty billion dollars in
• 25:56
  Speaker 4: percentage terms. Let's just look at the calendar year to date,
• 25:58
  Speaker 4: though since the new administration has not been in office
• 26:01
  Speaker 4: for the last twelve months calendar year over year, the
• 26:05
  Speaker 4: deficit is up twenty nine rounded up to thirty percent.
• 26:09
  Speaker 4: Trade deficit is up thirty percent. Maybe you could say, well,
• 26:12
  Speaker 4: it's too soon. The tariffs have been on again, off again.
• 26:17
  Speaker 4: It's been a pretty fitful start. You've just give this
• 26:19
  Speaker 4: a couple of years to work. Maybe that's fair. But
• 26:24
  Speaker 4: when looking just at hard metrics, it's like looking at
• 26:26
  Speaker 4: the overall budget deficit. It's about the same as it
• 26:28
  Speaker 4: It's a little bit lower, but no dramatic difference over
• 26:31
  Speaker 4: last year. So all of these theatrics have to at
• 26:33
  Speaker 4: some point be tested by reality and by the test
• 26:37
  Speaker 4: that I've suggested. Maybe you could suggest another one, the
• 26:40
  Speaker 4: size of the budget deficit. We're expending a lot of
• 26:44
  Speaker 4: energy for nothing.
• 26:45
  Speaker 2: Yeah, look, I think the timing side of it is
• 26:49
  Speaker 2: a fair point, because if I am any global company
• 26:53
  Speaker 2: right now that is facing tariffs, I'm probably taking the
• 26:56
  Speaker 2: same attitude that China is taking, which is, I don't
• 27:01
  Speaker 2: know if these are still going to be in place
• 27:03
  Speaker 2: sixty days from now. If they are in place a
• 27:05
  Speaker 2: year from now, then I can see a reason why
• 27:07
  Speaker 2: I would want to manufacture a whole lot more stuff
• 27:09
  Speaker 2: in the United States. But you know how much money
• 27:12
  Speaker 2: am I going to spend on doing that if it's
• 27:15
  Speaker 2: really under question as to whether or not the president
• 27:19
  Speaker 2: has the power to do all this, And I think
• 27:21
  Speaker 2: that's a disservice to all of us, you know, to
• 27:25
  Speaker 2: have it in limbo here, And so I hope it's
• 27:27
  Speaker 2: resolved pretty quickly. But yeah, if I'm a business I can.
• 27:30
  Speaker 3: Well, Mike if so.
• 27:31
  Speaker 4: If you like tariffs, I don't, if few you know
• 27:34
  Speaker 4: the textbook.
• 27:35
  Speaker 2: I'm not saying that I want it resolved for the president.
• 27:38
  Speaker 2: I just want it to be clear as to whether that.
• 27:40
  Speaker 4: Power they Republicans have Congress and the White House. Sure,
• 27:45
  Speaker 4: they could have passed a damn tariff bill in February
• 27:48
  Speaker 4: or March. It all would have been legal. We could
• 27:50
  Speaker 4: have complained and waved our hands about tariffs, but it
• 27:53
  Speaker 4: would have been legal. No one would be questioning the
• 27:56
  Speaker 4: constitutional issue here. But because they.
• 28:01
  Speaker 2: Chose to do it, Yeah, the reason that doesn't exist
• 28:05
  Speaker 2: is a fewfold. One. Democrats still have power to block things.
• 28:08
  Speaker 4: Oh no, nobody ever introduced a bill, but they didn't
• 28:11
  Speaker 4: want to vote on Trump.
• 28:12
  Speaker 2: That would be that would be my point. I don't
• 28:15
  Speaker 2: think there we.
• 28:15
  Speaker 4: Wouldn't be having this discussion had they done it, you know,
• 28:18
  Speaker 4: the traditional way where Congress passes laws.
• 28:20
  Speaker 2: I don't think there was even close to universal agreement
• 28:22
  Speaker 2: among Republicans that tariffs areg.
• 28:24
  Speaker 4: Maybe we should have to damn conversation, and so they
• 28:26
  Speaker 4: don't want to vote on it.
• 28:27
  Speaker 3: That's what Congress.
• 28:28
  Speaker 2: Let's take a quick break. When we come back. I
• 28:30
  Speaker 2: alluded to in Vidia, and this is again a China
• 28:35
  Speaker 2: connection that I think is worth talking about. They announced
• 28:39
  Speaker 2: an investment in Intel just this week. There's been some
• 28:43
  Speaker 2: announcements by Huawei as well. When we come back, talking
• 28:46
  Speaker 2: about in Nvidia and the China connection. Next on the
• 28:48
  Speaker 2: Financial Exchange.
• 28:49
  Speaker 1: The Financial Exchange streams live on YouTube. Subscribe to our
• 28:53
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• 28:56
  Speaker 1: all morning. Long Face is the Financial Exchange Radio and Network.
• 29:01
  Speaker 1: Thanks to us six one, seven, three, six two thirteen
• 29:04
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• 29:07
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• 29:09
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• 29:21
  Speaker 2: Mark depending on the day and video is either the
• 29:23
  Speaker 2: first or second largest publicly traded company in the world
• 29:27
  Speaker 2: right now. They are a four point three trillion dollar
• 29:32
  Speaker 2: company today, and a lot of that is based on
• 29:36
  Speaker 2: the premise that this company is going to be able
• 29:38
  Speaker 2: to continue to develop and sell the absolute best semiconductors
• 29:43
  Speaker 2: in the world and sell more of them at good
• 29:46
  Speaker 2: prices in the future at heavy profits. Because that's what
• 29:49
  Speaker 2: they've been doing. They have defied all expectations in terms
• 29:52
  Speaker 2: of how much how much they can have in sales,
• 29:55
  Speaker 2: how much they can develop, and how much how many
• 29:57
  Speaker 2: customers actually want these things. So that's a pretty simple
• 30:01
  Speaker 2: explanation of the Nvidia story today. They're not trying to develop,
• 30:06
  Speaker 2: at least currently, the first and latest and greatest, you
• 30:11
  Speaker 2: know AI tool that's out there that everybody's using. They're
• 30:14
  Speaker 2: not trying to get into social media. They are not
• 30:16
  Speaker 2: trying to have a retail customer facing business. I think
• 30:20
  Speaker 2: the biggest shift in business you might be able to
• 30:22
  Speaker 2: see is their investments in Intel, which to me indicates
• 30:25
  Speaker 2: they might want to try and manufacture some of this
• 30:27
  Speaker 2: stuff in the United States in the future. But other
• 30:29
  Speaker 2: than that, that's that's the Nvidia business model. And for
• 30:33
  Speaker 2: quite some time now, people have been making the comparisons
• 30:36
  Speaker 2: to the dot com era, and you know, you can't
• 30:41
  Speaker 2: talk about those comparisons without comparing the largest company out there.
• 30:45
  Speaker 2: And so I'll be the first to say that I
• 30:47
  Speaker 2: have no idea if there's a legitimate comparison to the
• 30:50
  Speaker 2: Internet of the late nineties and the AI infatuation that
• 30:55
  Speaker 2: is the twenty twenties. Now, certainly there's fair comparisons when
• 30:58
  Speaker 2: it comes to valuations there, We've talked about them. The
• 31:01
  Speaker 2: only time that priced to sales ratio on the S
• 31:05
  Speaker 2: and P five hundred has been actually, it's never been
• 31:08
  Speaker 2: higher than it is right now. But the only time
• 31:10
  Speaker 2: that it was even close was during the dot com bubble.
• 31:12
  Speaker 2: And the only time that pe ratios were higher was
• 31:15
  Speaker 2: during that dot com bubble. So the comparisons are.
• 31:19
  Speaker 3: Being made here, Gonta make a point about that.
• 31:22
  Speaker 4: Please the dot com bubble, that era, in many ways
• 31:27
  Speaker 4: that looks respectable relative to this. This seems narrower. And
• 31:31
  Speaker 4: I say that. I make that. I say that because
• 31:33
  Speaker 4: we all experienced in real time the benefits of that
• 31:35
  Speaker 4: new technology. We went from Lotus Notes to Microsoft Office.
• 31:40
  Speaker 4: We got a new version of that every eighteen months,
• 31:42
  Speaker 4: very exciting. We all got new computers every eighteen months.
• 31:45
  Speaker 4: They made you more productive, they were faster, They allowed
• 31:49
  Speaker 4: you to interact more remotely. I think it's hard to overstate. Yeah,
• 31:53
  Speaker 4: and it showed up, and it eventually showed up. It
• 31:55
  Speaker 4: took a little while, but it showed up in the
• 31:56
  Speaker 4: productivity data. There was a huge leap in productivity, which
• 31:59
  Speaker 4: translates directly into higher living standards. Only lasted about eight years,
• 32:03
  Speaker 4: but it was real. In the late nineties, people weren't sure.
• 32:05
  Speaker 4: Measurements were raw. By the early two thousands, we knew
• 32:08
  Speaker 4: it was real. But if you lived through that period,
• 32:10
  Speaker 4: you worked through that period in a desk job, it was.
• 32:13
  Speaker 3: Very real to you.
• 32:14
  Speaker 4: So some it was a little more believable, a little
• 32:15
  Speaker 4: more tangible than this is.
• 32:17
  Speaker 2: I don't know, I'm seeing it pretty real in the
• 32:19
  Speaker 2: AI space too.
• 32:20
  Speaker 4: Changing your life was that stuff was.
• 32:22
  Speaker 2: Like the Internet was life changing. I think for a
• 32:25
  Speaker 2: lot of folks AI might be, or it's starting to
• 32:28
  Speaker 2: be starting to be more so and starting to.
• 32:30
  Speaker 4: Yeah, I'm not to ex potential. I'm just saying we've
• 32:34
  Speaker 4: it was. It was, it was concrete.
• 32:35
  Speaker 2: So I then lead to China because we just talked
• 32:38
  Speaker 2: about in video's business, which is designing and selling semiconductors.
• 32:41
  Speaker 2: And for whatever reason, uh, probably a lot of good reasons,
• 32:45
  Speaker 2: the Chinese government has been telling their own tech companies
• 32:49
  Speaker 2: do not buy in videos semiconductors, even if you're allowed to,
• 32:53
  Speaker 2: even if the US government has a path for you
• 32:56
  Speaker 2: to buy the H twenty chips is what they're called,
• 32:58
  Speaker 2: they are not doing so. And I take that to
• 33:01
  Speaker 2: read a few things. One the government's probably worried about
• 33:03
  Speaker 2: being spied upon, because you know, the Chinese would certainly
• 33:06
  Speaker 2: do it to us. I'm sure that we would do
• 33:08
  Speaker 2: it to them too. I think that they are very
• 33:12
  Speaker 2: interested in developing their own domestic semiconductor industry, and those
• 33:17
  Speaker 2: two things I think are influencing the government's decision to
• 33:19
  Speaker 2: push back. And I don't know that that will last forever.
• 33:22
  Speaker 2: And I am not an expert in what Huawei is
• 33:25
  Speaker 2: able to do, for instance, in terms of semiconductor development.
• 33:29
  Speaker 2: I have no idea. What I do know is that
• 33:33
  Speaker 2: China today is not the China of thirty years ago
• 33:36
  Speaker 2: when it comes to manufacturing. And I was talking to
• 33:38
  Speaker 2: Jimplito about this this morning, and his takeaway was, you know,
• 33:42
  Speaker 2: my I think his brother used to work for you know,
• 33:45
  Speaker 2: a tech company, and they always talked about Chinese manufacturing
• 33:47
  Speaker 2: and what garbage it produced, and that was probably the
• 33:50
  Speaker 2: case twenty years ago in terms of quality control. But
• 33:53
  Speaker 2: today they seem to be making some of the best
• 33:56
  Speaker 2: automobiles in the world. They dominate the solar panel industry,
• 34:00
  Speaker 2: they dominate the steel industry. And what you can say
• 34:05
  Speaker 2: about China is they are not usually the first to
• 34:09
  Speaker 2: innovate something in terms of high tech. But man, are
• 34:13
  Speaker 2: they good at ramping up production and making a crapload
• 34:16
  Speaker 2: of whatever they build. And so if you want a
• 34:20
  Speaker 2: you know, path for this bubble collapse, I don't know
• 34:25
  Speaker 2: that you need to have people come to the conclusion
• 34:27
  Speaker 2: that oh Ai isn't as cool as we thought it was,
• 34:29
  Speaker 2: It's not as great as it was. What if China
• 34:31
  Speaker 2: just becomes extremely good at making semiconductors for an extremely
• 34:36
  Speaker 2: cheap price, Well.
• 34:38
  Speaker 4: That's okay, we just buy their semiconductors and Radia goes
• 34:41
  Speaker 4: the way the Dodo. But my point would activity benefits
• 34:44
  Speaker 4: remain though?
• 34:45
  Speaker 2: Yes, and so the benefits to the overall global economy
• 34:48
  Speaker 2: I think still exist, but it suddenly does call into
• 34:51
  Speaker 2: question the value of a whole bunch of US companies
• 34:53
  Speaker 2: if something like that.
• 34:54
  Speaker 4: Was Yeah, but if the benefits of AI are realized,
• 34:56
  Speaker 4: it'll make everybody else more productive in whatever they're doing.
• 34:59
  Speaker 3: Percent not even know. Yeah, I know.
• 35:01
  Speaker 2: And that's and that's that's the point that I keep
• 35:03
  Speaker 2: making with this on the comparison to the Internet, is
• 35:05
  Speaker 2: the Internet was the most revolutionary technology. We did see
• 35:08
  Speaker 2: productivity benefits, the US economy benefited from it, but we
• 35:12
  Speaker 2: had to go through a bubble burst to get there.
• 35:14
  Speaker 2: And that's the piece that.
• 35:15
  Speaker 3: All people we didn't have to, but we did.
• 35:17
  Speaker 2: We did well. Yeah, whether we had to or not,
• 35:20
  Speaker 2: we did. It did happen, And so that's the piece
• 35:23
  Speaker 2: that I always keep getting pushed back, like, no, it's
• 35:25
  Speaker 2: different this time because AI is so important, And I
• 35:28
  Speaker 2: pushed back to say, the Internet was pretty darn important
• 35:31
  Speaker 2: and we still went through it.
• 35:32
  Speaker 4: A little bit further electrification, the internal combustion engine, and
• 35:36
  Speaker 4: all the knock on technologies. If you're interested in this topic,
• 35:39
  Speaker 4: Robert Gordon wrote a great book, The Rise and Fall
• 35:41
  Speaker 4: of American Growth. It's more or less an economic history
• 35:44
  Speaker 4: of the country since the Industrial Revolution. If you think
• 35:47
  Speaker 4: this will be more beneficial than being able to go
• 35:50
  Speaker 4: to the bathroom, indoors in the winter. Seriously. Now Gordon
• 35:54
  Speaker 4: makes this point or being able to do any number
• 35:56
  Speaker 4: of things that we take for granted. Would you give
• 35:59
  Speaker 4: up indoor plumbing for AI power for an AI powered friend?
• 36:04
  Speaker 2: This type of thing is obviously fascinating to us. If
• 36:07
  Speaker 2: it's of interest to you. What's been going on in
• 36:09
  Speaker 2: markets where the economy goes with productivity due to artificial intelligence?
• 36:13
  Speaker 2: What's going on with inflation that we've been talking about
• 36:15
  Speaker 2: all morning housing costs? We welcome you to join us
• 36:18
  Speaker 2: in October at one of our two events. We're doing
• 36:21
  Speaker 2: one on October ninth down at the Margaritaville Resort on
• 36:24
  Speaker 2: Cape Cod The other one's going to be at the
• 36:26
  Speaker 2: Showcase super Lux and Chestnut Hill, Massachusetts on October sixteenth.
• 36:30
  Speaker 2: It's a live broadcast of this show followed by lunch
• 36:33
  Speaker 2: and a conversation with the folks over at Armstrong Advisory
• 36:36
  Speaker 2: Group for our views on the markets, the economy and
• 36:39
  Speaker 2: what it means for your financial strategy. If you would
• 36:42
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• 36:44
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• 36:47
  Speaker 2: a website. Space is limited. We do sell out on
• 36:51
  Speaker 2: these things and We would love to have you all,
• 36:54
  Speaker 2: but again, space is limited and we would love for
• 36:56
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• 37:01
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• 37:02
  Speaker 2: to sign up for our event. Otherwise you can call
• 37:04
  Speaker 2: us at eight hundred three nine three for zero zero
• 37:08
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• 37:12
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• 37:15
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• 37:17
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• 37:20
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• 37:23
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 37:26
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• 37:29
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• 37:39
  Speaker 2: As we head over to the top of the hour,
• 37:42
  Speaker 2: closing in at eleven o'clock, here we've got the Dow
• 37:44
  Speaker 2: Jones Industrial Average just barely holding on to gains here
• 37:47
  Speaker 2: up twenty four points, the SMP five hundred up seven points,
• 37:51
  Speaker 2: or a tenth of a percent, the Nasdaq leading the
• 37:53
  Speaker 2: way as it has the last several weeks, up seventy
• 37:56
  Speaker 2: one points or one third of one percent. In terms
• 37:59
  Speaker 2: of in restraates, we're still seeing bond yields move higher,
• 38:02
  Speaker 2: with the ten year moving up to four point one
• 38:05
  Speaker 2: three three percent, and oil down slightly by about fifty
• 38:08
  Speaker 2: cents or two thirds of one percent. We'll be right
• 38:11
  Speaker 2: back with a whole lot more from the financial exchange.
• 38:13
  Speaker 2: Stay tuned, folks, We'll be right back