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Will cheap Chinese cars kill the American auto industry? · The Financial Exchange Show

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• 1:10
  Speaker 2: Good morning, Welcome back to the Financial Exchange. We've got
• 1:13
  Speaker 2: a pretty strong selloff occurring in equities this morning, after
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  Speaker 2: two solid days of returns on Friday of last week
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  Speaker 2: and Monday of this week. NAS that currently off a
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  Speaker 2: little more than two percent, three hundred and sixty six points,
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  Speaker 2: S and P off one and a quarter or seventy
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  Speaker 2: points now off three hundred points, or about seven tenths
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  Speaker 2: of one percent. We'll keep you updated as the show
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  Speaker 2: goes on if there's any change in that, but as
• 1:35
  Speaker 2: we all know, since mid February had been a pretty
• 1:38
  Speaker 2: up and down market here. On Thursday of last week
• 1:41
  Speaker 2: we did reach correction territory with the SMP selling off
• 1:44
  Speaker 2: and closing down more than ten percent off its most
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  Speaker 2: recent high, and we've since bounced back but are hovering
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  Speaker 2: in those ranges again today. Anything else catching your eyes
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  Speaker 2: in markets? I feel like the equity story is the
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  Speaker 2: one that's moved things today. In terms of interest rates,
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  Speaker 2: you do have the yield and the tenured down slightly
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  Speaker 2: to four point three percent, but it's been as low
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  Speaker 2: as four to two recently.
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  Speaker 3: Oil prices moving a bit, but largely this is a
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  Speaker 3: equity market story more than anything else.
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  Speaker 4: Yeah, nothing else that really stands out here.
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  Speaker 2: Cheap Chinese cars are taking over roads from Brazil to
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  Speaker 2: South Africa to our neighbor to the south in Mexico
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  Speaker 2: as well. And I think everybody's generally aware that companies
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  Speaker 2: like BYD are producing way more cars than they need
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  Speaker 2: for domestic consumption in China and therefore being exported across
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  Speaker 2: the globe. And what I think is not terribly well
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  Speaker 2: known because you can't buy one of these cars in
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  Speaker 2: the United States, is that it's not it's not really
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  Speaker 2: getting a reputation as some junker Chinese car that you
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  Speaker 2: can buy. In fact, Ford CEO Jim Farley was interviewed
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  Speaker 2: last year about his experience driving specifically a Shaomi SU seven.
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  Speaker 2: He's had it in the United States for six months.
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  Speaker 2: They went and imported one of these cars to kind
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  Speaker 2: of get a sense for what it's like, and he's
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  Speaker 2: admitted that while he doesn't usually like talking about the competition,
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  Speaker 2: he's been driving the car for the last six months
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  Speaker 2: and it is pretty far superior to anything that Ford,
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  Speaker 2: for example, had put together. Where is the exact quote
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  Speaker 2: on his praise. I'd have to find the exact quote
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  Speaker 2: but effectively saying that, look, not only is this an
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  Speaker 2: extremely low cost the SU seven full size sedan was
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  Speaker 2: sitting around thirty thousand dollars, but it comes with their
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  Speaker 2: level two autopilot system and you know, very very popular there.
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  Speaker 2: And so he was not saying, hey, we give up.
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  Speaker 2: He was saying, hey, we need to learn from this
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  Speaker 2: and develop this and compete. But man, they're having a
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  Speaker 2: tough time doing so. And you can imagine why if
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  Speaker 2: you are forward going down to Brazil and trying to
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  Speaker 2: sell your American made vehicle there, when you're compete with
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  Speaker 2: the likes of you know, China's very cheap vehicles, there's.
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  Speaker 3: Not many consumers there that are interested in buying the
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  Speaker 3: US version.
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  Speaker 4: I thought this is a really fascinating piece because I
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  Speaker 4: do feel as if we are, as you know, in
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  Speaker 4: the United States citizens, a little blind to what's going
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  Speaker 4: on here, just because it's not impacting us from a
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  Speaker 4: domestic market standpoint. Exports of Chinese vehicles to countries outside
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  Speaker 4: of their own were less than a one million vehicles
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  Speaker 4: in twenty twenty. Today it sits at four point nine
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  Speaker 4: million just a mer or so that was twenty twenty four,
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  Speaker 4: So a mere four years later, it's basically five times
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  Speaker 4: what it was in twenty twenty. You have market share
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  Speaker 4: gains that are significant in South Africa, Turkey, and in
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  Speaker 4: Chile they have about one third market share, And now
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  Speaker 4: you can get these cars mic for twenty five grand,
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  Speaker 4: nineteen grand. These are some of the sticker prices for
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  Speaker 4: these vehicles. And the other thing that stood out to
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  Speaker 4: me that I probably wouldn't have been able to guess
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  Speaker 4: from a percentage standpoint is we have this view here
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  Speaker 4: that the EV side of things that China is just
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  Speaker 4: flooding the market with a bunch of evs and providing
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  Speaker 4: a lot of competition to Tesla. But eighty percent of
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  Speaker 4: those exports were gas vehicles and man of the hybrids. Yeah,
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  Speaker 4: it makes sense. The infrastructure in other countries that I
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  Speaker 4: just listed off there is nowhere near where it is
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  Speaker 4: the United States and some other European countries out there.
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  Speaker 4: So that's why it's more gas power gear. But just
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  Speaker 4: fascinating sort of the inrows that they've made. I always
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  Speaker 4: get kind of unsure on estimates of market share when
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  Speaker 4: you're going out five years, but they have estimated that
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  Speaker 4: right now China, outside of its own market has three
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  Speaker 4: percent global market share, and that's to increase to thirteen
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  Speaker 4: percent according to SMP Global Mobility through the last quarter
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  Speaker 4: of twenty twenty four. It's it's pretty significant the growth
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  Speaker 4: that they've seen.
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  Speaker 2: Other news out just I think this was yesterday in fact,
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  Speaker 2: and Tesla's stock I think sank.
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  Speaker 3: Did you see Tesla stock yesterday, Tucker, I.
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  Speaker 2: Think it was off some five percent yesterday today it's today.
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  Speaker 5: Yesterday it was down as well.
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  Speaker 2: So BYD, one of those largest Chinese automakers, maybe the
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  Speaker 2: largest Chinese automaker, has claimed that a new technology that
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  Speaker 2: they developed allows them to charge their batteries to a
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  Speaker 2: two hundred and fifty mile range in a total of
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  Speaker 2: five minutes yep.
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  Speaker 4: Just for bases of comparison, Tesla's most recent supercharger would
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  Speaker 4: be about fifteen minutes for.
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  Speaker 2: The same level as same level, and that's Tesla's like
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  Speaker 2: very newest batteries and very newest charging system, not something
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  Speaker 2: that's three years old.
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  Speaker 3: Here.
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  Speaker 2: Granted, neither is BYDS like the deep Seek piece of
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  Speaker 2: few weeks ago. If this ends up being true, it's
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  Speaker 2: potentially revolutionary in a way that we haven't thought of before. Again,
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  Speaker 2: they haven't made any claims about how much it costs
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  Speaker 2: them to develop this, whether or not it is repeatable,
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  Speaker 2: how widespread it could be.
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  Speaker 3: But again, if you can.
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  Speaker 2: Get a battery to charge two hundred and fifty miles
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  Speaker 2: in a sum total of five minutes, and you can
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  Speaker 2: actually repeat that and scale it and roll out the
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  Speaker 2: charging devices across a developed nation, change this game for
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  Speaker 2: me personally, definitely, I'll spend five minutes at the charging
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  Speaker 2: station if that's all it takes. Fifteen minutes has been
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  Speaker 2: quite a different story, right if I've got to sit
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  Speaker 2: there for fifteen minutes with my entire family on a
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  Speaker 2: road trip and wait for that thing to charge up,
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  Speaker 2: even just to two hundred and fifty miles, when in reality,
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  Speaker 2: you know, if I'm making a road trip across the country,
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  Speaker 2: I probably want it to be at four hundred miles.
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  Speaker 2: Fifteen minutes to get to two fifty is a non starter,
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  Speaker 2: quite honestly, even.
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  Speaker 4: For my morning commute, forget the family trip. Just we're
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  Speaker 4: such creety of you know, habit and routine that I'm
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  Speaker 4: not going to leave out the door fifteen minutes early
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  Speaker 4: to account for charging. That is the biggest uphill climb
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  Speaker 4: that you have.
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  Speaker 2: But the morning commute, like my view is, Look, the
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  Speaker 2: morning commute can be dealt with because you've got a
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  Speaker 2: charging platform right down in the basement here at your office, right,
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  Speaker 2: you can get there so long as you did a
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  Speaker 2: little bit of planning ahead of time. I've got a
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  Speaker 2: twenty mile charge. I can get down to the office
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  Speaker 2: and I'm good. Yeah, this is different.
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  Speaker 3: Right.
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  Speaker 2: This is for me, the main reason that I wouldn't
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  Speaker 2: make any V my primary vehicle.
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  Speaker 3: It's that range anxiety.
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  Speaker 2: It's that fact that, hey, if I get on the
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  Speaker 2: road here and I'm trying to drive from Boston to Chicago,
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  Speaker 2: I'm going to be stopping every once in a while
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  Speaker 2: for a half an hour to charge this thing up. Gotcha,
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  Speaker 2: if BYD has come up with a technology, and this
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  Speaker 2: is a again big if, but if they have revolutionized
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  Speaker 2: a technology that does allow me to cut that charging time.
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  Speaker 2: You know, if you're at two hundred and fifty miles
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  Speaker 2: and five minutes, let's say that you're at it's probably
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  Speaker 2: not scalable. It's probably not a it's probably a one
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  Speaker 2: for one equation here where it gets to five hundred
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  Speaker 2: miles and ten minutes. But let's say you're getting to
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  Speaker 2: four hundred miles in ten minutes. That's a fairly big
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  Speaker 2: game changer when it comes to our understanding of how
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  Speaker 2: this technology works today and would suddenly make wider spread
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  Speaker 2: ev adoption I think more attractive to a lot of
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  Speaker 2: forget about US consumers, just globally consumers across the board here.
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  Speaker 2: If this was accessible, I think this would really change
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  Speaker 2: the game for a lot of folks.
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  Speaker 4: Then the infrastructure piece, We've talked about that before, but
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  Speaker 4: it's got to be then incorporated. And that's still you're
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  Speaker 4: looking a long way, right.
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  Speaker 2: And that's the big question too, right, Like, Okay, you've
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  Speaker 2: got the technology in the car that allows it to
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  Speaker 2: receive a charge that quickly, but if you don't have
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  Speaker 2: the infrastructure on the other side that delivers that amount
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  Speaker 2: of electricity in such a quick order, and you probably
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  Speaker 2: have electricians and engineers here or are just cringing it
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  Speaker 2: the way I'm describing this, then it's a non starter
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  Speaker 2: because if I don't have the charging infrastructure to do it,
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  Speaker 2: then it doesn't make any difference. But to me, again,
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  Speaker 2: it wasn't The real problem wasn't the range of the batteries.
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  Speaker 2: For me, it was the fact that I couldn't charge
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  Speaker 2: them in a reasonable amount of time. I can. That
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  Speaker 2: changes pretty much all of the equation. Let's take a
• 10:15
  Speaker 2: quick break when we come back, a little bit trivia
• 10:18
  Speaker 2: here next on the Financial Exchange.
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  Speaker 5: Sure of you here on the Financial Exchange. Last year,
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• 11:38
  Speaker 2: A couple pieces of breaking news. One German parliament just
• 11:41
  Speaker 2: passed a historic debt reform. It will allow them to
• 11:45
  Speaker 2: change a major law that they had in place when
• 11:48
  Speaker 2: it comes to debt policies. It allow them to have
• 11:52
  Speaker 2: higher defense spending and a five hundred billion euro infrastructure
• 11:56
  Speaker 2: and climate fund. So kind of been waiting on some
• 12:00
  Speaker 2: of those Eurozone reforms to come to play here, and
• 12:02
  Speaker 2: largely this just speaks to German is going to be
• 12:04
  Speaker 2: running a much bigger deficit than they were previously in
• 12:07
  Speaker 2: order to fund these programs and attempt to boost growth.
• 12:11
  Speaker 2: They were pretty much in a recession, kind of like
• 12:13
  Speaker 2: a technical recession that we saw in the US back
• 12:15
  Speaker 2: in twenty twenty two, but worse over the course of
• 12:17
  Speaker 2: the last few years. And that's not really why they
• 12:21
  Speaker 2: did this. Why they're talking about doing this is largely
• 12:23
  Speaker 2: under pressure from the Trump administration, I believe, to boost
• 12:27
  Speaker 2: defense spending.
• 12:28
  Speaker 4: Right, It's important to point out that from a spending perspective,
• 12:31
  Speaker 4: Germany is basically on the polar opposite side of the
• 12:33
  Speaker 4: United States. We talked earlier in the show how we've
• 12:35
  Speaker 4: been spending like it's going out of style. Germany has
• 12:38
  Speaker 4: often been very fiscally conservative, so that's why it is
• 12:41
  Speaker 4: is very noteworthy from a policy standpoint, they do not
• 12:44
  Speaker 4: run the types of deficits that we do here domestically.
• 12:47
  Speaker 2: On the economic data front, at eight thirty am, we
• 12:50
  Speaker 2: received some housing data. One, housing starts came in at
• 12:55
  Speaker 2: one and a half million for the month of February.
• 12:57
  Speaker 2: That was a big up compared to the one point
• 13:00
  Speaker 2: three five million back in January and economist estimates of
• 13:03
  Speaker 2: one point three eight million according to market Watch. And
• 13:06
  Speaker 2: then building permits came in right in line one point
• 13:09
  Speaker 2: four to six million. That's down slightly from one four
• 13:11
  Speaker 2: to seven in January and one four five beating expectations.
• 13:15
  Speaker 2: That's where expectations were. So again, you know, that's slightly
• 13:19
  Speaker 2: good news on the housing data. It's not going to
• 13:21
  Speaker 2: fix the affordability crisis we've been dealing with, but you
• 13:25
  Speaker 2: don't want to see a miss on.
• 13:26
  Speaker 3: The permits and the starts numbers.
• 13:28
  Speaker 2: When it comes to home building in the United States,
• 13:31
  Speaker 2: Wall Street Journal exclusive a secret mortgage blacklist leaving homeowners
• 13:36
  Speaker 2: stuck with unsellable condos. So who is blacklisting?
• 13:39
  Speaker 4: This?
• 13:40
  Speaker 2: Are a couple of government agents or quasi government agencies,
• 13:43
  Speaker 2: Fannie May and Freddie mack Paul. What are they focusing on,
• 13:46
  Speaker 2: why are they blacklisting condo associations and homeowners and what
• 13:51
  Speaker 2: does it actually mean for buyers and sellers out there.
• 13:53
  Speaker 4: Basically, it all stems back to what occurred back in
• 13:56
  Speaker 4: twenty twenty one in Florida where a surfside condo collapsed,
• 13:59
  Speaker 4: killing ninety eight people. And really what was found at
• 14:03
  Speaker 4: the root of those issues was a lack of structural
• 14:06
  Speaker 4: improvements over the course of many years with that particular building.
• 14:10
  Speaker 4: And as a result of that, what you've seen is
• 14:13
  Speaker 4: a huge change in the lending industry where they are
• 14:17
  Speaker 4: now looking Fanny made specifically any condo associations out there
• 14:21
  Speaker 4: that don't have adequate property insurance and are not making
• 14:25
  Speaker 4: critical building repairs, and then they're putting them on a blacklist.
• 14:28
  Speaker 4: So there's instances in here, examples where condos were being sold.
• 14:33
  Speaker 4: One in particular that's highlighted is in Venture County, California,
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  Speaker 4: back in December, ready to make a sale of a
• 14:39
  Speaker 4: four hundred and forty unit townhouse condo facility, and the
• 14:45
  Speaker 4: purchaser said, we have to back out, the lender pulled
• 14:49
  Speaker 4: the funding and there is no ability for us to
• 14:53
  Speaker 4: get any kind of debt financing in order to facilitate
• 14:56
  Speaker 4: this purchase. So a huge ripple effect from that incident
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  Speaker 4: back in twenty twenty one that's occurring here. That's wider spread.
• 15:04
  Speaker 4: This is you know, I'm highlighting a story in California,
• 15:07
  Speaker 4: but there are over I believe it was twelve hundred,
• 15:10
  Speaker 4: no fourteen hundred developments in Florida that have been blacklisted
• 15:12
  Speaker 4: as well. And this is all across the country.
• 15:14
  Speaker 3: Yeah, so Florida is a big one here.
• 15:16
  Speaker 2: In particular, they passed a law after that Surfside condo
• 15:19
  Speaker 2: collapse requiring engineering inspections of those buildings and improvements to
• 15:23
  Speaker 2: be made to them. So it's pretty easy for Fanny
• 15:25
  Speaker 2: and Freddie. They don't need to actually go and do inspections.
• 15:27
  Speaker 2: They just say, hey, if you're in violation of the
• 15:29
  Speaker 2: Florida law, we're not buying your mortgages. And that's what
• 15:32
  Speaker 2: Fanny and Freddy do is they actually they don't issue mortgages.
• 15:35
  Speaker 3: They just go to the banks and say, yeah, we'll
• 15:36
  Speaker 3: take those.
• 15:37
  Speaker 2: And so if Wells Fargo can't sell their mortgage to
• 15:39
  Speaker 2: Fanny and Freddy, then guess what not going to get
• 15:42
  Speaker 2: issued in the first place. The other piece would just
• 15:45
  Speaker 2: be that insurers, obviously, if you haven't noticed, have been
• 15:50
  Speaker 2: driving prices through the roof, especially if you are in yeah,
• 15:54
  Speaker 2: areas prone to disaster like California, like Hawaii, like Florida.
• 15:58
  Speaker 2: And so the reaction on the part of both homeowners
• 16:01
  Speaker 2: and association owners has been, look, we're just going to
• 16:05
  Speaker 2: take the We're going to take the lower coverage amount,
• 16:09
  Speaker 2: or we're going to have a higher deductible. We're going
• 16:11
  Speaker 2: to do something to keep this policy affordable for all
• 16:14
  Speaker 2: of our owners.
• 16:15
  Speaker 3: And that's probably the.
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  Speaker 2: Direction that the condo association and owners themselves have voted.
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  Speaker 2: Because if I'm an owner in there without a mortgage,
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  Speaker 2: and I've been there for twenty years and i want
• 16:26
  Speaker 2: to be there for another twenty, I'm not really worried
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  Speaker 2: about the resale value. I'm much more worried about the
• 16:31
  Speaker 2: ongoing cost of maintaining this property. I might be willing
• 16:33
  Speaker 2: to say, yeah, look, if disaster strikes, I'll be willing
• 16:36
  Speaker 2: to shell out in extra seven grand to fix this
• 16:38
  Speaker 2: place because our deductible is so high. Unfortunately, for those
• 16:42
  Speaker 2: that are in a different position. The government is saying, look,
• 16:46
  Speaker 2: that's all well and good, but if you actually do
• 16:48
  Speaker 2: get hit by a disaster, there's gonna be too many
• 16:50
  Speaker 2: people that don't shell out the money, and then we're
• 16:52
  Speaker 2: left holding the bag. Fannie May and Freddie Mack on
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  Speaker 2: this property that doesn't have adequate insurance, and so they're
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  Speaker 2: just saying, no, we won't buy them back.
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  Speaker 3: In twenty twenty one.
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  Speaker 2: There were allegedly a few dozen condo associations across the
• 17:05
  Speaker 2: country that were susceptible to this. The numbers that they're
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  Speaker 2: talking about now, I was trying to find the actual
• 17:14
  Speaker 2: piece on this. Yeah, the number of properties that fail
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  Speaker 2: to meet Fanny May's standards has risen now to five
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  Speaker 2: one hundred and seventy five this month from just a
• 17:22
  Speaker 2: few hundred before Surfside. So when we talk about properties
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  Speaker 2: that fail to meet the standards, they're saying that there
• 17:29
  Speaker 2: are five one hundred and seventy five condo associations that
• 17:34
  Speaker 2: don't meet the standard, meaning the number of buildings that
• 17:36
  Speaker 2: don't I'm guessing somewhere on average twenty x that number, right,
• 17:41
  Speaker 2: which is which is kind of crazy and one of
• 17:44
  Speaker 2: the kind of not thought about downstream effects of this
• 17:47
  Speaker 2: whole insurance market shakeup is, hey, yeah, it is leaving
• 17:51
  Speaker 2: a whole bunch of people inadequately covered. And if you're
• 17:54
  Speaker 2: buying a single family home, might not really be a
• 17:56
  Speaker 2: problem because you get to decide what type of insurance
• 17:59
  Speaker 2: you have in your more Bridge broker will determine that.
• 18:02
  Speaker 2: If you're buying into an association, very different story. You
• 18:05
  Speaker 2: don't control the master insurance policy. The condo board controls that,
• 18:09
  Speaker 2: and I don't envy that job. Right now, They've been
• 18:13
  Speaker 2: trying to navigate these ongoing costs of higher electricity, higher everything,
• 18:17
  Speaker 2: and one of those ways of you know, fending off
• 18:20
  Speaker 2: those changes was, hey, we're going to take a quite
• 18:23
  Speaker 2: frankly worse you know, insurance policy. And now you know,
• 18:27
  Speaker 2: not only are they covered by worse insurance, but they're
• 18:29
  Speaker 2: actually finding that. Yeah, in some cases sales of building
• 18:32
  Speaker 2: properties can't go through because of the bad insurance.
• 18:35
  Speaker 4: Some of these quotes on new policies, this one in
• 18:38
  Speaker 4: California here just incredible, the pricing on it for the
• 18:41
  Speaker 4: whole Owners Association. This is for the four hundred and
• 18:44
  Speaker 4: forty unit townhouse one that I was speaking in Venture
• 18:47
  Speaker 4: County California. They were quoted a two point six million
• 18:50
  Speaker 4: a year homeowners association FANNY compliant policy ten times their
• 18:56
  Speaker 4: current rate.
• 18:57
  Speaker 3: Ten x. Wow.
• 18:59
  Speaker 4: So that would mean your monthly homeowner fees would go
• 19:02
  Speaker 4: up from five hundred and seventy bucks at Shadow Ridge
• 19:04
  Speaker 4: to eleven hundred or even more.
• 19:06
  Speaker 3: Yeah.
• 19:06
  Speaker 2: So look, plenty of people have been experiencing this and
• 19:09
  Speaker 2: it speaks to especially you know, for Boston and New
• 19:12
  Speaker 2: England folks in general. It's the it's the Florida experience
• 19:15
  Speaker 2: that they've been talking about. Is Hey, ten years ago,
• 19:17
  Speaker 2: this was way cheaper to move here.
• 19:19
  Speaker 3: Go talk to folks now save on taxes.
• 19:23
  Speaker 4: Yeah, then you have to get your roof free, now
• 19:25
  Speaker 4: other stuff.
• 19:26
  Speaker 2: Yeah, quick break, We'll have the trivia winner when we
• 19:28
  Speaker 2: come back on the Financial Exchange.
• 19:41
  Speaker 1: Bringing the latest financial news straight to your radio every day.
• 19:46
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network
• 19:51
  Speaker 1: tekst US six one, seven, three, six, two thirteen eighty five.
• 19:55
  Speaker 1: With your comments and questions about today's show, and let
• 19:58
  Speaker 1: us know what you think about the story we are covering.
• 20:01
  Speaker 1: Face is the Financial Exchange Radio Network.
• 20:10
  Speaker 5: All right, trivia question today was what is the best
• 20:13
  Speaker 5: selling car brand in Canada that will be ford Ed
• 20:18
  Speaker 5: from Falmouth is our winner today, taking on a brand
• 20:21
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• 20:24
  Speaker 5: played trivia every day here on the Financial Exchange See
• 20:28
  Speaker 5: complete contest rules at Financial Exchange Show dot com.
• 20:33
  Speaker 3: Not for long.
• 20:35
  Speaker 2: In the national anthem. They're gonna be all driving toyotas
• 20:38
  Speaker 2: in the next few months. Here, consumers are spending less.
• 20:42
  Speaker 2: What that means for the global economy not get bad? Like,
• 20:48
  Speaker 2: what are we really talking about here, folks? The only
• 20:50
  Speaker 2: piece of this that I would debate would be whether
• 20:52
  Speaker 2: or not consumers are indeed spending last day, there are
• 20:56
  Speaker 2: a few pieces that they point to here to say
• 20:58
  Speaker 2: that they might be. The latest retail sales report did
• 21:02
  Speaker 2: miss the mark that was on Monday of this week
• 21:04
  Speaker 2: came in quite a bit lower than anticipation. Sales rows
• 21:08
  Speaker 2: by zero point two percent in February compared to January.
• 21:12
  Speaker 2: January was revised further down, so it was overall a
• 21:16
  Speaker 2: bad retail sales report. And yes, if consumers spend a
• 21:20
  Speaker 2: whole bunch less, then not only the US economy, but
• 21:24
  Speaker 2: but many others out there will have some troubles. Why
• 21:30
  Speaker 2: I call this like for anybody listening like it kind
• 21:34
  Speaker 2: of would make sense for consumer spending to be dropping
• 21:37
  Speaker 2: off right now. You're seeing people saying that they're less
• 21:39
  Speaker 2: confident about the job market, about the economy, about inflation,
• 21:43
  Speaker 2: a whole bunch of different items. However, what we historically
• 21:49
  Speaker 2: see is that consumer spending is like the last shoe
• 21:52
  Speaker 2: to drop in a recession. It is not as though
• 21:55
  Speaker 2: it downturns ahead of the time. It's not as though
• 21:57
  Speaker 2: consumer spending has ever caused a recession. It's usually been
• 22:01
  Speaker 2: something else that blows up asset values, a bubble of
• 22:03
  Speaker 2: some sort in the tech space or in mortgages in
• 22:06
  Speaker 2: two thousand and eight, or a global pandemic requiring you
• 22:10
  Speaker 2: to stay at home for a period of time that
• 22:13
  Speaker 2: kills the spending. It's not the consumer spending that leads
• 22:16
  Speaker 2: into the recession.
• 22:17
  Speaker 3: And so maybe it does this time.
• 22:19
  Speaker 2: But I'm just always suspect when somebody tells me that
• 22:22
  Speaker 2: it's all gonna be different this time, and if we're
• 22:23
  Speaker 2: gonna have a consumer led recession, like generally speaking, what
• 22:27
  Speaker 2: happens is the consumer continues to spend, puts money on
• 22:29
  Speaker 2: their credit card until that literal credit card gets rejected.
• 22:34
  Speaker 4: I'm not sure I'm willing to go that far on it.
• 22:36
  Speaker 4: I mean, the idea of it not being a leading indicator.
• 22:40
  Speaker 4: I get that from a historical perspective, but really, if
• 22:42
  Speaker 4: you look at what has booed the economy over the
• 22:45
  Speaker 4: course of the last couple of years, it has been
• 22:46
  Speaker 4: consumer spending. So I'm not gonna sit here and say
• 22:49
  Speaker 4: that it wouldn't be concerning for that trend to reverse itself.
• 22:54
  Speaker 4: What I would say, though, is many of these pieces,
• 22:58
  Speaker 4: and we've covered them a nauseum for the last couple weeks,
• 23:00
  Speaker 4: there has been minimal hard data that leads me to
• 23:04
  Speaker 4: be fully assured that consumer spending is really taking a
• 23:09
  Speaker 4: significant hit. Obviously, these two retail sales reports were not
• 23:12
  Speaker 4: tremendous by any means, and you have had anecdotal evidence
• 23:16
  Speaker 4: from Dick sporting goods and airliners out there that consumer
• 23:19
  Speaker 4: spending has been has lessened. But I'm waiting to see
• 23:24
  Speaker 4: more information before I get fully concerned on that front.
• 23:29
  Speaker 4: But if that is trending the case, Mike, then I
• 23:32
  Speaker 4: wouldn't say that it wouldn't be an area of concern.
• 23:36
  Speaker 4: If it continues to persist like this, then we get
• 23:38
  Speaker 4: more hard data.
• 23:39
  Speaker 2: I'll play devil's advocate to my own argument here for
• 23:41
  Speaker 2: a moment as well, just to join you, Paul, the
• 23:46
  Speaker 2: wealth inequality effect here where today the top ten percent
• 23:53
  Speaker 2: of income earners represent fifty percent of total spending.
• 23:56
  Speaker 4: That blew me away.
• 23:58
  Speaker 3: One that's higher than it's ever been.
• 23:59
  Speaker 4: Yep.
• 24:00
  Speaker 2: So you know that that is a higher concentration that
• 24:02
  Speaker 2: you're seeing amongst the you know, more wealthy.
• 24:05
  Speaker 1: Uh.
• 24:06
  Speaker 2: And second piece to that, you're seeing asset values drop
• 24:10
  Speaker 2: precipitously right now. And so if that wealth effect that
• 24:13
  Speaker 2: really benefited consumer spending in twenty three and twenty four
• 24:16
  Speaker 2: suddenly detracts in twenty five in a way that's more
• 24:19
  Speaker 2: meaningful than it was in two thousand and eight because
• 24:21
  Speaker 2: that wealth distribution. Okay, like I'll buy it as a theory.
• 24:26
  Speaker 2: I just like I said, I'm always hesitant to believe
• 24:30
  Speaker 2: that a trend is going to completely reverse itself. And
• 24:33
  Speaker 2: you know, as an example here, you didn't see retail
• 24:36
  Speaker 2: sales really bottom until March of two thousand and nine
• 24:39
  Speaker 2: in the Great Recession.
• 24:41
  Speaker 3: They were down like thirteen percent a year over year
• 24:43
  Speaker 3: in two thousand and nine.
• 24:44
  Speaker 2: It was really bad, But that was not the beginning
• 24:48
  Speaker 2: of the recession right the beginning of the recession. The
• 24:50
  Speaker 2: recession started in late o seven. Consumer spending didn't bottom
• 24:54
  Speaker 2: until March of nine.
• 24:56
  Speaker 3: So we're not tying.
• 24:57
  Speaker 4: We're not talking about thirty percent top would be really bad.
• 25:00
  Speaker 4: We're looking for the early signs of a decline in
• 25:03
  Speaker 4: spending yep.
• 25:03
  Speaker 2: So again, I'll remain open to the idea, but historically
• 25:07
  Speaker 2: it's not how it's worked.
• 25:08
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• 26:17
  Speaker 2: Buying the dip is a big term in financial markets,
• 26:21
  Speaker 2: and you might have seen a little bit of that
• 26:23
  Speaker 2: on Friday and Monday of last weekend this week when
• 26:26
  Speaker 2: markets hit correction territory and we saw a little bit
• 26:28
  Speaker 2: of a short term boost there. The problem with the
• 26:31
  Speaker 2: buy the dip theory is it's always tough to tell
• 26:34
  Speaker 2: how much of a dip it's going to be, and
• 26:36
  Speaker 2: nobody really enjoys buying the dip when it's down ten
• 26:38
  Speaker 2: percent and then seeing it go down another twenty from there.
• 26:42
  Speaker 2: There is another way you can use that by the
• 26:45
  Speaker 2: dip mentality, though, and market Watch has a piece today
• 26:48
  Speaker 2: about roth conversions, and yeah, I want to talk about
• 26:51
  Speaker 2: what they are, just for anyone that's listening that doesn't
• 26:54
  Speaker 2: understand how they work. But in my mind, using that
• 26:58
  Speaker 2: same by the dip mentality, you can be a lot
• 27:00
  Speaker 2: more certain about it because I might not know what
• 27:03
  Speaker 2: markets are going to do in any given year, but
• 27:05
  Speaker 2: I have a pretty good sense of what my tax
• 27:07
  Speaker 2: situation is going to look like in any given year.
• 27:10
  Speaker 2: And so if I use that same by the dip
• 27:11
  Speaker 2: mentality to say, hey, take advantage of a cheaper tax
• 27:15
  Speaker 2: bracket rather than a cheaper stock market, I think that's
• 27:18
  Speaker 2: where people can actually be pretty successful. So start us off, Paul,
• 27:21
  Speaker 2: who's eligible to do a Roth conversion? How to just baselines, like,
• 27:24
  Speaker 2: how do Roth conversions work?
• 27:25
  Speaker 4: Yeah, so basically anyone is eligible to do a Wroth conversion.
• 27:30
  Speaker 4: There is no restriction there on income limitations or ages
• 27:34
  Speaker 4: or anything like that. However, you do have to be
• 27:37
  Speaker 4: cognizant that you are going to pay taxes on the
• 27:41
  Speaker 4: money that you convert. So if someone has an IRA
• 27:44
  Speaker 4: account out there that's one hundred thousand dollars for example,
• 27:48
  Speaker 4: what you're able to do when you convert money is
• 27:50
  Speaker 4: you take money from an IRA let's say ten grand
• 27:53
  Speaker 4: in this hypothetical example, and you move it over to
• 27:56
  Speaker 4: your ROTH IRA account. That ten thousand dollars will be
• 27:59
  Speaker 4: added to your taxbile income in the year that you
• 28:02
  Speaker 4: execute that conversion. So if you do it today in
• 28:05
  Speaker 4: March of twenty twenty five, then ten grand gets added
• 28:08
  Speaker 4: to your income. The benefit from doing that is you
• 28:10
  Speaker 4: pay the taxes on the ten thousand dollars that you've converted,
• 28:14
  Speaker 4: but the ten grand you've put into the WROTH never
• 28:17
  Speaker 4: is tax again, it can grow entirely tax free. So
• 28:22
  Speaker 4: it can be advantageous if you are able to do
• 28:25
  Speaker 4: it when markets are down because again back to this
• 28:28
  Speaker 4: hypothetical example. If your IRA started the year at one
• 28:31
  Speaker 4: hundred thousand dollars and we dropped twenty percent and it's
• 28:35
  Speaker 4: down to eighty grand at the end of the year,
• 28:37
  Speaker 4: and you take out some money and convert it. At
• 28:39
  Speaker 4: that point in time, you're taking out money and paying
• 28:42
  Speaker 4: taxes on a dollar value that is lesser with the
• 28:45
  Speaker 4: hopes that it will recover batter.
• 28:46
  Speaker 3: Yeah, that's important.
• 28:47
  Speaker 2: Caveat is you're paying the taxes on the value of
• 28:51
  Speaker 2: the securities that you convert on the day you convert them,
• 28:54
  Speaker 2: right right, So if you're converting something that's down by
• 28:57
  Speaker 2: thirty percent and you think it might come back someday,
• 29:00
  Speaker 2: then you know it can be a good deal. Obviously,
• 29:03
  Speaker 2: not always guaranteed to happen that way. So for most folks,
• 29:08
  Speaker 2: what I find is that the roth conversion like age
• 29:12
  Speaker 2: where it does make some sense is usually after I retire,
• 29:16
  Speaker 2: before my RMD start. That's one area of a sweet
• 29:19
  Speaker 2: spot I would say, Yeah, I mean there can be others,
• 29:21
  Speaker 2: like maybe you're, you know, for whatever reason, having a
• 29:24
  Speaker 2: down year in terms of income, but have a lot saved.
• 29:27
  Speaker 2: There can be opportunities there. Maybe you know it's a
• 29:29
  Speaker 2: married couple and one of them retires. But generally speaking,
• 29:32
  Speaker 2: as a rule of thumb, that's what I start to
• 29:34
  Speaker 2: look at when it comes to roth conversions, is that
• 29:37
  Speaker 2: key period of Okay, I'm done working, I'm not old
• 29:41
  Speaker 2: enough to have rm D start yet, and I've got
• 29:43
  Speaker 2: this kind of dip in my tax rate.
• 29:46
  Speaker 3: What can I do to take advantage?
• 29:47
  Speaker 4: Or a younger person it's worth exploring too, depending on
• 29:50
  Speaker 4: your income level at that point in time. If you
• 29:52
  Speaker 4: find that here, the other thing with the younger person
• 29:55
  Speaker 4: is that you have a much longer runway to make
• 29:57
  Speaker 4: up that differential, So yeah, you have to pay the
• 29:59
  Speaker 4: tax now at twenty or twenty five percent, but if
• 30:02
  Speaker 4: you're in your thirties, you have you know, thirty more
• 30:05
  Speaker 4: years plus to let that grow and make up that differential.
• 30:09
  Speaker 2: There, quick break. When we come back stack Roulette here
• 30:12
  Speaker 2: on the Financial Exchange.
• 30:14
  Speaker 1: Find daily interviews and full shows of the Financial Exchange
• 30:17
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• 30:20
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• 30:23
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• 30:27
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• 30:35
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• 30:46
  Speaker 2: Time for a bit of stack eru let. I guess
• 30:49
  Speaker 2: I'll kick things off with that with tariff talk. So
• 30:52
  Speaker 2: there's some statements from the American Wine Makers Association about
• 30:58
  Speaker 2: tariff's and what they can could mean, and there's a
• 31:01
  Speaker 2: talk about a two hundred percent tariff on imports from
• 31:06
  Speaker 2: wines from Europe, and I think the general conclusion from
• 31:08
  Speaker 2: the US wine industry actually is that it would probably
• 31:11
  Speaker 2: benefit them to be, you know, the only one left
• 31:13
  Speaker 2: in the game when it comes to domestic wine sales,
• 31:16
  Speaker 2: because frankly just because the market is so big in
• 31:20
  Speaker 2: the United States that haven't been said if you weren't
• 31:23
  Speaker 2: to where wine makers in the US and globally are
• 31:25
  Speaker 2: just facing a fair number of challenges. One would be
• 31:29
  Speaker 2: the environmental challenges of a hotter climate is kind of
• 31:33
  Speaker 2: shifting where the wine growing regions are and what types
• 31:36
  Speaker 2: of grapes can be grown in those regions, wildfires, other issues.
• 31:40
  Speaker 2: Two is just the seeming backlash against alcohol from the
• 31:43
  Speaker 2: younger generation in general. Wine is you know, falling into
• 31:48
  Speaker 2: this bucket. You know, I feel like growing up or
• 31:52
  Speaker 2: growing up in my drinking age, there was always that
• 31:54
  Speaker 2: story like, oh, you know, glass of wine a day
• 31:56
  Speaker 2: is actually good for your health, which has been largely disproven.
• 32:00
  Speaker 2: A whole bunch of folks and a growing segment of
• 32:03
  Speaker 2: people who are just saying, yeah, I'm not drinking alcohol
• 32:05
  Speaker 2: at all, or if I am, I'm drinking a fair
• 32:07
  Speaker 2: bit less of it seems to actually be making a
• 32:09
  Speaker 2: dent in their businesses. I think it's that combined with
• 32:13
  Speaker 2: a constantly changing preference when it comes to alcohol. Right
• 32:20
  Speaker 2: This trending in alcohol has just been shifting more rapidly
• 32:24
  Speaker 2: as of late, between hard alcohol and seltzers and mocktails
• 32:28
  Speaker 2: and IPAs, and it's just a much faster pace than
• 32:32
  Speaker 2: I think it was a few decades ago. So most
• 32:35
  Speaker 2: winemakers saying, yes, we wouldn't have too much of a
• 32:38
  Speaker 2: problem with these tariffs in place, but might not reverse
• 32:42
  Speaker 2: the course of their overall business, which has been a
• 32:44
  Speaker 2: general down trend, which is good for the wine drinkers
• 32:49
  Speaker 2: and lovers in the room. Raising my hand, here is
• 32:51
  Speaker 2: somebody that will gladly pick up the excess supply.
• 32:54
  Speaker 4: Yeah, Chuck and I had debated a little bit on
• 32:56
  Speaker 4: the show on the proposed tariffs on winemakers that they had.
• 33:00
  Speaker 4: We've read some negative feedback on those potential tariffs on
• 33:03
  Speaker 4: European wines, just because those are the higher margin wines
• 33:07
  Speaker 4: for a lot of domestic sellers here. That's able to subsidize.
• 33:10
  Speaker 2: Different different story of Hey, if you are a restaurant
• 33:13
  Speaker 2: or if you are a wine distributor, you would hate
• 33:16
  Speaker 2: this idea.
• 33:17
  Speaker 4: Right right, right.
• 33:17
  Speaker 3: If you're a domestic wine.
• 33:18
  Speaker 4: Producer, Okay, I gotcha, that's where you're coming out of it.
• 33:21
  Speaker 2: Yeah, if you're out in Napa, you know, you know,
• 33:24
  Speaker 2: creating the next barrel of wine, then yeah, tariffs are
• 33:28
  Speaker 2: sounding pretty good.
• 33:28
  Speaker 1: You're right.
• 33:29
  Speaker 2: If you are Constellation Brands, or if you are one
• 33:32
  Speaker 2: of the major companies that actually plays in this space,
• 33:34
  Speaker 2: a wine distributor across the Eastern Seaboard, Yeah, tariffs are
• 33:37
  Speaker 2: gonna suck. You're not going to be terribly happy about that.
• 33:41
  Speaker 2: And if you're the restaurant owner, you're also not going
• 33:42
  Speaker 2: to be terribly happy about that. But again, it seems
• 33:47
  Speaker 2: my piece would be, look, if we're gonna have tariffs
• 33:49
  Speaker 2: on Canada and Mexico, we're almost certainly going to have
• 33:51
  Speaker 2: tariffs on European wines.
• 33:53
  Speaker 3: Sure, I guess no.
• 33:54
  Speaker 4: The consumption point is another great one. My wife and
• 33:56
  Speaker 4: I were talking about that this weekend. It just seems
• 33:57
  Speaker 4: like there's a generational shift between ourselves and the younger
• 34:02
  Speaker 4: generation of alcohol consumption. It's been backed up numerically, whether
• 34:06
  Speaker 4: you look at wine ceas beer sales. You know, I
• 34:08
  Speaker 4: don't know if that's cannabis use more nationally that occurs
• 34:11
  Speaker 4: in the younger generation. I don't really understand it. But
• 34:14
  Speaker 4: there's been anecdotal pieces that we've covered on the show
• 34:16
  Speaker 4: with bars in college towns which are the perfect sort
• 34:19
  Speaker 4: of stasis establishment that just see that people aren't staying
• 34:22
  Speaker 4: out as late, aren't spending as much. So I'm not
• 34:25
  Speaker 4: sure what it all comes down to, but there does
• 34:27
  Speaker 4: seem to be a shift.
• 34:28
  Speaker 2: And we did see trends in alcohol consumption among millennials
• 34:31
  Speaker 2: when they were younger too, right, Like, this was a
• 34:34
  Speaker 2: trend that played out there too, where you know, millennials
• 34:37
  Speaker 2: when they were in their twenties were not drinking the
• 34:40
  Speaker 2: same by the time they're in their late twenties, they
• 34:43
  Speaker 2: weren't picking up wine consumption. Really, they were sticking with
• 34:46
  Speaker 2: beers and other types of beverages. But it wasn't a
• 34:49
  Speaker 2: shift away from alcohol entirely. It was a shift of
• 34:53
  Speaker 2: preference from Hey, typically the generation before went from drinking
• 34:58
  Speaker 2: cores Light and bud Light yeah, to drinking wine, and
• 35:02
  Speaker 2: the younger generation didn't really make so much more. They
• 35:05
  Speaker 2: went from cores Light to a number of different microbrewers
• 35:09
  Speaker 2: and then to a bunch of you know, uh cocktails
• 35:13
  Speaker 2: and Seltzers, and just a different type of trend than
• 35:16
  Speaker 2: the typical from the generation before of oh yeah, as
• 35:20
  Speaker 2: time goes on, I'm drinking fewer thirty packs of cors.
• 35:23
  Speaker 3: Light and more bottles of wine.
• 35:25
  Speaker 2: And this next generation, like Paul mentioned, it's not that trend.
• 35:29
  Speaker 2: It's not that they're going from one type of alcohol
• 35:30
  Speaker 2: to another. It's that they're going from one type of
• 35:33
  Speaker 2: alcohol to really nothing or less alcohol.
• 35:36
  Speaker 4: Good for them. March Madness is coming up on Thursday,
• 35:40
  Speaker 4: and X formerly known as Twitter and Uber Eats are
• 35:44
  Speaker 4: launching a March Madness Perfect Bracket Challenge. The winner gets
• 35:49
  Speaker 4: a trip to Mars. Maybe we could offer something like.
• 35:51
  Speaker 2: That promise or a threat, Mike, can I get Can
• 35:54
  Speaker 2: I get your approval to offer one.
• 35:55
  Speaker 3: Way trip to Mars if you win this bracket? Can
• 35:58
  Speaker 3: I get you? Like eons threatening me?
• 36:00
  Speaker 4: We should just throw that out there as a trivia
• 36:02
  Speaker 4: prize for this month, because sure. The reason I say
• 36:05
  Speaker 4: this and maybe Mike not exactly going to deliver on
• 36:07
  Speaker 4: that one, are you, Mike? The reason you can green
• 36:09
  Speaker 4: late this for me as head of the company is
• 36:12
  Speaker 4: that there is a one in nine point two quintillion
• 36:15
  Speaker 4: chance of picking a perfect Bracket challenge if you just
• 36:18
  Speaker 4: go by the coin flip, you know, aspect of things.
• 36:20
  Speaker 4: There's sixty three games in the March Madness tournament that's
• 36:24
  Speaker 4: going to begin on Thursday. If you just went fifty
• 36:26
  Speaker 4: to fifty probabilion on each of those that would be
• 36:28
  Speaker 4: your odds. Allegedly, according to research that if you know
• 36:32
  Speaker 4: something about college basketball, your odds are a lot better,
• 36:35
  Speaker 4: only a one in one hundred and twenty billion shot. Okay,
• 36:39
  Speaker 4: but uh, anyway, funny here, good great marketing ploy. I
• 36:42
  Speaker 4: mean they got me to talk about it. The odds,
• 36:44
  Speaker 4: like I said, are very long of a perfect bracket.
• 36:47
  Speaker 4: Buffett's been on this for years, offering a billion dollar
• 36:49
  Speaker 4: grand prize for a perfect bracket. No, he's that's a
• 36:52
  Speaker 4: million for each company employee for a year. He used
• 36:56
  Speaker 4: to do just a billion flat out to one person
• 36:58
  Speaker 4: if they could do it for a perfect bracket. I
• 37:01
  Speaker 4: mean he's willing to throw out those numbers. The guy
• 37:03
  Speaker 4: is not stupid. He knows the odds behind it. But
• 37:07
  Speaker 4: the funny thing is with this prize, you know, trip
• 37:09
  Speaker 4: to Mars is one of the things I've mentioned. They
• 37:11
  Speaker 4: have some other offerings that you could pick to and
• 37:13
  Speaker 4: the one that drove me crazy is imagine you actually
• 37:16
  Speaker 4: hit this and one of the choices is sending a
• 37:18
  Speaker 4: personal item of choice to Space on Falcon nine launch. Okay,
• 37:23
  Speaker 4: you could get two hundred fifty grand or put a
• 37:24
  Speaker 4: personal item in a spaceship. I wonder which one I'll
• 37:27
  Speaker 4: go with.
• 37:27
  Speaker 2: All right, So let's just think about this for a moment.
• 37:31
  Speaker 2: If you put something on auction that was sent into
• 37:34
  Speaker 2: space that was a really cool item, could you fetch
• 37:36
  Speaker 2: more than a quarter million dollars? Hey, this picture of
• 37:40
  Speaker 2: Elon Musk signed has been sent to space and then
• 37:44
  Speaker 2: came back and did not burn up on re entry.
• 37:47
  Speaker 4: Interesting, you know, I like, I think there's a way
• 37:49
  Speaker 4: to play that counterpoint.
• 37:50
  Speaker 3: I think there's a way to play that.
• 37:51
  Speaker 2: That said, I'm just not taking you up on the
• 37:54
  Speaker 2: trip to Mars because I genuinely don't think I'm coming
• 37:56
  Speaker 2: back if I do that.
• 37:57
  Speaker 4: Well, another story we had in here is those it
• 37:59
  Speaker 4: did not save turn trip to Mars. Those people on
• 38:01
  Speaker 4: here who's round trip now.
• 38:03
  Speaker 2: It's just a trip to the Markets remain strongly in
• 38:07
  Speaker 2: negative territory. Nasdaq leading the way down off three hundred
• 38:10
  Speaker 2: and thirty five points one and nine tenths percent, SMP
• 38:13
  Speaker 2: off one and a third, Dow Jones Industrial Average now
• 38:16
  Speaker 2: off nine tenths of a percent. We've got a FED
• 38:18
  Speaker 2: meeting tomorrow. We'll keep you covered on markets and their
• 38:21
  Speaker 2: reaction to all that and more. The rest of this
• 38:23
  Speaker 2: week on Financial Exchange. Have a great day, great day,