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Will Trump's proposed tariffs cripple trade between the US and Mexico? · The Financial Exchange Show

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Speaker 2: Top news of today, however, is an announcement or tweet
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Speaker 2: or just general policy indication from Donald Trump on trade.
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Speaker 2: We've suspected that tariffs are going to be a key
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Speaker 2: cornerstone of the next president's administration, and I don't know
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Speaker 2: coming out coming out swinging here. So what was said
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Speaker 2: yesterday is that President elect Donald Trump intends to impose
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Speaker 2: tariffs on all products coming into the United States from Canada, Mexico,
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Speaker 2: and China. Quote both Mexico and Canada have the absolute
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Speaker 2: right and power to easily solve this long simmering problem.
2:46
Speaker 2: That long simmering problem that he's talking about. It happens
2:48
Speaker 2: to be drugs in particular, fence and all and illegal
2:51
Speaker 2: aliens coming into the United States, which you've not you know,
2:56
Speaker 2: you've ticked off a number of things for me, and
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Speaker 2: don't you know, don't get me wrong, I'm immigration expert,
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Speaker 2: but fentanol, illegal drugs, illegal immigration. You've named a number
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Speaker 2: of things that I typically see as problems mentioned with
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Speaker 2: Mexico and China. I'm unfamiliar with those darn French fur
3:16
Speaker 2: trappers coming over the Canadian border illegally and bringing their
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Speaker 2: maple syrup, funny accents, and over politeness being a problem
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Speaker 2: with US with US relations with Canada. But maybe I
3:27
Speaker 2: am missing something here and apparent to be fair. Apparently
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Speaker 2: this summer there was a large number of illegal Indian
3:33
Speaker 2: immigrants coming to the United States from Canada, but to
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Speaker 2: my knowledge, that has largely stopped entirely. So again, this
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Speaker 2: is one I think we do need to take this seriously.
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Speaker 2: The discussions about tariffs are quite specific here, right. These
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Speaker 2: are not general statements. These are I intend to place
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Speaker 2: tariffs on Canada, on Mexico of twenty five percent and
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Speaker 2: additional tariffs on China of an extra ten percent. And
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Speaker 2: so when somebody's that specific, I think, I think we
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Speaker 2: need to take it seriously and dive into what that
4:02
Speaker 2: could mean and why it might be coming.
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Speaker 3: Now I guess he's not even president yet. My head's
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Speaker 3: already spinning. There are so many Okay, let's I'll try
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Speaker 3: to stay focused on the issue of tariffs. That's the
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Speaker 3: one thing he's been talking about my whole adult life.
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Speaker 3: And I'm no spring chicken, sadly, so I assume he's serious.
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Speaker 3: I assume he's going to do what he can under
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Speaker 3: the law, which gives the president the ability to impose
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Speaker 3: some tariffs unilaterally for national security and related reasons. He
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Speaker 3: seems dead serious about that these are sizeable tariffs.
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Speaker 2: So let's take a mits on all goods coming from Mexico.
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Speaker 3: Look at the stuff you buy, from food to the
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Speaker 3: stuff at Low's or home depot or wherever. Look where
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Speaker 3: it's made. Most of it is Mexico or China. Presumably
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Speaker 3: this will affect those things if he's serious. And there's
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Speaker 3: always this question with Donald Trump and governing by tweet
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Speaker 3: or whatever you want to call all these missives he's
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Speaker 3: sending out via the social network he owns and interestingly
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Speaker 3: gets paid for. When people this is like George Washington saying,
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Speaker 3: you want to read my farewell address fifty bucks, but
5:11
Speaker 3: Lincoln emancipatient proclamation up. You want to know what's in it,
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Speaker 3: how much you got. This is a little bit like that.
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Speaker 3: I guess I'm gonna have to get used to that.
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Speaker 3: He's making major policy announcements on a platform he gets
5:19
Speaker 3: paid for bringing traffic to. Okay, I'll put that aside,
5:23
Speaker 3: because I said I'd stay focused if I could on tariffs.
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Speaker 3: So Mike, the immediate impact and this is the point
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Speaker 3: of a tariff will be to raise prices. If you
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Speaker 3: don't think it will, then you don't think. I'm not
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Speaker 3: gonna say you don't know how tariffs work because I'm
5:34
Speaker 3: not an international autonomous nor have I ever worked in trade.
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Speaker 3: But that's the whole point. They should raise prices immediately
5:39
Speaker 3: on a lot of the stuff that we buy. Effect
5:42
Speaker 3: estimates are sort of all over the place. We've never
5:45
Speaker 3: had anything of this magnitude and scale in the modern
5:48
Speaker 3: era suggested before, but somewhere in the several hundred two
5:52
Speaker 3: thousands per family, depending on say you're purchasing habits. It's
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Speaker 3: also going to be inflationary, at least in the short term,
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Speaker 3: because not all prices will adjust to compensate for the
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Speaker 3: reduced purchasing power we'll all have when these goods get
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Speaker 3: more expensive.
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Speaker 2: Go ahead, so let's start with some basics here. In
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Speaker 2: terms of trade, the United States, Mexico, China, and Canada
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Speaker 2: together account for about a little bit more than about
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Speaker 2: a third of all goods and services, both imported and exported.
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Speaker 2: So on the import side, like you said, you know,
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Speaker 2: substantially more terrorists on about a third of what we
6:27
Speaker 2: import into the United states in terms of exports. Might
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Speaker 2: there be retaliation? Who knows, but you know that that
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Speaker 2: would be the concern there for both importing companies and
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Speaker 2: exporting companies in terms of seriousness, right like, we always
6:42
Speaker 2: get back to that question of how serious should this
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Speaker 2: be treated? Is this a real policy decision or is
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Speaker 2: this a negotiating chip And I think, honestly, my guest
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Speaker 2: would be more of a negotiating tactic for Canada and
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Speaker 2: more of a serious threat for Mexico and China.
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Speaker 3: Think of how disruptive it is just feigning you're pointing
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Speaker 3: a gun at someone. That could technically be a negotiating tactics.
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Speaker 3: You don't know if it's loaded, but people have to
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Speaker 3: immediately start to rejigger. For example, if you're a business,
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Speaker 3: you're buying inputs to production of whatever you make, some
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Speaker 3: of those are imported. Something like a fifth of all
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Speaker 3: imports are on intermediate goods that are used in production.
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Speaker 3: This happened when we impost steel tariffs in twenty eighteen.
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Speaker 3: Caterpillar had to lay people off because their cost of
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Speaker 3: production went up. So you have to immediately start planning
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Speaker 3: for the reality of this. We've got two months or
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Speaker 3: so heads up. I think as a say you're a
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Speaker 3: purchasing manager or whoever makes these decisions in a production capacity,
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Speaker 3: you have to assume today that the stuff you buy
7:47
Speaker 3: a lot of to make your business work at the
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Speaker 3: margins that are expected, it's going to get a lot
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Speaker 3: more expensive in two months. So this is immediately disruptive.
7:54
Speaker 3: It's crazy to me that markets react to Scott Bissent yesterday,
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Speaker 3: who we don't even know if he's going to have
7:59
Speaker 3: any class out. His own economic views are a little murky,
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Speaker 3: and we know that Donald Trump knows what he wants
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Speaker 3: to do, so it's questionable that we're going to get
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Speaker 3: besense economic policies as opposed to Trump. Markets jump yesterday
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Speaker 3: in response to his appointment. They don't react in response
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Speaker 3: to this edict from Trump today.
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Speaker 2: Yeah, equity markets don't. But you did see a pretty
8:17
Speaker 2: big jump in currency markets, right. We're seeing the US
8:20
Speaker 2: dollar appreciate substantially against the Canadian dollar, against the Mexican payso,
8:24
Speaker 2: against the Chinese yuan. So we are seeing some currency movie.
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Speaker 3: This affects profitability, which is why it's a little weird
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Speaker 3: to me. Maybe I'm not looking under the hood, I'm
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Speaker 3: just working at the aggregates. It just seems a little
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Speaker 3: weird to me that the reaction is so muted, but
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Speaker 3: maybe there's maybe there are things roiling under the surface.
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Speaker 2: Yeah, in any case, you are seeing, if not an
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Speaker 2: immediate equity reaction, you are seeing some reaction from currency markets,
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Speaker 2: which I think would be logical, right what you're seeing.
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Speaker 2: If you're seeing substantial tariffs and pose, then you would
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Speaker 2: expect Yeah, maybe that does mean weaker Mexican Payso maybe
8:56
Speaker 2: it does mean weaker Canadian dollar and a number of
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Speaker 2: issues for those countries, and you know, stronger dollar in reaction.
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Speaker 2: And it also could mean you know, a very common
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Speaker 2: retaliatory measure from China could be currency manipulation, and that's
9:11
Speaker 2: something that they have toyed with in the past. And
9:14
Speaker 2: to make it really you know, point in case, if
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Speaker 2: you are facing a bunch of import tariffs from the
9:20
Speaker 2: United States on goods coming from your country, your China,
9:23
Speaker 2: and you have the ability to maneuver your currency, then
9:26
Speaker 2: a pretty easy way to offset those tariffs would be
9:29
Speaker 2: to say, hey, we're going to devalue our currency by
9:30
Speaker 2: ten percent, and therefore the net price to Americans of
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Speaker 2: that product is going to be the same even with
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Speaker 2: the tariff, and so that's the concern. And trust me,
9:39
Speaker 2: there are big problems for the Chinese government where they
9:41
Speaker 2: to implement such a thing. They're already facing issues of
9:45
Speaker 2: you know, capital flying out of China because of concerns
9:48
Speaker 2: well about the government and their policy on things, as
9:52
Speaker 2: well as their policy to manipulate currency. And so if
9:55
Speaker 2: you start to implement a policy of weakening your currency intentionally,
9:58
Speaker 2: there are a lot of wealthy Chinese who will try
10:00
Speaker 2: and get that money out of there. But nonetheless that
10:03
Speaker 2: has been a path that the Chinese have taken in
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Speaker 2: the past that hurts American manufacturers. So my mere point
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Speaker 2: with all of this is very simply that tariffs as
10:14
Speaker 2: a tool are complicated. They raise prices for consumers, they
10:19
Speaker 2: manipulate currency prices. They are complicated to these that it's
10:24
Speaker 2: tough to play out in a war game scenario, if
10:27
Speaker 2: you will, who does what next, and how that all
10:30
Speaker 2: works out.
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Speaker 3: None of these amaladies that he's trying to address will
10:35
Speaker 3: necessarily respond to tariffs. He's using them. They really are,
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Speaker 3: in his view, a cure all. They are the magic
10:43
Speaker 3: bullet for anything you want to fix illegal you want
10:46
Speaker 3: to fix immigration, illegal immigration, impose a tariff and get
10:50
Speaker 3: the country on whom you're imposing it. We're not really
10:53
Speaker 3: imposing tariffs on China, We're imposing excuse me, on Mexico
10:55
Speaker 3: or Canada.
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Speaker 2: So bizarre.
10:57
Speaker 3: We were a trading block not that long ago. History
11:01
Speaker 3: has just taking such a weird turn. These they're national
11:04
Speaker 3: security questions at play here. We're not talking about those,
11:06
Speaker 3: We're just talking about the economic questions. But anyway, punishing
11:10
Speaker 3: Mexico and Canada for illegal immigration, I guess that's I
11:14
Speaker 3: guess one way to do it is with tariffs. It's
11:17
Speaker 3: just such a blunt instrument, and we bear the burden
11:20
Speaker 3: is consumers potentially for years to come.
11:23
Speaker 2: It is let's take a quick break. I want to
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Speaker 2: dive a little bit, but I honestly just don't have
11:26
Speaker 2: much to say on the Canadian side. I don't really
11:28
Speaker 2: understand that piece of it. I don't really see what
11:32
Speaker 2: fight it is that we have with Canada, one of
11:34
Speaker 2: our closest trading partners. But I think there are some
11:36
Speaker 2: legitimate not even just immigration, but economic concerns. When it
11:39
Speaker 2: wants questioning that ago, let's take a quick break and
11:42
Speaker 2: come back and talk about that a little bit more here,
11:44
Speaker 2: specifically on tariff's on North American trade partners. That's next
11:47
Speaker 2: on the Financial Exchange.
11:49
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Speaker 2: With the announcement yesterday of Trump's plans to impose tariffs
12:46
Speaker 2: on I'm going to focus here on Canada and Mexico.
12:49
Speaker 2: It sets the stage for Okay, what exactly does he
12:53
Speaker 2: want to negotiate, he has said, and I believe that
12:57
Speaker 2: he've used tariffs as a negotiating tactic to bring parties
13:00
Speaker 2: to the table and change deals or you know, get
13:04
Speaker 2: updated terms on things like NAFTA, and so I suspect
13:07
Speaker 2: that that is the case. I'm gonna put Canada to
13:09
Speaker 2: the side here because I don't really know what you're
13:11
Speaker 2: trying to get out of Canada. I think there was
13:14
Speaker 2: a brief surge in illegal immigration from Canada that was
13:17
Speaker 2: pretty quickly resolved over the course of the last year.
13:21
Speaker 2: So maybe there's something additional there, But I have a
13:24
Speaker 2: tough time figuring that one out. And I'm going to
13:26
Speaker 2: sead focus on Mexico and identify what I'm guessing the
13:29
Speaker 2: Trump administration will see as legitimate problems. First and foremost
13:34
Speaker 2: would be illegal immigration from Canada or excuse me, from
13:37
Speaker 2: Mexico to the United States. That's a pretty clear point.
13:40
Speaker 2: I don't think I need to go much further. Drug cartels,
13:43
Speaker 2: drug imports from Mexico to Canada legitimate problem that I
13:47
Speaker 2: think we can pretty much all agree on. You know,
13:50
Speaker 2: violence that makes its way to or over the border
13:54
Speaker 2: with the United States is illegitimate problem. Could you point
13:57
Speaker 2: to evidence that that's improved a little bit over the
13:59
Speaker 2: last couple of years. Yes, but still probably a big problem.
14:02
Speaker 2: The one that I see less getting talked about that
14:05
Speaker 2: I think needs to be addressed is growing Chinese investment
14:09
Speaker 2: in Mexico. That to me is an interesting one. So
14:13
Speaker 2: for instance, byd the I believe, largest carmaker in the
14:16
Speaker 2: world at this stage, Chinese ev maker primarily is making
14:21
Speaker 2: some massive investments in Mexico and Mexican auto manufacturing, and
14:26
Speaker 2: I think if we're to look at that, you know, hey,
14:29
Speaker 2: is that a backdoor into the US market, or more realistically,
14:33
Speaker 2: is it just a threat to US automakers trying to
14:35
Speaker 2: do business in Mexico. That's part of the North American
14:38
Speaker 2: Free Trade Agreement? And what does all of that look like? Again,
14:41
Speaker 2: I don't know how you move terrace onto Mexico to
14:45
Speaker 2: prevent a Chinese company from investing there. But this is
14:49
Speaker 2: a real issue across the globe that you know, China
14:52
Speaker 2: has been making significant inroads, specifically into less developed nations,
14:57
Speaker 2: and you know, and to the extent the United States
15:02
Speaker 2: wants to stop that, I wonder what sort of tool
15:05
Speaker 2: tariffs would be and how successful they might be if implemented.
15:08
Speaker 2: And I don't think anybody said any of us have
15:10
Speaker 2: an answer. But those are the big three.
15:11
Speaker 3: So back to your initial point, No one's saying, we're
15:14
Speaker 3: getting a lot of texts. Hey, didn't you guys read
15:15
Speaker 3: Trump's message? Yeah, I read it. It was like five
15:18
Speaker 3: sentence as it wasn't that hard. And yes, I understand
15:21
Speaker 3: that we have a fentyel problem. I understand we have
15:22
Speaker 3: a legal immigration problem. Use the damn military. I don't
15:26
Speaker 3: really care. It does seem like an invasion to me.
15:28
Speaker 3: I wouldn't be uncomfortable with that.
15:30
Speaker 2: That's just me.
15:30
Speaker 3: I'm a bit of a right winger in some senses.
15:33
Speaker 3: Tariffs aren't the right probably aren't the right tool unless
15:38
Speaker 3: his intention is to at the eleventh hour change his
15:43
Speaker 3: position soften it. This really is a negotiating tactic. That's
15:46
Speaker 3: my only point. I'm not qualified to evaluate solutions to
15:50
Speaker 3: the fentanyl problem. It's an old problem. It didn't start
15:53
Speaker 3: under Joe Biden, it didn't start under Donald Trump. It's
15:55
Speaker 3: been in the making for three decades or so. Illegal
15:58
Speaker 3: immigration similarly didn't start under Joe Biden. Didn't start under Trump,
16:02
Speaker 3: just because it went up under Trump relative to Obama,
16:04
Speaker 3: I don't blame him for that, sure blame him for
16:06
Speaker 3: sitting on his hands because he didn't. Biden's slightly different story.
16:11
Speaker 3: I guess overlooked it for a long time. Are tariff's
16:14
Speaker 3: the right solution, though? I think that's where you have
16:16
Speaker 3: you have to you have to separate the the emotionally
16:20
Speaker 3: charged issue of illegal immigration and the feelings that brings
16:22
Speaker 3: out in people, which I get, I share them, from
16:25
Speaker 3: the economic consequences which we try to focus on here
16:28
Speaker 3: on the financial exchange and in our day jobs as custodians,
16:32
Speaker 3: as stewards of people's money.
16:33
Speaker 2: It's a fair question, and I think from the Trump
16:36
Speaker 2: administra the future Trump administration standpoint, while it is probably
16:42
Speaker 2: an imperfect or bad tool to fight these things, it
16:47
Speaker 2: happens to be the one tool that you can.
16:50
Speaker 3: It's easy, you can easily.
16:52
Speaker 2: He likes easy.
16:53
Speaker 3: This isn't as much of a criticism as it seems.
16:55
Speaker 3: He likes easy. Oh, I fixed it.
16:57
Speaker 2: Imagine how many court cases you would face, for instance,
16:59
Speaker 2: if you try to implement the US military on fighting
17:02
Speaker 2: fentanyl in our largest cities or using it right, there's
17:09
Speaker 2: just a lot more barriers. And so I think he.
17:11
Speaker 3: Does might be more durable, Mike. Sometimes you know better
17:14
Speaker 3: than anybody. I think things that are things that are
17:17
Speaker 3: worth it can be hard and take time. The problem
17:20
Speaker 3: with his first term, since we're talking about Trump here,
17:23
Speaker 3: is that he likes to fix things with tweets and
17:25
Speaker 3: then move on. That's why we didn't fix some in
17:27
Speaker 3: the four years he was president. I would like to
17:30
Speaker 3: see a more durable solution put into place. Never mind
17:33
Speaker 3: again the economic impact, which is our primary focus here,
17:36
Speaker 3: of something like tariffs.
17:37
Speaker 2: Let's take a minute and bring it back home though.
17:39
Speaker 2: Let's talk about all this in the context of reserve
17:43
Speaker 2: judgment for right or wrong. Let's talk about what the
17:45
Speaker 2: economy looks like if these things that are being talked
17:48
Speaker 2: about go into place. Right, we're talking about tax cuts,
17:51
Speaker 2: if not tax cuts, because I have some doubts as
17:53
Speaker 2: to whether or not they'll be able to be substantial
17:55
Speaker 2: enough to move things. Certainly a lock in of the
17:59
Speaker 2: twenty seven teen Tax Cuts and Jobs Act through twenty
18:02
Speaker 2: twenty six, we're talking about higher terriffs. What does that
18:06
Speaker 2: in your mind? You know, paint a picture of the
18:08
Speaker 2: twenty twenty five and beyond economy here in the United States,
18:12
Speaker 2: which you know as I'm seeing it spells uncertainty about
18:19
Speaker 2: where US companies profit, how much they profit, whether or
18:22
Speaker 2: not it's a hit to a profit, that's an open
18:24
Speaker 2: question in my mind. But higher interest rates potential for
18:27
Speaker 2: higher inflation seems to be an area that a lot
18:30
Speaker 2: of people are honing in on, honing in on as
18:33
Speaker 2: a state of the US economy under Trump.
18:36
Speaker 3: Is agenda has some stagflationary elements to it, deporting a
18:40
Speaker 3: lot of people who are working. As stagflationary. You could say, hey,
18:42
Speaker 3: that's the right thing to do. They're not sure legally so,
18:45
Speaker 3: and I agree with that for what it's worth in
18:48
Speaker 3: the interest of full disclosure, But it's that is stagflationary.
18:51
Speaker 3: There's no way around it. Tariffs are stagflationary. They reduce growth,
18:54
Speaker 3: they increase inflation. Tax cuts, new tax cuts, not just extensions,
18:58
Speaker 3: would be stimulative. That would be inflationary and stimulative. So
19:02
Speaker 3: that might work against the stag force of some of
19:06
Speaker 3: those other policies, the growth retarding forces. So Mike, on balance,
19:10
Speaker 3: it's hard to say. It feels a little stagflationary to me.
19:13
Speaker 2: And I think that's an important question, is if we
19:16
Speaker 2: do get a pause in the growth of this economy
19:19
Speaker 2: and maybe a sell off in stocks. Is this something
19:23
Speaker 2: that the Trump administration can stick to for that long
19:26
Speaker 2: term vision. Let's take a quick break when we come back,
19:28
Speaker 2: a little bit of Wall Street Watch. Like us on.
19:42
Speaker 1: Facebook and follow us on Twitter at TFE show. Breaking
19:46
Speaker 1: business news is always first right here on the Financial
19:50
Speaker 1: Exchange Radio Network. Time now for Wall Street Watch. A
19:55
Speaker 1: complete look at what's moving markets so far today right
19:58
Speaker 1: here on the Financial Change Radio Network.
20:03
Speaker 4: Markets are in mixed territory as traders react to the
20:06
Speaker 4: threat of new terrorists from President elect Donald Trump. And
20:10
Speaker 4: at two o'clock this afternoon, Wall Street Wolves shift their
20:13
Speaker 4: attention to FED meeting minics for clues about interest rates
20:17
Speaker 4: going forward. Right now, the Dow is off by three
20:20
Speaker 4: hundred and two points, over two thirds of a percent,
20:23
Speaker 4: SMP five hundred is up by only nine points, Nasdaq
20:27
Speaker 4: is up nearly half a percent, or seventy nine points.
20:31
Speaker 4: Russell two thousand is off over three quarters of a
20:33
Speaker 4: percent or twenty points. Ten year treasure reeled is up
20:36
Speaker 4: by six basis points at four point three to two percent,
20:39
Speaker 4: and crude oil up nearly one percent higher, trading at
20:42
Speaker 4: sixty nine dollars in fifty two cents a barrel. Several
20:46
Speaker 4: car makers who have factories in Mexico, including Ford, Stalantis
20:50
Speaker 4: and General Motors, are seeing losses in reaction to the
20:53
Speaker 4: tariff news. Nissan also saw losses in Japan after a
20:58
Speaker 4: year in critical mid stage try les. Amgen said its
21:01
Speaker 4: experimental weight loss injection help patients lose up to twenty
21:05
Speaker 4: percent of their weight on average. However, Wall Street was
21:09
Speaker 4: expecting that percentage to be higher. Amgen down by twelve
21:14
Speaker 4: percent so far today. Meanwhile, Abercrombie fit shares down by
21:18
Speaker 4: six percent, despite the retailer beating third quarter earnings expectations
21:22
Speaker 4: and offering strong guidance for the holiday period. Abercrombie also
21:26
Speaker 4: hiked its full year guidance more retailer earnings to digest
21:30
Speaker 4: after Best Buy miss third quarter revenue forecasts and cut
21:34
Speaker 4: its full year sales forecast as new iPhones and AI
21:37
Speaker 4: enabled lap laptops weren't enough.
21:40
Speaker 2: To boost sales.
21:41
Speaker 4: That stocked down by seven percent. And one more item
21:44
Speaker 4: from the retail world, where Cohle's shares are down by
21:47
Speaker 4: twenty percent after the struggling retailer missed third quarter earnings
21:51
Speaker 4: and also named its third chief executive in three years. Elsewhere,
21:56
Speaker 4: Zoom Video shares down by seven percent despite the video
21:59
Speaker 4: conference and company beating analysts expectations for profit and revenue.
22:04
Speaker 4: Rivian up by one and a half percent after the
22:06
Speaker 4: ev maker said it received approval for a government loan
22:10
Speaker 4: of up to six point six billion dollars to boost
22:14
Speaker 4: production capacity. I'm Tucker Silvan, that's Wallstreet Watch.
22:18
Speaker 2: A couple of economic data points out this morning, one
22:20
Speaker 2: of which you probably don't need me to tell you.
22:22
Speaker 2: New home sales fell to six hundred and ten thousand units.
22:25
Speaker 2: That's the lowest level since November of twenty twenty two.
22:29
Speaker 2: Also came in well below consensus estimates of seven hundred
22:31
Speaker 2: and twenty five thousand homes. New home sales now down
22:34
Speaker 2: seventeen percent from last month, nine percent from a year ago,
22:38
Speaker 2: so big shocker. Higher interest rates, no homes for sale.
22:40
Speaker 2: People aren't buying homes. The other data point that came
22:44
Speaker 2: out this morning consumer confidence. This has been bouncing around,
22:47
Speaker 2: and I bring up this one because this is one
22:49
Speaker 2: of those signals that really got the recession indication wrong
22:53
Speaker 2: for the last five years, and so we've been talking
22:56
Speaker 2: about a little bit more because hey, it's been signaling
22:58
Speaker 2: recession for quite some time. The Consumer Board Consumer Confidence
23:02
Speaker 2: Index in general increased in November to one hundred and
23:06
Speaker 2: eleven point seven. That's up two point one points from
23:09
Speaker 2: one hundred nine point six in October. And as a
23:12
Speaker 2: frame of reference, you know, right after COVID we were
23:15
Speaker 2: hanging out in the mid eighties to low nineties range
23:19
Speaker 2: for a period of time. The other piece of this
23:22
Speaker 2: index that has been used to point at recession in
23:27
Speaker 2: the past was the Expectations Index. This is based on
23:30
Speaker 2: consumer's shorter term outlook for income, business, labor market conditions.
23:34
Speaker 2: That one ticked up to zero point four percent up
23:37
Speaker 2: to ninety two point three. A threshold of eighty has
23:41
Speaker 2: historically signaled recession, and we were there for a good
23:45
Speaker 2: part of twenty twenty two, twenty twenty three, and twenty
23:48
Speaker 2: twenty four. We're obviously not there right now, but that
23:51
Speaker 2: was another, again, one of those imperfect recession signals that
23:55
Speaker 2: we were getting over the course of the last two
23:58
Speaker 2: years that to this point hasn't resulted in recession. Now
24:01
Speaker 2: we've bounced back out of that territory, much like things
24:04
Speaker 2: like the Psalm Rule indicator, the two to ten Yeld
24:08
Speaker 2: two to ten year yield inversion and many other signals
24:12
Speaker 2: that were, you know, giving kind of a false signal
24:15
Speaker 2: about where this economy might be heading over the last
24:17
Speaker 2: couple of years.
24:18
Speaker 3: Yeah, relationships that lead leading or even concurrent, so leading
24:22
Speaker 3: would be the consumer expectations index or the stock market.
24:25
Speaker 3: They are in theory, they're impounding people's expectations, as the
24:30
Speaker 3: name of the expectation survey suggests, stocks do as well.
24:32
Speaker 3: Thereforeward looking the so called PSALM rule that relationship between
24:36
Speaker 3: the rise and unemployment and the state of the broader
24:38
Speaker 3: economy is more of a concurrent indicator, and as we
24:42
Speaker 3: know it broke down. The problem with any of these
24:45
Speaker 3: using any of these variables as forecasters is that they
24:49
Speaker 3: assume that relationships among them stay the same, and they don't,
24:53
Speaker 3: which is why it's good to do what you and
24:55
Speaker 3: Chuck do on the show Mike, which is present a
24:58
Speaker 3: wide array of indicator who's leading?
25:00
Speaker 2: Do not do that current?
25:02
Speaker 3: No, I look at just why strictly coin flip.
25:05
Speaker 2: He just talks to the guy named Bob at his
25:08
Speaker 2: barber shop, and whatever Bob has to say, Mark Vandetty
25:10
Speaker 2: buys that day, Scott Bessant will have to fix America's finances.
25:15
Speaker 2: According to Bill Dudley, who's writing a column piece for Bloomberg,
25:19
Speaker 2: is it the job of the Treasury Secretary to fix
25:22
Speaker 2: America's finances? And and what would you call broken? If
25:28
Speaker 2: you write, like, what part of America's finances would you
25:31
Speaker 2: deem broken if Scott Besson's job is to fix them?
25:36
Speaker 2: I'm confused by the title in its entirety. I think
25:39
Speaker 2: Scott Besson's job and is to manage those finances, do
25:45
Speaker 2: so in an orderly fashion, and ensure that the United
25:49
Speaker 2: States dollar and treasury market remains the most liquid and
25:55
Speaker 2: reliable market in the world for placing funds and facility trade.
26:01
Speaker 2: But I struggle to come up with what his job
26:03
Speaker 2: is when it comes to fixing something. And that's the
26:07
Speaker 2: problem with articles like this is you're setting people up
26:10
Speaker 2: to fail if you say you need to fix something
26:13
Speaker 2: but don't define what it is they need to fix.
26:14
Speaker 3: Look, the Treasury Secretary's mandate is very broad, Mike, and
26:18
Speaker 3: I'm reading right from Treasury's website here. I won't read
26:20
Speaker 3: the whole description, but it's only a paragraph. They formulate
26:23
Speaker 3: and recommend domestic and international financial, economic, and tax policy
26:26
Speaker 3: participating in the formulation of policies of general significance for
26:30
Speaker 3: the economy, managing the public debt, overseeing the day to
26:34
Speaker 3: day activities of the Treasury Department, carrying out its major
26:37
Speaker 3: law enforcement responsibilities, etc. It's incredibly broad. Some of the
26:41
Speaker 3: duties are quite mundane and probably get executed by the bureaucracy.
26:45
Speaker 3: Others depend on the strength of the Treasury secretary. When
26:48
Speaker 3: you have someone with strong knowledge of financial markets, think
26:53
Speaker 3: Hank Paulson during the financial crisis, that might not have
26:57
Speaker 3: ended as painful as it was, might not have ended
26:59
Speaker 3: as well in the sense that we didn't descend into
27:01
Speaker 3: depression as is. It did not for Hank Paulson, and
27:06
Speaker 3: there are probably other examples, you know, going back through time.
27:10
Speaker 3: So there are some mechanical things that they're responsible for,
27:14
Speaker 3: but those are sort of taking care of by the bureaucracy.
27:18
Speaker 3: Your job is to supervise them. There are bigger decisions
27:21
Speaker 3: with respect to fiscal policy that ultimately Congress is in charge.
27:25
Speaker 2: That was kind of my thinking is if you're going
27:27
Speaker 2: to define America's finances as broken or a problem, yeah,
27:31
Speaker 2: that's Congress is reading fixing. Scott Besson's not going to
27:35
Speaker 2: be able to fix that, and I doubt he's going
27:37
Speaker 2: to be, you know, heading to Capitol Hill every week
27:39
Speaker 2: to try and you know, lobby Congress to make changes
27:42
Speaker 2: to the budget. I mean, if you want to, I
27:44
Speaker 2: think if you were going to identify one problem with
27:47
Speaker 2: America's finances, it would be that we're, you know, spending
27:50
Speaker 2: six point seventy five trillion dollars in the fiscal year
27:54
Speaker 2: that ended September thirtieth, that we are spending a massive portion,
27:58
Speaker 2: in a growing portion of our annual budget on interest
28:03
Speaker 2: on our debt. And Scott Besson's not gonna be able
28:05
Speaker 2: to fix any of those problems.
28:07
Speaker 3: No, No, the charge for dealing with that lies with
28:10
Speaker 3: the President. Obviously presents a budget, but Congress has its
28:14
Speaker 3: own ideas by design. When you think how many Treasury
28:18
Speaker 3: secretaries can you actually name, it's you'd be hard pressed,
28:22
Speaker 3: probably to name more than a handful from memory from
28:26
Speaker 3: your own lifetime, and forget about it. Historically, some have
28:30
Speaker 3: been quite unimportant, others have been more consequential, but ultimately
28:34
Speaker 3: their duties are kind of I hope I'm not understating
28:36
Speaker 3: things here, sure, but anybody expecting miracles from Scott Besson,
28:40
Speaker 3: expecting him to push back on the tendency to see
28:43
Speaker 3: tariffs as the hammer and everything is a nail. And
28:47
Speaker 3: what's the answered immigration? Tariff's, fentanyl tariffs, woman's reproductive rights,
28:51
Speaker 3: easy tariffs. He actually said this during the campaign the
28:54
Speaker 3: president elected it. Actually he was talking about childcare. I mean,
28:57
Speaker 3: he thinks the answer to everything is a tariff. Can
28:58
Speaker 3: Scott Besont provide him with a richer framework through with
29:03
Speaker 3: which to analyze economic problems. I'm a little skeptical, but
29:07
Speaker 3: we'll see.
29:07
Speaker 2: Markets seem to buy it. Yesterday at least, I've.
29:09
Speaker 3: Given up on reading anything in the market.
29:13
Speaker 2: Let's take a quick break. When we come back, I
29:14
Speaker 2: do want to talk about government spending. Six point seven
29:18
Speaker 2: trillion dollars in federal government spending last year. Elon Musk
29:22
Speaker 2: has been tasked with cutting some two trillion dollars out
29:25
Speaker 2: of there. Where's it going to come from? If he's
29:27
Speaker 2: going to find that quote unquote fat, Let's take a
29:30
Speaker 2: quick break and cover that next.
29:32
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29:39
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29:43
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29:48
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30:05
Speaker 2: All right, Mark, I'm making you Elon Musk for the day.
30:08
Speaker 2: Find me two trillion dollars of spending cuts. We spent
30:11
Speaker 2: six point seventy five trillion dollars in the fiscal year
30:14
Speaker 2: that ended September thirtieth. That amount is expected to grow,
30:18
Speaker 2: if for no other reason than just interest on our
30:21
Speaker 2: nation's debt. So where's it gonna come from? My friend.
30:25
Speaker 3: Mike, It's not like nobody's but I was thinking the
30:28
Speaker 3: first thing, I would never mind. Well, we can talk
30:31
Speaker 3: about it later if there's time. The It's not like
30:36
Speaker 3: nobody's looked at this problem. There are right leaning and
30:39
Speaker 3: libertarian and I know because I read them all think tanks,
30:42
Speaker 3: the Cato Institute, Heritage Foundation, and many others that have
30:45
Speaker 3: been looking at federal spending since since and before the
30:47
Speaker 3: Republicans took Congress in nineteen ninety four. Heck, you could
30:50
Speaker 3: just dust off New Gingrich's contract with America. There are
30:53
Speaker 3: plenty of good ideas.
30:54
Speaker 4: The sorry, Mark, turn off your microphone.
30:56
Speaker 3: Damn you say that again.
30:59
Speaker 2: Plenty of good ideas, pretty.
31:00
Speaker 3: Good ideas out there.
31:01
Speaker 2: You don't.
31:01
Speaker 3: You don't have to reinvent the wheel on this you
31:03
Speaker 3: start with. My preference would be not to start like
31:06
Speaker 3: an accountant like musk and Ramaswami. You're doing and lashing
31:09
Speaker 3: out at individual people. They're actually doing this. They're calling
31:12
Speaker 3: out people on social media. Hey fat cat, your time
31:15
Speaker 3: has come. Can you imagine running a business like that? Hey,
31:17
Speaker 3: fandaed a your luggage around here? You don't produce anything,
31:20
Speaker 3: Your time has come it? Hopefully that doesn't sound familiar.
31:25
Speaker 3: So I take a little bit issue with the way
31:26
Speaker 3: they're approaching this. They're approaching this like like like some
31:30
Speaker 3: hopped up McKinsey junior consultant who just wants to come
31:34
Speaker 3: in and prove to the people that hired him that
31:36
Speaker 3: they could be a they could be a tough guy.
31:39
Speaker 3: And that's the way to approach this is I think philosophically,
31:42
Speaker 3: should the federal government be in the in the business
31:45
Speaker 3: of education? If not, we can eliminate that department. I'm sorry,
31:47
Speaker 3: it's gonna cause some disruption, will help those people adjust
31:51
Speaker 3: to their new you know, will help them with the transition,
31:53
Speaker 3: et cetera. So I guess, Mike, my point here is
31:55
Speaker 3: that and you made this point earlier. Federal budget is
31:58
Speaker 3: roughly six trillly, you said six point seven. I've always
32:01
Speaker 3: said closer to six. But either way.
32:03
Speaker 2: Yeah, According to the Wall Street Journal, for the fiscal
32:06
Speaker 2: year that ended September thirtieth, it came in at six
32:08
Speaker 2: point seventy five.
32:09
Speaker 3: Okay, So they want to cut roughly a third. Every
32:14
Speaker 3: study I've seen recently suggests that you cannot do that
32:17
Speaker 3: without cutting to the bone of entitlements.
32:19
Speaker 2: So let's let's get into the breakdown here at Wall
32:22
Speaker 2: Street Journal has a pretty nice chart here if you
32:25
Speaker 2: have a subscription and can get in there. But in
32:28
Speaker 2: terms of mandatory and discretionary spending items, you've got one
32:32
Speaker 2: point four to nine trillion dollars going to Medicare and Medicaid.
32:36
Speaker 2: You've got another one point four or five trillion a
32:39
Speaker 2: year going to Social Security, nine hundred and forty nine
32:42
Speaker 2: billion dollars going to net interest. Other mandatory spending one
32:47
Speaker 2: and a quarter trillion. What's in there? Government pensions, retired
32:52
Speaker 2: military pensions, things along those lines. Among them, Where do
32:55
Speaker 2: you accumulatively?
32:56
Speaker 3: No, you had almost six trillion, right, you keep.
32:59
Speaker 2: One and a half. One and a half gets me
33:00
Speaker 2: to three four. I'm a little bit over five now.
33:05
Speaker 2: And then we've got discretionary spending eight hundred and fifty
33:09
Speaker 2: billion a year going to defense and then another nine
33:12
Speaker 2: hundred fifty billion dollars going to non defense items.
33:15
Speaker 3: So you could cut out all the non defense and
33:17
Speaker 3: only get half the cuts their promise.
33:19
Speaker 2: Correct. Yeah, if you cut everything except defense except defense.
33:23
Speaker 3: You still only get to half to week wants to get.
33:25
Speaker 2: You still only get half, that's right. And you know, Medicaid,
33:29
Speaker 2: for instance, could be a target. Like I said, Medicare
33:32
Speaker 2: and Medicaid. Donald Trump has made promises on not cutting Medicare,
33:36
Speaker 2: not so much on Medicaid. The CBO estimated that fifty
33:41
Speaker 2: six percent of Medicaid benefits in twenty twenty four would
33:44
Speaker 2: be going towards the aged, blind and disabled. Nursing homes
33:48
Speaker 2: is a big source of payments for Medicaid, for example,
33:51
Speaker 2: for those that don't cannot make the payments, So you know,
33:55
Speaker 2: could you cut there, And I don't know what we
33:57
Speaker 2: would do with those people, but you know that that
33:59
Speaker 2: could be a potential target, you know. Smaller mandatory categories
34:04
Speaker 2: include items such as, like I mentioned, retirement benefits from
34:07
Speaker 2: military and federal employees. I don't think you're going to
34:09
Speaker 2: be cutting there uh support for states to help with
34:12
Speaker 2: foster care and adoption. I guess maybe you know. But again,
34:16
Speaker 2: to really move the needle here, you probably do need
34:20
Speaker 2: to go after and to be fair, Elon Musk isn't
34:22
Speaker 2: shying away from saying that, hey, there's too much waste
34:24
Speaker 2: in the military and we need to ways to find
34:26
Speaker 2: and been here in that forty years we all you know,
34:29
Speaker 2: everybody loves that story of familiar with the story of
34:32
Speaker 2: the space pen.
34:33
Speaker 3: I'm familiar with the story of the gold taps in
34:35
Speaker 3: an admiral's bathroom on an aircraft is similar.
34:38
Speaker 2: There's plenty of them. The space pen was the idea
34:40
Speaker 2: that we needed to develop a pen that was capable
34:43
Speaker 2: of writing in space. The story was that NASA spent
34:46
Speaker 2: a million dollars developing this thing. It's actually not true.
34:49
Speaker 2: A private company did, and that well, I think the
34:53
Speaker 2: point was, why don't we just use a pencil.
34:56
Speaker 3: And like rat fighting here, the same in space. Presumably
34:59
Speaker 3: they thought it doesn't wouldn't graph fight flake off?
35:02
Speaker 2: I don't know, but this was a Soviet era story
35:05
Speaker 2: where like the Americans spent millions dollars developing pen and
35:09
Speaker 2: the Soviets just said, well, we can do the same
35:11
Speaker 2: thing with a pencil. But yeah, they're not shying away
35:14
Speaker 2: from that. But as I think everyone would acknowledge, finding
35:16
Speaker 2: two trillion dollars, if not an impossibility, will be an
35:21
Speaker 2: extreme challenge for anyone, even where they'd given the power
35:24
Speaker 2: to completely slash items entirely on their own.
35:27
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36:41
Speaker 2: Mark, Mark and Tucker. I'm gonna get very personal real
36:44
Speaker 2: quick here for a second. How tall are each of you?
36:48
Speaker 1: Five nine?
36:49
Speaker 2: You're five to nine? Really?
36:51
Speaker 4: Why is I surprised you?
36:51
Speaker 2: Just the elix shorter?
36:52
Speaker 3: I'm approximately that hype kah, I'm a little bit.
36:55
Speaker 2: Under five to six. Actually very very very short, as
36:59
Speaker 2: you both know. But what I bring this up for
37:03
Speaker 2: is because this story surprised me that US airlines, specifically
37:07
Speaker 2: five of the larger airlines, collected twelve point four billion
37:11
Speaker 2: dollars from seat fees from twenty eighteen to twenty twenty three,
37:16
Speaker 2: which you know, having the benefit of being well below
37:21
Speaker 2: the national average in terms of height. Has not been
37:23
Speaker 2: seen your pompadour, though, I am not factoring in any
37:27
Speaker 2: of my normal hats that I wear, fluffy, my fluffy hair,
37:32
Speaker 2: my Conan O'Brien hair that I have going here. Yeah no, no,
37:36
Speaker 2: I'm not factoring that in either. But twelve point four
37:39
Speaker 2: billion dollars collected. This speaks to in my mind, why
37:43
Speaker 2: the likes of Southwest Airlines are struggling so much right
37:46
Speaker 2: now when they don't really have these extra products. I
37:50
Speaker 2: was talking about my flight back from San Francisco over
37:53
Speaker 2: the weekend. Jet Blue with their first class seating is
37:56
Speaker 2: something that just did not exist when that company came
38:01
Speaker 2: to the market two decades ago, and the market is
38:04
Speaker 2: very much evolved where people are willing to pay for
38:06
Speaker 2: these types of upgrades. We've got to take a quick break.
38:09
Speaker 2: Markets remain open in a mixed territory, with the Dow
38:12
Speaker 2: still off by about half a percent. We'll have a
38:14
Speaker 2: full market recap and more coming up next on the
38:17
Speaker 2: Financial Exchange