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How Trump's megabill will and won't change your taxes · The Financial Exchange Show

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Speaker 2: Good morning and welcome back to the Financial Exchange. Hope
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Speaker 2: everyone had a great Independence Day weekend. Fantastic weather here
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Speaker 2: across New England at least, But obviously heart's going out
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Speaker 2: this morning to Texas and the devastating loss of life
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Speaker 2: I'm the father of a few daughters and that story
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Speaker 2: hit pretty hard by those floodings. So you know, obviously
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Speaker 2: heart's going out to those with connections to that area
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Speaker 2: of Texas and the just absolutely devastating loss of life
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Speaker 2: over the weekend. But nonetheless, I hope everyone did have
1:53
Speaker 2: a nice time away from work and a little bit
1:56
Speaker 2: time to hit the reset button. It is Mike Armstrong,
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Speaker 2: Mark Fandaddy and Tucker Silva with you on a Monday
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Speaker 2: morning where we've got equity markets in the red. On
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Speaker 2: announcements over the weekend. Regarding trade, we are expecting some
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Speaker 2: announcements of deals from Treasury Secretary Besant. We're also going
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Speaker 2: to be diving in there because it looks like there
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Speaker 2: is a new tariff deadline updated from the one coming
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Speaker 2: this Wednesday. But also over the long holiday weekend, we
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Speaker 2: had the signing of the big beautiful Bill Act. And
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Speaker 2: so now that it's actually lawmark, I think we can
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Speaker 2: spend a little bit of time there anything else catching
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Speaker 2: mark your eye this morning in markets?
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Speaker 3: Now, let's get into it.
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Speaker 2: So we had this thing past, and to be clear,
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Speaker 2: the big sweeping change from this bill, if you take
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Speaker 2: a look at it from a I think general financial perspective,
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Speaker 2: is that tax rates don't snap back to where they
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Speaker 2: were pre twenty seventeen. What this bill really does is
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Speaker 2: locking in a lot of the changes that were made
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Speaker 2: in twenty seventeen that we've all been operating under for
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Speaker 2: the last eight years or so. And if you're looking
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Speaker 2: at you know, the deficit effect of this bill, if
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Speaker 2: you're looking at you know, any of the real financial impact,
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Speaker 2: it is that because the laws on the books were
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Speaker 2: that tax rates were going to change substantially come January one,
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Speaker 2: twenty twenty six for most Americans, most Americans would have
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Speaker 2: seen their tax rates go up. This bill prevents that
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Speaker 2: from happening and then carves out a whole bunch of
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Speaker 2: additional things on top of that. And we'll get to
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Speaker 2: the deficit impact and financial impact of this bill later,
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Speaker 2: but I want to start with some of the facts
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Speaker 2: of what is actually changing here. I already mentioned. You know,
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Speaker 2: twenty seventeen tax cuts are permanent. The standard deduction is
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Speaker 2: now locked in and permanent, which means for a married
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Speaker 2: couple it's going to be thirty one five hundred and
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Speaker 2: twenty twenty five child tax credits. The state taxes, all
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Speaker 2: of which would have changed in twenty twenty six without
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Speaker 2: the passage of this bill, are now locked in and
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Speaker 2: pretty permanent. And so you know, for instance, any concerns
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Speaker 2: about the estate tax dropping down to seven million dollars,
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Speaker 2: which it would have done in twenty twenty six, that's
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Speaker 2: the exemption how much you can have before facing a
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Speaker 2: FEDERALI State tax now still locked in at nearly fourteen
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Speaker 2: million for this year, increasing to fifteen million for next year.
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Speaker 2: A few things that are changing for this new tax bill.
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Speaker 2: One an expansion of the state and local tax deductions.
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Speaker 2: We were going from ten thousand dollars now up to
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Speaker 2: forty thousand dollars for the vast majority of Americans. Mark
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Speaker 2: and I were talking about this a little bit last week.
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Speaker 2: A lot of the changes to these tax codes benefit
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Speaker 2: directly folks in high income left leaning states, and the
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Speaker 2: salt cap change is one of those. So if you
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Speaker 2: earn less than half a million dollars per year, your
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Speaker 2: new CA app on state and local taxes is going
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Speaker 2: to be forty thousand dollars, which is a pretty significant
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Speaker 2: increase in deduction. We'll talk about some of the effects
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Speaker 2: of that, but the first things first, that is a
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Speaker 2: big change. We're going to now get a new special
5:15
Speaker 2: charitable deduction. Anybody that's been aware of filing their own
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Speaker 2: taxes over the last few years has probably noticed that
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Speaker 2: their accountant doesn't ask them to put together any of
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Speaker 2: their charitable deduction donations or interest deductions because most people
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Speaker 2: end up taking the standard deduction when they file their taxes.
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Speaker 2: That has changed with this because now you're still going
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Speaker 2: to get that large standard deduction, but you can also
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Speaker 2: get an above the line additional deduction for charitable contributions
5:45
Speaker 2: one thousand dollars per individuals a two k for a
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Speaker 2: married couple in charitable deductions that you can take off
5:51
Speaker 2: of your return. That's a change from where we were before.
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Speaker 2: So security this is another new change. You are not
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Speaker 2: getting what was talked about on the campaign of no
6:00
Speaker 2: tax on Social Security, but you are getting a workaround
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Speaker 2: that accomplishes a lot of the same thing. Effectively, if
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Speaker 2: you are sixty five years or older, you are going
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Speaker 2: to get a special six thousand dollars per person deduction
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Speaker 2: with up to for up to one hundred and fifty
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Speaker 2: thousand dollars in joint income. So again, if you're a
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Speaker 2: married couple here, you're going to get a new twelve
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Speaker 2: thousand dollars deduction so long as your total income doesn't
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Speaker 2: exceed one hundred and fifty grand. Again, most people are
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Speaker 2: going to be able to deduct this, so most people
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Speaker 2: you know, in effect, are going to avoid the taxes
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Speaker 2: on their Social Security income. But that's not what was done,
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Speaker 2: and there was an email sent from the soci Security
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Speaker 2: Administration that confused this subject even more. But to be clear,
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Speaker 2: that's what seems to be happening with this bill. UH
6:47
Speaker 2: taxes on tips, on overtime, both of those, you're going
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Speaker 2: to get a new deduction. How they sort all this
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Speaker 2: out and how the employer reports it as an open question.
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Speaker 2: But if you make less than three hundred thousand dollars
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Speaker 2: and work in certain into trees only, you're going to
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Speaker 2: be able to deduct both tips income as well as
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Speaker 2: overtime income, effectively making twenty five thousand dollars if you're
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Speaker 2: again married filing jointly here of that income tax free.
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Speaker 2: And then one last piece here that I saw as
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Speaker 2: a change to the overall tax code was that the
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Speaker 2: there's gonna be a new deduction available to folks for
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Speaker 2: car loan interest of up to ten thousand dollars. My
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Speaker 2: question on that is most people probably won't end up
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Speaker 2: taking it because of the large standard deduction that's already
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Speaker 2: in place, but nonetheless that's a new piece that's in here.
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Speaker 2: So I guess one thing that this bill probably does,
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Speaker 2: which is a bit annoying for folks, is you probably
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Speaker 2: end up starting to itemize your deductions again after eight
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Speaker 2: years of not needing to because that standard deduction was
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Speaker 2: so much larger than everything else. Mark, I think I've
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Speaker 2: covered most of the changes to the overall tax code
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Speaker 2: that people are going to find significant. There are others.
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Speaker 2: There are faster phase outs for green energy credits and
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Speaker 2: new things when it comes to five twenty nine's, but
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Speaker 2: mainly those I think six big changes Salt, charitable, social
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Speaker 2: Security tips over time, and car Loan interest are the
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Speaker 2: big new things going into place with this tax bill
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Speaker 2: so far as I could tell, Did I miss anything?
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Speaker 3: Did you miss anything? Possibly?
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Speaker 1: I haven't.
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Speaker 3: I haven't scoured it to be perfectly candid, but it
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Speaker 3: sounded damn thorough to me, Mike.
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Speaker 2: So there's a lot that is changing with this tax bill.
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Speaker 2: But as I've put before, the biggest changes are simply
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Speaker 2: that tax rates are not going to get completely upended
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Speaker 2: come twenty twenty six compared to where we were post
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Speaker 2: twenty seventeen. More to come on how this applies to
8:45
Speaker 2: each individual, but I think some things are pretty clear.
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Speaker 2: Retirees getting a big gift with this. Some folks in
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Speaker 2: certain industries such as tipped industries and heavy overtime industries
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Speaker 2: will be getting some increases, but we have some stuff
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Speaker 2: to work out in terms of who's actually eligible for that,
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Speaker 2: because it sounds like it's going to potentially be industry specific.
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Speaker 2: Those are the big changes to all of this. Everything
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Speaker 2: else is kind of work around the edges. But if
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Speaker 2: you are retired here in New England in a high
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Speaker 2: income tax state, yeah, there are some pretty significant new
9:19
Speaker 2: changes that are going to benefit you specifically when it
9:22
Speaker 2: comes to all of this, I do want to take
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Speaker 2: a quick break when we come back. We should get
9:27
Speaker 2: back into this tax bill before we move on to
9:29
Speaker 2: trade and just talk about the deficit effect because it
9:33
Speaker 2: is been getting a lot of play over the last
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Speaker 2: several months. We don't have bond markets freaking out by
9:38
Speaker 2: any stretch of the imagination this morning, but I do
9:41
Speaker 2: want to talk about what this does to deficits over
9:44
Speaker 2: the coming decade before we lead into terra so quick break.
9:47
Speaker 2: We'll be talking about that next here on the Financial Exchange.
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10:54
Speaker 2: Tucker will be continued to discuss the Big Beautiful Bill
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Speaker 2: Act in the changes to the tax code, kind of
11:00
Speaker 2: weaving our way throughout the show. If folks have questions,
11:04
Speaker 2: can you read off the text line for me again?
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Speaker 4: Sure?
11:07
Speaker 2: Yeah, pretty sure, I have it, but I don't want
11:08
Speaker 2: to give the wrong.
11:08
Speaker 4: Number text line to the Financial Exchange six one seven
11:11
Speaker 4: three six two thirteen eighty five.
11:15
Speaker 2: So you know, acknowledging here for a moment that neither
11:17
Speaker 2: Mark nor myself are our CPAs or you know, tax
11:21
Speaker 2: experts here. Feel free to text the show with questions
11:24
Speaker 2: about the Big Beautiful Bill and how it might affect you,
11:27
Speaker 2: and we'll we'll do our best to dig in. But Mark,
11:30
Speaker 2: as we go along here, the I think the most
11:35
Speaker 2: recent read from the Congressional Budget Office was that the
11:38
Speaker 2: Senate package that was voted through was going to add
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Speaker 2: about three point three trillion dollars in budget deficits over
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Speaker 2: the next decade. A lot has been called out about this,
11:50
Speaker 2: making headlines about it. We've got the dollar falling this
11:54
Speaker 2: year and a lot more deal being made out of
11:57
Speaker 2: deficits than most any time that I recall in the
11:59
Speaker 2: last few years. How likely in your mind, I guess,
12:03
Speaker 2: is it that this is some form of catastrophic moment
12:06
Speaker 2: as we speak.
12:07
Speaker 3: Well, yeah, there was already very high potential for upheaval
12:11
Speaker 3: over the next ten years. This bill doesn't help things, Probably,
12:15
Speaker 3: it's not. It doesn't contain any incentives to increase the
12:19
Speaker 3: supply of labor, for example, or improve productivity or anything
12:22
Speaker 3: like that. Its proponents would argue it does, but those
12:26
Speaker 3: arguments aren't bought by most serious people. It probably won't
12:31
Speaker 3: add much to the deficit as it currently stands. When
12:35
Speaker 3: they the Tax Foundation and Committee for Responsible Federal Budget
12:40
Speaker 3: and Congressional Budget Office, and dozens of other independent researchers
12:45
Speaker 3: and think tanks that have looked at this, they've all
12:46
Speaker 3: come to the same conclusion that the deficit relative to
12:50
Speaker 3: what it would have been before the twenty seventeen Jobs
12:54
Speaker 3: Taxing Jobs Act was enacted, will be higher. They're using
12:57
Speaker 3: that as the baseline. You might find fault in that.
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Speaker 3: You might say, well, what I care about is what
13:03
Speaker 3: the deficit is going to do relative to what it's
13:04
Speaker 3: done over the last twelve months, and by that reckoning
13:08
Speaker 3: may not grow that much. Others would put. People on
13:11
Speaker 3: the other side of that argument would say, well, wait
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Speaker 3: a second, you never accounted for the deficit increasing effects
13:15
Speaker 3: of the twenty seventeen Act, So by that logic, we
13:19
Speaker 3: could just continue to pass these suckers every few years
13:22
Speaker 3: and none would ever add anything to the deficit, because
13:24
Speaker 3: you're always raising or lowering, depending on your point of
13:27
Speaker 3: view the bar So, Mike, the situation was dire before this.
13:31
Speaker 3: It's certainly not any better now. To your point, capital
13:34
Speaker 3: markets have yet to react by, for example, pushing up
13:37
Speaker 3: interest rates. The dollar's gone down. I suspect that's because,
13:41
Speaker 3: at least through last Thursday, participants thought that the Fed
13:45
Speaker 3: was going to have to ease rapidly in response to
13:48
Speaker 3: a slowing economy. The unemployment numbers we got last week
13:52
Speaker 3: belied that idea. So the dollar going down may not
13:55
Speaker 3: have anything to do with fears of an increased deficit.
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Speaker 2: I think part of the problem that I see is
14:01
Speaker 2: we have a bit of a boy who Cried Wolf
14:04
Speaker 2: scenario when it comes to the deficit, right. I mean,
14:06
Speaker 2: there have been people writing about the end of the
14:09
Speaker 2: world as we know it with the United States dominance
14:12
Speaker 2: due to deficits, and we've continued to run them now
14:16
Speaker 2: for twenty five years with no Yeah, I would describe
14:19
Speaker 2: it as no meaningful and noticeable impact to the average American.
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Speaker 2: Do you think that's fair. I don't know.
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Speaker 3: I don't know what. You can't run the so called counterfactual,
14:29
Speaker 3: meaning I don't know how history would have evolved had
14:31
Speaker 3: that not happened. I suspect these deficits have put in
14:35
Speaker 3: the cumulative a debt has put some upward pressure on rates.
14:39
Speaker 3: We did it at the right time. There was a
14:41
Speaker 3: glut of global savings and inflation was low. The thing
14:45
Speaker 3: about the boy that cried wolf is nobody ever reads
14:47
Speaker 3: the sequel, and the sequel the wolf arrives and ate
14:50
Speaker 3: him and his family. So he was right. I'm kidding.
14:52
Speaker 3: There is no sequel, but I could imagine one in
14:54
Speaker 3: which that happens. We all have the smoker in our family,
14:58
Speaker 3: the overeater who says, yeah, I've been doing this for years,
15:01
Speaker 3: hasn't hurt me yet. And I don't know why I
15:03
Speaker 3: made them a man or a Yankee. But anyway, no offense,
15:07
Speaker 3: no offense, you know what I mean? Some Yahoo who
15:10
Speaker 3: thinks they can defy the laws of healthy living, they
15:17
Speaker 3: get their come up. And this is my point. At
15:19
Speaker 3: some point there will be a debt reckoning. I just
15:21
Speaker 3: don't know when it is and what the trigger will be.
15:23
Speaker 3: It might be six months from now, six years, or
15:26
Speaker 3: a decade from now.
15:28
Speaker 2: I could believe any of those. I could believe longer.
15:31
Speaker 2: Let's then less focus on Let's not focus on the time,
15:34
Speaker 2: because nobody has any of the time, any idea on
15:37
Speaker 2: the time. Talk to me about the mechanics of how
15:39
Speaker 2: funding deficits actually works and how it hypothetically could play
15:43
Speaker 2: out here that could be deficittions. We have seen other
15:45
Speaker 2: countries go through this devastation and you know, leave permanent
15:50
Speaker 2: scars in the state of their economies. What are the
15:53
Speaker 2: mechanics for how why deficits actually matter?
15:56
Speaker 3: Well, it's sometimes it is optimal for a country to
16:00
Speaker 3: default take it on the chin and do a reset.
16:03
Speaker 3: Argentina is an example, and others like Greasive effectively defaulted
16:08
Speaker 3: and they've come out okay. So it's not the end
16:12
Speaker 3: of the world for a smaller economy. It's unclear what
16:15
Speaker 3: the economy the currency for which is the world's reserve
16:19
Speaker 3: currency and the sovereign debt. In our case, treasuries represent
16:24
Speaker 3: the world's benchmark and bed rock asset class. What the
16:28
Speaker 3: implications of having to print money to pay off the debt,
16:32
Speaker 3: i e. Inflating it away, which we've done before. By
16:35
Speaker 3: the way, we did it after World War Two, we
16:37
Speaker 3: did it after. We've done it after just about every war.
16:39
Speaker 3: In fact, civil war, a war of independence, we always
16:44
Speaker 3: inflate dead away, so that's going to happen to an extent.
16:47
Speaker 3: Inflating dead away is like defaulting on it. Alternatively, you
16:51
Speaker 3: could do a combination of inflating dead away and raising taxes.
16:54
Speaker 3: That's what the North did during the Civil War. I
16:57
Speaker 3: know we're going back a while, but we're pretty good credit,
17:00
Speaker 3: so we don't have many examples in this country. I
17:02
Speaker 3: think the price level inflation that is well. No, the
17:06
Speaker 3: price level doubled in the North during the Civil War,
17:09
Speaker 3: but in the Confederacy it went up by four thousand.
17:12
Speaker 3: If you can imagine that, that tells you that the
17:14
Speaker 3: North both raised taxes and printed a little bit of
17:16
Speaker 3: money to finance the war. The South had no tax
17:20
Speaker 3: base to tap. So that's the sort of tale of
17:24
Speaker 3: two different approaches to taking care of a big debt burden. Mike,
17:31
Speaker 3: I don't know what the implications are of our current
17:34
Speaker 3: level of debt. I'm sure they're not good. I just
17:37
Speaker 3: don't know what types of choices will be made increasing
17:41
Speaker 3: taxes by a lot versus inflating it away, versus both
17:45
Speaker 3: hoping for a growth miracle like our Treasury secretary seems
17:48
Speaker 3: to be banking on, which is absolutely reckless. That's like
17:51
Speaker 3: saying I'm gonna eat a whopper every day. I'm just
17:55
Speaker 3: gonna assume they're gonna invent a pill to take care
17:58
Speaker 3: of whatever maladies result. That's reckless and stupid. He's not serious.
18:02
Speaker 3: There are serious people, and they'll admit they don't really know.
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Speaker 2: I think the dangers when it comes to deficits and
18:10
Speaker 2: any sort of bill that you pass is you know,
18:12
Speaker 2: you take a look at what I just covered in
18:14
Speaker 2: terms of tax changes and there are very few people
18:18
Speaker 2: that can look at that series of things and say
18:20
Speaker 2: that they don't benefit at all from it. I bet
18:22
Speaker 2: I certainly personally benefit from the changes that were just
18:25
Speaker 2: passed over the weekend. Of these tax changes that are
18:28
Speaker 2: going into effect. You know, maybe some green energy companies
18:32
Speaker 2: are going to struggle a little bit more. Maybe you know,
18:35
Speaker 2: GM isn't going to be able to sell as many
18:37
Speaker 2: of their new Hummer evs that they were hoping to.
18:39
Speaker 2: But most individuals are going to benefit from this tax
18:42
Speaker 2: bill financially, at least in the short term. That's precisely
18:47
Speaker 2: the political danger of all of this is the politics
18:50
Speaker 2: that have dominated the last twenty five years have been
18:54
Speaker 2: give people money and they vote you back into office. Yeah,
18:57
Speaker 2: and that's I think what are electeds are dealing with is, Hey,
19:01
Speaker 2: if you're not in power, then just criticize the bill,
19:03
Speaker 2: criticize it for its deficit effect and uh and you
19:07
Speaker 2: know that's a bipartisan.
19:09
Speaker 3: Yeah, you know, we should, like we should talk about
19:11
Speaker 3: the idea that people are forward looking. They'll assume their
19:14
Speaker 3: taxes are going to go up at some point or
19:16
Speaker 3: they're going to have to save because there's going to
19:17
Speaker 3: be some fiscal calamity, it could offset some of the
19:19
Speaker 3: benefits of that. If there's time in the next hour,
19:22
Speaker 3: maybe we should talk about that quick break.
19:24
Speaker 2: We got to take a break for Wall Street Watch.
19:26
Speaker 2: That's coming up next, and now we're talking trade deals.
19:41
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Speaker 1: Street Watch. A complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:00
Speaker 4: Traders returning from the July fourth holiday and shifting their
20:04
Speaker 4: attention from taxes to tariffs with President Trump's July ninth deadline,
20:09
Speaker 4: although the administration officials have signaled the new August first
20:13
Speaker 4: deadline is a possibility. Right now, Dow is off by
20:18
Speaker 4: two hundred and twelve points, about half a percent lower.
20:21
Speaker 4: Sm P five hundred also down about half a percent
20:23
Speaker 4: or thirty points. Nasdaq is off by six tenths of
20:27
Speaker 4: one percent, or one hundred and thirty four points. Russell
20:30
Speaker 4: two thousand is off four tenths of one percent. Tenure
20:33
Speaker 4: Treasure reeled up three basis points this morning at four
20:36
Speaker 4: point three seven percent. In crude oil up about nine
20:41
Speaker 4: tenths of one percent, trading at sixty seven dollars in
20:44
Speaker 4: fifty nine cents a barrel. More tensions between Tesla's CEO
20:47
Speaker 4: Elon Musk and President Trump after Musk said he would
20:51
Speaker 4: form a new political party called America Party, with Trump
20:54
Speaker 4: calling it ridiculous. Tesla shares are sinking by seven percent. Meanwhile,
20:59
Speaker 4: oorc well down by two percent after the company said
21:02
Speaker 4: it is slicing the cost of its database software and
21:04
Speaker 4: cloud computing service for the government, making it the largest
21:08
Speaker 4: tech giant to offer the Trump administration a significant discount
21:12
Speaker 4: on services elsewhere. New data from research firm Counterpoint found
21:17
Speaker 4: that iPhone sales in China grew for the first time
21:19
Speaker 4: in two years last quarter, but not enough to overtake
21:23
Speaker 4: local rival Huawei. Apple shares are off by about half
21:26
Speaker 4: a percent. Shell said it expected weaker gas trade. It
21:31
Speaker 4: expected weaker gas trading would hurt quarterly earnings. That stocked
21:35
Speaker 4: down by two percent. Constellation Brands upgraded to buy from
21:38
Speaker 4: Hole that Jeffreys, citing its wine business that is turning profitable,
21:43
Speaker 4: strong cash flows as well as buybacks. Constellation shares are
21:47
Speaker 4: mostly flat today and later this week. On Thursday, Delta
21:51
Speaker 4: Airlines will kick off second quarter earning season. I'm Tucker Silvan.
21:55
Speaker 4: That's Wall Street Watch.
21:58
Speaker 2: I'll tell you, Mark, I don't know that there has
22:01
Speaker 2: been ever someone less popular to represent the creation of
22:06
Speaker 2: a new political party. But we'll see what Elon Musk
22:09
Speaker 2: is able to pull off with this. He's managed to
22:11
Speaker 2: make just about everyone angry. So uh, we'll see how that.
22:14
Speaker 3: He seems to be a man of principle, though I
22:16
Speaker 3: bet I agree he went off the rails a little bit,
22:19
Speaker 3: but he seems to be acting just on principle here.
22:22
Speaker 3: It might be a little bit of self interest in
22:25
Speaker 3: that he's losing some of the credits which account for
22:29
Speaker 3: a disturbingly large continue to account for a disturbingly large
22:32
Speaker 3: portion of his company's revenue and income are going away
22:35
Speaker 3: under the new bill, Mike, But otherwise he seems genuinely concerned.
22:39
Speaker 2: I thought, I've thought about train wreck. I've thought about
22:42
Speaker 2: this a fair bit. Mark, I do agree with you. You know,
22:45
Speaker 2: if he was genuinely concerned about the phase out of
22:47
Speaker 2: green energy tax credits, he could have supported Kamala Harris
22:51
Speaker 2: and her run for president.
22:53
Speaker 3: Or he could have gone he could have gone back
22:55
Speaker 3: to the president on his knees and grobbled and said,
22:58
Speaker 3: could you make these? Can you insert these? The president
23:01
Speaker 3: would have probably because I don't think the president. The
23:04
Speaker 3: president's just a pragmatist. He doesn't really care. He didn't
23:07
Speaker 3: do that, though, so I'm I've always been torn about Elon.
23:11
Speaker 3: I respect his I'll call it genius, even though it's
23:13
Speaker 3: overused and not quite the right term. I respect his
23:16
Speaker 3: entrepreneurial drive yep. At the same time, he's a little
23:21
Speaker 3: bit whimsical, which is weird. So if I were a shareholder,
23:24
Speaker 3: I'd be concerned about that. But again, in this instance,
23:28
Speaker 3: this is not something he needs. People always say about
23:30
Speaker 3: the President. He doesn't need this. He's already a billionaire. Fine,
23:34
Speaker 3: I'll give you that, nor does Elon. So why assume
23:39
Speaker 3: good intentions on the part of say, the President, And
23:41
Speaker 3: I think that's okay. He's doing this out of a
23:44
Speaker 3: love for his country. Why assume Elon is not unless
23:47
Speaker 3: you know them both personally and you have reason to
23:49
Speaker 3: take it at his value.
23:51
Speaker 2: I don't think. But I don't think he's doing anything
23:54
Speaker 2: out of self interest here, nor do I think he
23:57
Speaker 2: is trying to make the country worse by any stretch.
24:01
Speaker 2: I just think that he has managed to make everyone
24:03
Speaker 2: upset with him.
24:05
Speaker 3: Yeah he has, well, you know, he's he's abrasive. It's
24:10
Speaker 3: a lot of very successful people, I guess are But you.
24:14
Speaker 2: Know what, you could probably say the same thing about
24:16
Speaker 2: Donald Trump ten years ago, and so there you have it.
24:19
Speaker 2: Who knows. Let's move on here to trade deals and
24:24
Speaker 2: what we are seeing here. So we have a self
24:28
Speaker 2: imposed deadline of this Wednesday to have trade deals with
24:32
Speaker 2: hundreds of nations worked out over the weekend. The President
24:37
Speaker 2: implied that the first tariff collection date wouldn't be until
24:41
Speaker 2: August first, which again we're splitting hairs here, but that
24:46
Speaker 2: seems to me to extend the deadline now to August
24:49
Speaker 2: first for a trade deal to get negotiated if you're
24:51
Speaker 2: not going to be collecting any of the revenue to
24:52
Speaker 2: revenue until August first. Anyway, if we are to use
24:58
Speaker 2: the Vietnam dear is some sort of framework, which I
25:03
Speaker 2: guess you have to given that it's pretty much all
25:06
Speaker 2: we've got. It's I guess you've got the UK as well.
25:10
Speaker 2: So if we use those two deals as the framework,
25:13
Speaker 2: it would seem to me that we're likely to land
25:15
Speaker 2: at teriff rates globally on imports into the United States
25:20
Speaker 2: of between ten and twenty percent, kind of a minimum
25:23
Speaker 2: of ten, with specific industry carve outs and some exceptions.
25:27
Speaker 2: But I don't know how to look at this any differently.
25:30
Speaker 2: If I'm trying to price in or estimate where we
25:34
Speaker 2: are going to be knowing that, you know, I could
25:36
Speaker 2: be way off based on all this, and maybe some
25:38
Speaker 2: countries are going to be facing forty some odd percent.
25:41
Speaker 2: But in terms of large trade blocks, I have a
25:44
Speaker 2: tough time believing that any of them are going to
25:45
Speaker 2: face well over twenty percent when it comes to their
25:48
Speaker 2: ultimate teriff rate of products coming into the US. Any
25:52
Speaker 2: other insight than that mark when it comes to this.
25:55
Speaker 3: No, these deadlines are obviously a joke. They keep getting extended.
25:58
Speaker 3: There's no obvious, no obvious strategy behind it. It seems
26:02
Speaker 3: like the President wakes up on it, and this has
26:03
Speaker 3: worked for him historically. It's it's how he does business.
26:06
Speaker 3: Wakes up, wants something, goes out and blusters and maybe
26:09
Speaker 3: he gets it, maybe he doesn't. That's devastating though, for
26:12
Speaker 3: economic uncertainty. Not to mention the fact that any of
26:16
Speaker 3: these we had a NAFTA, a Free Trade agree in
26:20
Speaker 3: between the US and Canada and the US and Mexico
26:22
Speaker 3: dating back to nineteen ninety three. President comes in office
26:25
Speaker 3: the first time redes that deal. They sign up for it,
26:28
Speaker 3: Mexico and Canada do. So we've got us Mexico Canada Act,
26:32
Speaker 3: whatever it was called. It gets an office again. Yeah,
26:35
Speaker 3: gets an office again. Not happy with that for some reason.
26:39
Speaker 3: The point here is, can you trust us that we
26:43
Speaker 3: won't sort of change our minds six months into this
26:47
Speaker 3: if it's say, not working, or if political if the
26:50
Speaker 3: political winds shift again. I don't know why any country
26:53
Speaker 3: would want to do business with somebody who routinely tears
26:56
Speaker 3: up the agreements they made only four years ago. It's
26:59
Speaker 3: the uns certainty that this engenders, Mike, and the helter
27:03
Speaker 3: skelter nature of the strategy such as it is over
27:08
Speaker 3: the past six months, is just another manifestation of it.
27:11
Speaker 3: It's the uncertainty that this instills that's really potentially bad
27:15
Speaker 3: for economic growth in the long run.
27:18
Speaker 2: So I've been asked, you know, dozens of times by colleagues, friends, clients,
27:23
Speaker 2: you know, all this spring, like, what is the rest
27:26
Speaker 2: of this year kind of play out to look like?
27:28
Speaker 2: And my answer was kind of like, you know, by
27:31
Speaker 2: this summer and fall, are we continuing to talk about
27:35
Speaker 2: piecemeal trade strategy and tariffs or are we moved on
27:39
Speaker 2: to something else? Right? Are we moved on to earnings?
27:41
Speaker 2: Are we moving on to the you know, tax bill
27:45
Speaker 2: that needs to get passed? What is the focus of
27:47
Speaker 2: the American public? And the answer seems to me to
27:51
Speaker 2: be that, hey, we passed the tax bill, we got
27:53
Speaker 2: a good jobs report, and the President immediately shifted this
27:56
Speaker 2: focus back to trade, which is right, frankly, a core
27:59
Speaker 2: ten of the MAGA push. Right like that is a
28:03
Speaker 2: core tenant of the MAGA pushes increased tariffs in order
28:07
Speaker 2: to benefit the US labor market and push manufacturing, which
28:12
Speaker 2: I think has a lot of flaws to that argument
28:15
Speaker 2: in the first place, which I'm sure you're just jumping
28:17
Speaker 2: to get in on. But this seems to be the
28:20
Speaker 2: new push coming from the White House now that this
28:23
Speaker 2: stuff is in the rear view mirror, and I think
28:26
Speaker 2: that that very well could inject a fair bit of
28:28
Speaker 2: volatility into things.
28:29
Speaker 3: I think the real operating principle here is they need
28:31
Speaker 3: to be the center of attention, no offense. It's just
28:33
Speaker 3: this is reality TV translated into politics, dominate the news.
28:38
Speaker 3: It's a strategy. I'm not criticizing it. It's his strategy.
28:41
Speaker 3: So if you could do that via tariffs, he'll do
28:43
Speaker 3: it via tariffs. The economy is collateral damage. The central
28:46
Speaker 3: objective is to remain the center of attention, dominate people's minds,
28:51
Speaker 3: and right now tariffs are a vehicle for doing that.
28:54
Speaker 3: Tomorrow it might be the tax code.
28:56
Speaker 2: Again.
28:56
Speaker 3: I wouldn't doubt at all if this tax bill got
28:58
Speaker 3: ripped up in a year and we have something entirely new.
29:01
Speaker 3: It's whatever keeps the focus on him as an energetic,
29:05
Speaker 3: seemingly energetic policy maker. Everything else is just any damage
29:09
Speaker 3: is just sort of collateral economic damage.
29:12
Speaker 2: Regardless of you know, my own personal view on terraffs
29:15
Speaker 2: as a successful economic strategy, it does seem to me
29:20
Speaker 2: that very few countries other than China are going to
29:23
Speaker 2: have a lot of success in negotiating with the United States.
29:27
Speaker 2: I mean, I take a look at countries in the
29:28
Speaker 2: European Union. If they were really interested in mounting in
29:32
Speaker 2: opposition to the presidents in his terrort strategy, they would
29:36
Speaker 2: be working together rather than you know, calling out Spain
29:40
Speaker 2: and you know, approaching things one by one, right, if
29:44
Speaker 2: the EU really wanted to pull the leverage card in
29:47
Speaker 2: the same way China has, you would go and take
29:49
Speaker 2: a look at big American tech companies and basically tell
29:52
Speaker 2: them that they can't operate here if we're going to
29:53
Speaker 2: continue negotiating these terrafts. They haven't done that, and that,
29:56
Speaker 2: to me insinuates that we are going to get some
29:58
Speaker 2: deals signed here. China was the only one that I
30:01
Speaker 2: could really come up with to say, Okay, yeah, they've
30:03
Speaker 2: got this leverage over these critical materials that go into
30:08
Speaker 2: everything we make, and therefore you kind of have to
30:11
Speaker 2: play nice in the sandbox. But I don't know. I
30:14
Speaker 2: don't know what that is for Brazil. I don't know
30:16
Speaker 2: what it is for South Korea, for for for you know,
30:19
Speaker 2: much of the European Union. I don't know what that
30:22
Speaker 2: you know that what that ace in the hold is
30:24
Speaker 2: for India. And so therefore I think the easiest conclusion
30:29
Speaker 2: for me to come to is that, yeah, we do
30:31
Speaker 2: get some form of negotiated deals rather than some big
30:36
Speaker 2: escalation like we've seen with China, which again, is that
30:40
Speaker 2: good for the American consumer? Is that good for American employment?
30:43
Speaker 2: I don't think so. But I also am seeing a
30:47
Speaker 2: path here where maybe you have more certainty than we
30:49
Speaker 2: do now a couple months from now. If I'm wrong,
30:53
Speaker 2: and God knows, I've been wrong several times before, could
30:57
Speaker 2: we get back to where we were on April second
30:59
Speaker 2: of the Yeah, quite possibly. And I think we all
31:02
Speaker 2: remember how that was going.
31:03
Speaker 3: I mean, Mike, our threats aren't credible. They'd amount to
31:05
Speaker 3: economic suicide. So they're counting on us chickening out at
31:08
Speaker 3: the last minute, and so far they've been right to
31:10
Speaker 3: do so. These deadlines, for example, keep getting extended. I've
31:13
Speaker 3: lost count of how many lines in the sand we've
31:15
Speaker 3: drawn on trade.
31:17
Speaker 2: Let's take a quick break. When we come back, I
31:20
Speaker 2: want to head back to the job market and the
31:23
Speaker 2: job report that we got late last week. It was
31:27
Speaker 2: a big shift in the narrative. So we're gonna be
31:29
Speaker 2: talking jobs next on the Financial Exchange.
31:32
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31:36
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31:45
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31:52
Speaker 2: Mark with the long mark with the long holiday weekend
31:57
Speaker 2: we got last weeks last month jobs report on Thursday
32:01
Speaker 2: of last week. We both had the long weekend to
32:04
Speaker 2: digest this a little bit further. I'll hit the headlines again.
32:07
Speaker 2: The unemployment rate.
32:08
Speaker 3: Wait, we were supposed to be thinking about that.
32:11
Speaker 2: Yeah, you didn't spend your entire time thinking through. I
32:14
Speaker 2: know you did. Don't lie to me. The unemployment rate
32:19
Speaker 2: crept down actually to four point one percent. The number
32:24
Speaker 2: of jobs created came in at one hundred and forty
32:26
Speaker 2: seven thousand new jobs, and Jonathan Levine in Bloomberg Today
32:33
Speaker 2: has has us asking why this is all bad news?
32:39
Speaker 2: So and the crux of his argument is what that
32:42
Speaker 2: half the jobs were from state and local government, so
32:45
Speaker 2: it's actually not a big deal. What's the crux here?
32:51
Speaker 3: I'm not sure I read that particular comment, Mike, but
32:54
Speaker 3: I can tell you that some people have pointed out
32:57
Speaker 3: that wage growth was slow, so I'll skip I'll just
33:00
Speaker 3: skip around the report a little bit. Others have taken
33:03
Speaker 3: issue or have pointed out, as you said, that many
33:06
Speaker 3: of the jobs were state or government jobs, not federal
33:08
Speaker 3: but state local jobs. Payroll growth has slowed down. The
33:14
Speaker 3: average is a lot lower this year, to forty fifty
33:17
Speaker 3: thousand per month than it was, say, two years ago,
33:20
Speaker 3: so it's been slowing over the past couple of years.
33:23
Speaker 3: So there are chinks in the armor of the labor market.
33:28
Speaker 3: That said, unemployment remains very very low. Anything in the
33:32
Speaker 3: fours or even fives by historical standards is quite healthy.
33:36
Speaker 3: Wage growth has been reasonably strong over the past year,
33:39
Speaker 3: close to four percent. That could be a problem for
33:42
Speaker 3: inflation or not. That depends on other factors. We're not
33:45
Speaker 3: going to get into that right now. Vacancies which we
33:48
Speaker 3: talk about separate report, but vacancies are high relative to
33:50
Speaker 3: the number of unemployed people. They've come down a lot,
33:52
Speaker 3: but they're still quite high relative to their historical level.
33:55
Speaker 3: So by a lot of indicators, Michael, labor market is
33:57
Speaker 3: still going strong. That's said, it is a lot indicator,
34:00
Speaker 3: and it'll be the last, sure, it'll be the last
34:03
Speaker 3: to show any cracks in the economic facade.
34:07
Speaker 2: Yeah, I don't think that to get a good read
34:11
Speaker 2: on the labor market, I would want to turn towards earnings,
34:14
Speaker 2: for example, or somewhere else. I mean, this government data
34:16
Speaker 2: that we get on the state of the labor market
34:18
Speaker 2: is going to be the best indicator of where things
34:21
Speaker 2: are in the most recent month. And frankly, you know,
34:25
Speaker 2: I think journalists especially and maybe economists to some degree
34:28
Speaker 2: as well, they get an idea in their mind and
34:30
Speaker 2: they want to fit the fit the data, to fit
34:33
Speaker 2: the narrative in many cases, and I think we have
34:36
Speaker 2: a lot of that going on over the last few days,
34:38
Speaker 2: which is the narrative dominating headlines was that the labor
34:43
Speaker 2: market is slowing, the job growth, this slowing, unemployment is
34:46
Speaker 2: ticking up, and this report in many ways directly contradicted that. Yeah,
34:53
Speaker 2: a lot of the jobs were government jobs. Yeah, the
34:55
Speaker 2: unemployment rate ticked down more because people left the workforce
34:59
Speaker 2: rather than a whole bunch of jobs created. Those things
35:01
Speaker 2: are all true, But you would have a very tough
35:05
Speaker 2: time convincing me that this employment report is justifying a
35:11
Speaker 2: rate cut or indicative of a really loose condition for
35:15
Speaker 2: you know, for you for inflation. Right. I mean, this
35:18
Speaker 2: all indicates to me that the Fed's doing the exact
35:21
Speaker 2: right thing by holding rates where they are and speaking
35:23
Speaker 2: the way they are about tariffs and rates.
35:25
Speaker 3: We've become really used to the Fed acting preemptively to
35:28
Speaker 3: head off a recession, to forestall a downturn. Historically, it
35:32
Speaker 3: didn't do that. It waited because you don't know until
35:35
Speaker 3: after the fact that the economy has slowed. Nobody does.
35:38
Speaker 3: We are many of our impression of what the FED
35:43
Speaker 3: should do was formed in the crucible of two thousand
35:46
Speaker 3: and eight, two thousand and nine, when it was obvious
35:48
Speaker 3: everything was crashing, even if the data didn't show it yet,
35:50
Speaker 3: or perhaps two thousand and one, when the market had
35:53
Speaker 3: crashed and that had everybody freaking out because household wealth
35:59
Speaker 3: was composed like fifty percent of stocks at that point.
36:03
Speaker 3: So the FED acted a little bit preemptively before the
36:05
Speaker 3: recession actually arrived. So in the past generation or so,
36:08
Speaker 3: the FED has acted preemptively and they've been right for
36:11
Speaker 3: the most part. COVID is another Great is another example,
36:14
Speaker 3: another obvious one, but this is more of a routine
36:18
Speaker 3: business cycle. The FED has to now decide whether or
36:22
Speaker 3: not that the forces pushing up inflation are more worrisome
36:26
Speaker 3: than those pushing down employment.
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37:37
Speaker 2: On Thursday of this week, we'll have Delta Airlines kicking
37:40
Speaker 2: things off for earning earnings seasons amidst a general weakening
37:46
Speaker 2: of the airline and travel sector. We will next week
37:49
Speaker 2: have the kickoff of big bank earnings on Tuesday with
37:53
Speaker 2: Let's see I Believe it's JP, Morgan Chase going wells Fargo, Blackrocks,
37:57
Speaker 2: City Group, before big tech name start reporting towards the
38:01
Speaker 2: end of July. So amidst all the trade stuff, amidst
38:04
Speaker 2: all the tax changes, We'll also have earning season kicking
38:07
Speaker 2: off here this week, so stay tuned. Markets in negative territory,
38:11
Speaker 2: we'll have a full recap and more for you next