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How are markets absorbing the tariff suspension? · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul Lane.
1:11
Speaker 2: Good morning, Welcome back to the Financial Exchange. A bit
1:15
Speaker 2: of a whirlwind yesterday for anybody that was tuning in.
1:18
Speaker 2: At ten am when we took to the show, we
1:20
Speaker 2: were under the assumption that tariffs were going into place
1:22
Speaker 2: by I think ten thirty. We had some serious doubts,
1:25
Speaker 2: and then after four pm yesterday discovered that two of
1:28
Speaker 2: the three countries that were being targeted are facing a
1:32
Speaker 2: pause on any of those tariffs. But overnight we did
1:35
Speaker 2: have retaliations. It might not have been overnight, it was
1:38
Speaker 2: probably like seven thirty, and I was just completely toned
1:41
Speaker 2: out by then or tuned out by then, But overnight
1:44
Speaker 2: China did retaliate with additional tariffs. And so we're going
1:48
Speaker 2: to start by jumping in there. But before we get there,
1:52
Speaker 2: markets don't care, and they seemingly didn't care too much
1:54
Speaker 2: yesterday either, And we're going to spend a lot of
1:56
Speaker 2: time focusing on market reactions, overestimations, under usations of what
2:00
Speaker 2: might be happening here. Frankly, I have a tough time
2:04
Speaker 2: determining whether markets are correctly under or overestimating the effect
2:09
Speaker 2: of tariffs unless you are Donald J. Trump himself. But nonetheless,
2:14
Speaker 2: here we start. So let's start with the tariffs that
2:16
Speaker 2: were announced from the Trump administration, which was a ten
2:19
Speaker 2: percent additional tariff on Chinese imports. It goes and effects.
2:24
Speaker 2: There's no deminimus exemption here. So if you've heard of
2:27
Speaker 2: the platform's temuis Shin which advertised I think it was
2:31
Speaker 2: two Super bowls ago in the Super Bowl, and these
2:34
Speaker 2: are companies that compete directly with Amazon extremely low priced
2:39
Speaker 2: items directly shipped from China to the United States, and
2:44
Speaker 2: kind of targeting these platforms in a way here because previously,
2:48
Speaker 2: if you shipped fifteen thousand winter jackets to an Amazon
2:53
Speaker 2: warehouse from China, it would face an import tariff because
2:57
Speaker 2: it met the threshold. But if you, a direct consumer,
3:01
Speaker 2: bought that same jacket directly from a Chinese warehouse and
3:04
Speaker 2: headship to you, it didn't face an import tariff. Under
3:06
Speaker 2: these new rules, all of those would face an additional
3:09
Speaker 2: now ten percent in addition to the other tariffs that
3:11
Speaker 2: already existed. No idea, by the way, how Customs is
3:14
Speaker 2: going to manage that one. But the reaction so far,
3:19
Speaker 2: and then China retaliated now with fifteen percent tariffs on
3:23
Speaker 2: a few items that we will get into. But market
3:26
Speaker 2: reaction is pretty muted, and I think that actually makes
3:28
Speaker 2: sense because frankly, the effect of an additional ten percent
3:33
Speaker 2: tariff on China compared to what would have been the
3:37
Speaker 2: effect of twenty five percent tariffs on Mexico and Canada,
3:42
Speaker 2: it's not even comparable. It is not. I mean, I
3:45
Speaker 2: know we import a lot of stuff from China, but
3:47
Speaker 2: when you talk about the value added services and product
3:50
Speaker 2: manufacturing of vehicles and food stuffs, it is not even
3:55
Speaker 2: close to what the effect would have been from tariffs
3:57
Speaker 2: on Canada and Mexico. Here, but let's dig in a
4:00
Speaker 2: little bit further. What did China slap retaliatory tariffs on
4:04
Speaker 2: and any message that you take from them.
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Speaker 3: Yeah, so let's get into the numbers of it. Fifteen
4:09
Speaker 3: percent tariff on coal and liquefied natural gas. Now this
4:14
Speaker 3: is from US imports into China. Really, we need to
4:18
Speaker 3: make that distinction because your head spins with the amount
4:20
Speaker 3: of tariffs that are that are flying around the global
4:22
Speaker 3: economy at this point.
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Speaker 2: So first things first, on that when I think of
4:26
Speaker 2: new tariffs on coal and LNG, that China has a
4:30
Speaker 2: tendency of targeting goods in certain parts of the country.
4:35
Speaker 2: You're going after Louisiana, Texas, West Virginia, deep red states
4:38
Speaker 2: that produce coal, that export LNG, that rely on those
4:42
Speaker 2: industries a fair bit to support themselves. And I don't
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Speaker 2: find it surprising that China went after these products specifically,
4:49
Speaker 2: because again they are trying to maybe not target states
4:53
Speaker 2: like California as much as they are Texas, Louisiana and
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Speaker 2: other deep red states.
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Speaker 3: The scale of these tariffs, just to give everyone a
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Speaker 3: sense out there, five percent of liquid liquified natural gas
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Speaker 3: was exported to China from the US since November over
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Speaker 3: the last twelve months, and ten percent of coal was
5:12
Speaker 3: exported to China.
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Speaker 2: In the US. So that's significant.
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Speaker 3: It's not insignificant, but it's not a significant it's a
5:18
Speaker 3: smaller portion. And so this ties into what what do
5:22
Speaker 3: these terrorsts specifically mean and the impact of them. You
5:26
Speaker 3: can tell the Chinese reaction was showing some strength, but
5:29
Speaker 3: at the same point in time not going for us
5:32
Speaker 3: right in the jugular, you know, picking a much less
5:35
Speaker 3: of a kind of stray bullet shot than directly. It's
5:39
Speaker 3: something that's really significant there. And then there's also going
5:42
Speaker 3: to be some additional tariffs on crude oil, agricultural equipment,
5:46
Speaker 3: and some vehicle impact there too.
5:48
Speaker 2: Okay, they anti trust regular in China opened a probe
5:52
Speaker 2: into Google, which is going to be interesting given that
5:55
Speaker 2: Google hasn't existed in China for twenty ten and a half.
5:59
Speaker 2: That was last time Google had any business in China,
6:03
Speaker 2: although I think that they still operated in Hong Kong,
6:06
Speaker 2: so maybe there will be something that they can go
6:08
Speaker 2: after there, but that seems relatively unlikely to affect much
6:14
Speaker 2: of anything. They also added PVH, which is the parent
6:18
Speaker 2: company of Tommy Hill Figure and Calvin Klein, to a
6:20
Speaker 2: list of unreliable entities. I'm not sure what sort of
6:24
Speaker 2: spying Tommy Hill Figure is gonna be doing on you,
6:26
Speaker 2: but nonetheless they added those to basically ban items from
6:30
Speaker 2: investing or trading with China. So overall, not an unexpected
6:36
Speaker 2: result here, but differently from Canada and Mexico, there was
6:42
Speaker 2: no seeming negotiation, no last minute phone calls to xijingping
6:47
Speaker 2: here to see how this stuff can be avoided. And
6:50
Speaker 2: I'm not surprised because I don't think China has any
6:52
Speaker 2: has any interest in doing that type of thing as
6:55
Speaker 2: appearing to you know, for instance, put troops on the
7:00
Speaker 2: order or prevent items from coming into the United States,
7:04
Speaker 2: as Mexico and Canada did at the eleventh hour yesterday.
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Speaker 3: One last thing to note on the Chinese retaliatory tariffs,
7:11
Speaker 3: those are to go into effect on February tenth. That's
7:14
Speaker 3: where they're scheduled to be instituted. There is some in
7:19
Speaker 3: terms of what things that China could do to perhaps
7:23
Speaker 3: get Negotia come to the negotiating tatle Mike, like you mentioned,
7:26
Speaker 3: maybe they don't have any interest in coming to the
7:28
Speaker 3: negotiating title at all. Is really circles back to the
7:31
Speaker 3: twenty twenty Trade Agreement that was signed in to effect
7:35
Speaker 3: when Trump was first into office, where they came up
7:37
Speaker 3: short on really enforcing boosting agricultural purchases and some of
7:41
Speaker 3: the other items that were mentioned there, or perhaps anything
7:44
Speaker 3: within the drug trade on Federol. Any efforts that they
7:47
Speaker 3: could make there I guess would be welcome, you'd think.
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Speaker 2: To be clear, there's a few reasons this isn't being
7:52
Speaker 2: perceived as much of a big deal. One, the retaliation
7:55
Speaker 2: on behalf of China does not hit a significant number
7:58
Speaker 2: of goods in the United States. But two would be
8:01
Speaker 2: China's now developed over the course of the last eight
8:05
Speaker 2: years a pretty successful process of dodging these tariffs. They
8:10
Speaker 2: will ship items to Vietnam and make it seem like
8:12
Speaker 2: they are being imported from there instead of directly from China.
8:16
Speaker 2: They will find other ways to avoid these types of tariffs,
8:19
Speaker 2: and they've gotten, like I said, pretty successful at it.
8:22
Speaker 2: And the other piece would be not that Temu and
8:25
Speaker 2: Shen do a massive amount of business here in the
8:26
Speaker 2: United States, but there is a real question as to
8:29
Speaker 2: what the ability of the United States government looks like
8:33
Speaker 2: to actually enforce tariffs on say a fifty dollars item
8:37
Speaker 2: shipped directly from China. It's going to be challenging. That
8:39
Speaker 2: type of thing is not typically handled today at customs
8:44
Speaker 2: and borders, and so it does raise some just interesting
8:47
Speaker 2: questions as to how that will all be implemented. But
8:50
Speaker 2: compared to the effect of tariffs on Canada on Mexico,
8:53
Speaker 2: which are not done away with yet, they are suspended
8:57
Speaker 2: for a period of time presumably thirty days, maybe just
9:00
Speaker 2: fromout the February. I'm not entirely sure what the suspension
9:03
Speaker 2: actually looks like, But compared to the effect of those tariffs,
9:07
Speaker 2: it is far between, so let's take a quick break here.
9:11
Speaker 2: When we come back, I want to talk more of
9:14
Speaker 2: those tariffs on Mexico and Canada. Like I said, they
9:16
Speaker 2: are not done away, but shook markets. Briefly, I want
9:21
Speaker 2: to talk about how much it shook markets and what
9:23
Speaker 2: investors are going to be looking at over the course
9:26
Speaker 2: of the next month when it comes to trade with
9:28
Speaker 2: our two closest neighbors. Quick break, we'll be right back
9:30
Speaker 2: on the Financial Exchange.
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10:31
Speaker 2: Piece from the Wall Street Journal this morning. Trump pauses
10:33
Speaker 2: tariffs on Mexico Canada for a month, but his threats
10:36
Speaker 2: spooked almost everyone. So let's jump in right there, because
10:39
Speaker 2: yesterday morning, when tariffs were presumed to be going into place,
10:44
Speaker 2: equity markets, the S and P five hundred at its worst,
10:47
Speaker 2: I think, was down close close to two percent, but
10:50
Speaker 2: not quite there. And the question is what sort of
10:55
Speaker 2: reactions were we getting from the general public, from investors,
10:57
Speaker 2: and was it truly spooky almost everyone? I think a
11:01
Speaker 2: few things are true. One, tariffs on Canada at this
11:06
Speaker 2: stage of where they are economically would likely slip them
11:12
Speaker 2: into recession. And so I think in that case, and
11:16
Speaker 2: maybe it's just you know, my closeness with a few
11:19
Speaker 2: Canadian relatives and friends, I think there was some piece
11:24
Speaker 2: of this that was frustration driven, somewhat scared and concerned
11:29
Speaker 2: and generally unhappy about where the tariffs were going. Again,
11:34
Speaker 2: probably just because I don't have as much contact with
11:36
Speaker 2: people in Mexico that I didn't get it on that
11:38
Speaker 2: side of things as well, But I think there was
11:40
Speaker 2: some concern there, some frustration there. You heard the American
11:44
Speaker 2: national anthem booed at a hockey game up there. I'm
11:48
Speaker 2: sure everyone has heard the stories of liquor stores in
11:52
Speaker 2: Ontario and Ottawa preparing to pull American whiskey and wine
11:57
Speaker 2: off of shelves there in reaction to some of this,
12:00
Speaker 2: not because the government was telling them to, but merely
12:02
Speaker 2: because it was a backlash against all of this stuff.
12:07
Speaker 2: At noontime, there was a lot of conjecture like, all right, well,
12:10
Speaker 2: they waved them on Mexico, but that's because Mexico agreed
12:14
Speaker 2: to put ten thousand troops on the border. Like, what's
12:17
Speaker 2: Canada going to do? Are they gonna send the Mounties
12:20
Speaker 2: to stand on the border here and prevent the like
12:23
Speaker 2: two pounds of fence and all that entered the country.
12:26
Speaker 2: What's really going to happen there? But apparently enough did
12:30
Speaker 2: happen in that call between Trump and Trudeau to put
12:33
Speaker 2: this suspension in place here and waive those tariffs for
12:36
Speaker 2: a period of time. So I don't want to minimize
12:40
Speaker 2: the reaction there. Clearly there was anger there was frustration,
12:43
Speaker 2: and there was some fear on the parts of I'm
12:46
Speaker 2: sure many company CEOs and places that were trying to
12:49
Speaker 2: digest all of this. I'll make the argument that investors
12:53
Speaker 2: were not scared. A one point seven percent sell off
12:58
Speaker 2: on the S and P five hundred is a Monday
13:01
Speaker 2: like that does not scare in me. That is not
13:05
Speaker 2: frighteninged to me. In fact, when I actually thought that
13:08
Speaker 2: this stuff was going into place yesterday morning, I said,
13:11
Speaker 2: do people know something that I don't here, because this
13:14
Speaker 2: seems like an underreaction by investors in terms of the
13:17
Speaker 2: risk there. Turns out they were right because these tariffs
13:21
Speaker 2: all got waived or suspended for an extended period of time,
13:24
Speaker 2: and they were justified in those bets. But I would
13:27
Speaker 2: make the argument in the case that if we actually
13:31
Speaker 2: were to impose twenty five percent tariffs on all goods
13:35
Speaker 2: coming into the United States in the way that these
13:38
Speaker 2: tariffs were drafted by the White House, and then Mexico
13:41
Speaker 2: and Canada were to retaliate in any way, shape or form,
13:43
Speaker 2: not only does it probably put Canada's economy into recession,
13:47
Speaker 2: maybe Mexico's as well, but poses a significant threat to
13:50
Speaker 2: putting the United States economy into recession in very short order.
13:55
Speaker 2: It wouldn't have taken that long in my view, and
13:57
Speaker 2: so it might have been an underreaction in fact for
14:00
Speaker 2: equity markets yesterday, although it turns out it was appropriate
14:03
Speaker 2: because they didn't go into place, it was appropriate reaction.
14:06
Speaker 3: Potentially, it definitely was an underreaction to the scale of it.
14:09
Speaker 3: I mean, if you look back. One of the ways
14:11
Speaker 3: to get a sense for how the market is perceiving
14:14
Speaker 3: things is of course the price action, which we talked about,
14:17
Speaker 3: but also there is the VIX index, which is the
14:19
Speaker 3: volatility index which basically gauge It is a proxy to
14:23
Speaker 3: try engage investor fear. And if you look back at
14:26
Speaker 3: the VIX index over the course of the last twelve months,
14:28
Speaker 3: in other instances, back in August, which I believe just
14:32
Speaker 3: off the top of my head, this is all tied
14:34
Speaker 3: to Federal reserve and interest rate chatter.
14:36
Speaker 2: August.
14:37
Speaker 3: In December you saw much more significant spikes in volatility,
14:40
Speaker 3: and across the fall you did as well, but nothing
14:44
Speaker 3: that would even come close to the volatiley we saw yesterday.
14:47
Speaker 3: It was measured. The volatility that we saw yesterday was elevated,
14:50
Speaker 3: but nowhere near some of the dramatic spikes that we
14:52
Speaker 3: saw from the summer and early fall here. So today
14:56
Speaker 3: we're seeing that same measure sell off quite a bit
14:59
Speaker 3: and the fatility reduced even further. So it does seem
15:02
Speaker 3: to enforce this idea that the US markets are believe
15:05
Speaker 3: it when we see it in terms of the impact.
15:08
Speaker 2: So good news bad news here. I mean from just
15:12
Speaker 2: an investor.
15:14
Speaker 5: And.
15:15
Speaker 2: I guess free trade. I've never described myself as a
15:18
Speaker 2: free trade enthusiast, so I don't think I'm gonna start now.
15:20
Speaker 2: But somebody who genuinely believes that there wasn't much necessity
15:24
Speaker 2: for tariffs on our two closest neighbors, I've made that
15:26
Speaker 2: perspective clear. I don't think that they were really justified
15:30
Speaker 2: or really had a clear message as to what we
15:32
Speaker 2: were trying to improve in those relationships. I'm happy that
15:36
Speaker 2: the tariffs have not yet gone into place. What has
15:40
Speaker 2: me generally concerned is that my read at least is
15:46
Speaker 2: equity market investors. We'll see what they do in the future.
15:50
Speaker 2: But yesterday didn't believe the president. They thought he was
15:54
Speaker 2: full of it. They thought he was going to come
15:56
Speaker 2: to this conclusion at some point in the near future,
15:59
Speaker 2: and that these tariffs were fundamentally not a real threat.
16:02
Speaker 2: I find that really interesting because now that he's gone
16:06
Speaker 2: and done this, you know, a month goes by and
16:09
Speaker 2: nothing happens. I don't think investors are going to be
16:12
Speaker 2: any more convinced that these tariffs are likely than they
16:16
Speaker 2: were yesterday. And like I said, I think investors were
16:19
Speaker 2: generally significantly underpricing the risk of tariffs actually going into
16:23
Speaker 2: place here. So good news, bad news. Maybe they're right,
16:26
Speaker 2: maybe tariffs are never going to go into place on
16:28
Speaker 2: our Canadian Mexican neighbors. Bad news would be I don't
16:34
Speaker 2: think anyone actually knows that other than Donald Trump and
16:37
Speaker 2: maybe three to ten people around him. And so what
16:41
Speaker 2: you may end up getting here is investors that are saying,
16:44
Speaker 2: you know, boy, you cried wolf, We're not going to
16:46
Speaker 2: buy it, and we're not going to see these tariffs
16:48
Speaker 2: ever go into place. So A, is it actually an
16:51
Speaker 2: effective bargaining chip with Mexico and Canada? And B if
16:56
Speaker 2: it if it ends up needing to go into place
16:58
Speaker 2: because we do have, you know, stuff that we need
17:01
Speaker 2: to renegotiate with those two countries, do markets take a
17:03
Speaker 2: much more significant hit because they don't believe it at
17:06
Speaker 2: this stage very possible.
17:08
Speaker 3: It seems like the markets are interpreting it as a
17:11
Speaker 3: negotiation tactic, and it continues to be paired with these
17:14
Speaker 3: immigration and drug trade issues. And so that's why from
17:18
Speaker 3: an economic perspective, where you and I sit and what
17:20
Speaker 3: we talk about on a daily basis, it's harder, I feel,
17:23
Speaker 3: for the investment community to really get behind the possibility
17:26
Speaker 3: of this being realistic because it seems like it's a
17:28
Speaker 3: bargaining chip that's usually tied to political which again, items.
17:32
Speaker 2: Only works as a bargaining chip if you're actually willing
17:35
Speaker 2: to follow through on it. And that's that's the big
17:38
Speaker 2: question in my mind now if the.
17:39
Speaker 3: Other country doesn't plays chicken sure longer than respected.
17:43
Speaker 2: Yeah. So again, I'm I've made my perspective clear on
17:48
Speaker 2: where I think tariffs are justified, but I'm open to
17:51
Speaker 2: the idea that the Trump administration has a different viewpoint
17:53
Speaker 2: than me, and that's fine, And I do generally think
17:56
Speaker 2: that there's more that we are looking through looking for
18:00
Speaker 2: from the Mexican government in terms of those risks of
18:03
Speaker 2: the drug trade and those risks of border crossings. Then
18:06
Speaker 2: with the Canadian government, they've taken some initial steps here
18:10
Speaker 2: now to address some of that. But will the threat
18:14
Speaker 2: of tariffs be taken seriously next time around? Forget about
18:18
Speaker 2: by investors. I don't I care about investors, but I
18:21
Speaker 2: don't really care how investors react on a day to
18:23
Speaker 2: day basis. Will the leadership in Mexico take this threat
18:27
Speaker 2: seriously next time around? I think it is a really
18:30
Speaker 2: really serious question that I have no idea how to
18:33
Speaker 2: interpret now. They did yesterday. They were desperate to sit
18:35
Speaker 2: down with the president, have a phone call, pledge ten
18:39
Speaker 2: thousand troops along the border, Like those are serious steps
18:41
Speaker 2: that are being taken. I'm not trying to discount any
18:43
Speaker 2: of that, and maybe that's exactly what the President was
18:46
Speaker 2: looking for, But you can only play that card so
18:50
Speaker 2: many times before everyone says, boy, who cried wolf? I'm
18:53
Speaker 2: not there?
18:53
Speaker 3: Yeah, yeah, perfect expression.
18:55
Speaker 2: To use there. So that's that's where we are here.
18:58
Speaker 2: In terms of the impact, you saw a lot of
19:01
Speaker 2: it out of automakers yesterday. Global automakers, even you know,
19:05
Speaker 2: non US automakers were taking a big hit yesterday. Tech
19:08
Speaker 2: shares were taking it on the channel a little bit
19:10
Speaker 2: more than say, your traditional Dow companies, but overall It
19:14
Speaker 2: was a big sell off early, but not as big
19:17
Speaker 2: as personally I would have anticipated. Were these tariff threats
19:21
Speaker 2: very serious? Let's take a quick break when we come back,
19:23
Speaker 2: a little bit of Wall Street Watch.
19:24
Speaker 5: Next.
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20:00
Speaker 4: After yesterday's bumpy ride, Marcus today are back in positive
20:03
Speaker 4: territory as Wall Street battles ongoing developments on the terror front. Yesterday,
20:08
Speaker 4: tariffs on Mexico and Canada were delayed another month, while
20:12
Speaker 4: China retaliated with terrafts of their own. Overnight traders are
20:16
Speaker 4: also sifting through a new batch of earnings. At the moment,
20:20
Speaker 4: the Dow is up by only twenty three points. S
20:22
Speaker 4: and P five hundred is up over half a percent,
20:25
Speaker 4: or thirty two points. In the NAZAC up over one
20:28
Speaker 4: percent higher, or two hundred and twenty four points. Russell
20:31
Speaker 4: two thousand is up nearly one percent as well. Tenure
20:34
Speaker 4: Treasure reiled up by one basis point, now at four
20:36
Speaker 4: point five five percent, and crude oil edging higher, trading
20:40
Speaker 4: just above seventy three dollars a barrel. Pfizer posted better
20:44
Speaker 4: than expected fourth quarter results this morning, as sales of
20:47
Speaker 4: the drugmaker's COVID products beat expectations, while its broad cost
20:52
Speaker 4: cutting efforts took hold that stock down by two percent.
20:56
Speaker 4: Shares in Merk down by eleven percent after the pharmacy
21:00
Speaker 4: giant issued full year guidance that disappointed and also said
21:03
Speaker 4: sales of its HPV vaccine slid in the previous quarter. Meanwhile,
21:09
Speaker 4: food and beverage maker Pepsi posted a lower than expected
21:12
Speaker 4: adjusted earnings as well as a small drop in revenue,
21:15
Speaker 4: where demand fell for the fifth straight quarter. In North
21:19
Speaker 4: America that stocked down by three percent. Elsewhere, music and
21:23
Speaker 4: podcast streaming giant Spotify reported its first full year of profitability,
21:28
Speaker 4: driven by record user growth that stock jumping by ten percent.
21:32
Speaker 1: Today.
21:33
Speaker 2: St.
21:34
Speaker 4: Lauder reported in earnings and revenue b but offered a
21:37
Speaker 4: disappointing outlook. The cosmetics giant also said it would cut
21:40
Speaker 4: up to seven thousand jobs. That stock down by nineteen percent,
21:45
Speaker 4: PayPal down by nine percent, despite the digital payments company
21:49
Speaker 4: beating earnings and revenue forecast for the fourth quarter. The
21:51
Speaker 4: company also announced a new fifteen billion dollar share buyback program.
21:56
Speaker 4: And after today's closing bill, we'll see more big big
21:59
Speaker 4: tech earn, this time from Alphabet. I'm Tucker sil and
22:03
Speaker 4: that's Wallstree Watch.
22:05
Speaker 2: So this morning at ten am, we received one of
22:08
Speaker 2: the jobs reports that will be getting this week. We
22:10
Speaker 2: get the main jobs report that gives you the unemployment
22:13
Speaker 2: rate and other metrics. On Friday, at ten am, we
22:16
Speaker 2: saw the Job Openings Labor Turnover Survey, the Joltz Report,
22:20
Speaker 2: which as a reminder, gives you an estimate of how
22:22
Speaker 2: many companies are advertising for workers, how many people quit
22:25
Speaker 2: their jobs, how many people were fired, et cetera. It's
22:28
Speaker 2: also where we drive that ratio that, if you recall,
22:31
Speaker 2: got to an all time high back twenty twenty two,
22:35
Speaker 2: twenty twenty three, when there were two, let's say, two
22:40
Speaker 2: jobs open for every single person looking for work. That
22:43
Speaker 2: ratio has since self corrected. But in terms of what
22:46
Speaker 2: we saw, there was an expectation for eight million job
22:49
Speaker 2: openings on the last business day of December. Instead what
22:52
Speaker 2: we got was seven point six million, so a four
22:54
Speaker 2: hundred thousand job miss, which is significant, you know, I'm
22:57
Speaker 2: not gonna call that a tiny miss, but it wasn't
23:01
Speaker 2: a huge you know, it's not forty percent, but it
23:04
Speaker 2: is still a miss Compared to estimates. Hires and total
23:07
Speaker 2: separations were a little change. Those stayed around five point
23:10
Speaker 2: five million five point three million, respectively. And then one
23:13
Speaker 2: other stat from here that I just keep an eye
23:15
Speaker 2: on is the separation's rate. So the separation's rate came
23:18
Speaker 2: in at three point three percent. And what that tells you, sorry,
23:22
Speaker 2: the number of total separations being at five point three million,
23:26
Speaker 2: and those total separations are look, whether you're fired, whether
23:29
Speaker 2: you quit, how many people as a portion of the
23:31
Speaker 2: total workforce are leaving those jobs? And this has been
23:35
Speaker 2: relatively muted now for several months, since August of last year,
23:40
Speaker 2: this has been sitting at three point three percent. And
23:42
Speaker 2: so we now close out the last four months, sorry,
23:47
Speaker 2: five months of the year at a rate of three
23:49
Speaker 2: point three percent. To give you a sense for you know,
23:52
Speaker 2: where that puts you for context, in the late twenty tens,
23:56
Speaker 2: we were seeing separation rates in the high threes. We
23:59
Speaker 2: had not been down at that three point three percent
24:02
Speaker 2: rate since around twenty fourteen, So very different labor market
24:06
Speaker 2: obviously in twenty fourteen compared to today. And so when
24:09
Speaker 2: somebody describes this labor market as stagnating, not moving, this
24:13
Speaker 2: seems to be what they are describing is not many
24:16
Speaker 2: people are quitting their jobs, They're not seeing opportunities elsewhere.
24:19
Speaker 2: Companies aren't laying off people, they're not hiring that much,
24:22
Speaker 2: and we seem to just be at this balance point
24:25
Speaker 2: with the labor market. I have to tell you, I'm
24:28
Speaker 2: not overly concerned about the labor market. I am concerned
24:32
Speaker 2: about some select individuals in certain areas who might lose jobs.
24:36
Speaker 2: I'm a little bit concerned about graduating seniors from high
24:38
Speaker 2: school and college who are looking for work right now,
24:41
Speaker 2: more of those graduating from college than those graduating from
24:43
Speaker 2: high school, because I think high school type jobs without
24:48
Speaker 2: a college degree are still readily available. If you're working
24:51
Speaker 2: in you know, food services or other areas or trades
24:54
Speaker 2: are still pretty readily available. But when we're talking about
24:59
Speaker 2: the labor market of the last few years, you have
25:02
Speaker 2: to acknowledge that migration was playing a pretty big role
25:05
Speaker 2: in terms of filling some of those jobs. Right Like
25:08
Speaker 2: the reason that the labor market did not contribute more
25:12
Speaker 2: to inflation than it did was because we had some
25:14
Speaker 2: pretty record breaking migration to the United States over the
25:19
Speaker 2: last few years. According to the Census, there was a
25:23
Speaker 2: net increase of two point eight million people in twenty
25:26
Speaker 2: twenty three, and that accounted for eighty four percent of
25:29
Speaker 2: the nation's three point three million increase in population in
25:32
Speaker 2: both twenty twenty three and twenty twenty four. This is
25:36
Speaker 2: a pretty significant trend of immigration. And guess what, I
25:38
Speaker 2: don't think that's likely to happen over the next.
25:40
Speaker 3: Four right, so certainly.
25:42
Speaker 2: So you know, I know we've talked about the trades
25:45
Speaker 2: and for instance, housing construction, where a significant portion of
25:48
Speaker 2: that is done by both legal and illegal immigrants that
25:52
Speaker 2: are working in that sector. But it's just tough for
25:56
Speaker 2: me to envision how you even if you have demand
25:59
Speaker 2: for labor cooling off more and you have a slow
26:02
Speaker 2: down in the economy, the let's see, the denominator of
26:07
Speaker 2: that equation is just going to continue to be in
26:11
Speaker 2: flux when you talk about the amount of net migration
26:14
Speaker 2: that's going to slow down in this country of the
26:16
Speaker 2: next few years. So I tend to think that we
26:17
Speaker 2: are not going to have a problem with the unemployment rate,
26:20
Speaker 2: whether there's enough, you know, economic activity to keep growing
26:24
Speaker 2: the overall employment sector by hundreds of thousands of jobs
26:29
Speaker 2: a quarter million jobs every month. That's another question, But
26:32
Speaker 2: that unemployment rate is not something that I'm terribly worried
26:35
Speaker 2: about increases.
26:36
Speaker 3: No, I don't really have too many concerns on the
26:38
Speaker 3: downside at this point in time. You know, if we
26:40
Speaker 3: had this conversation though, Mike, probably in the summer, there
26:43
Speaker 3: may be a different view where we were a little
26:46
Speaker 3: bit concerned with the labor market. We had bought them
26:48
Speaker 3: at three and a half percent on the unemployment front,
26:50
Speaker 3: we now sit at around four point one percent. That
26:53
Speaker 3: number is something that we've scrutinized a lot on the show,
26:55
Speaker 3: trying to focus on it. But from all the data
26:58
Speaker 3: that we continue to gather, it does seem like there
27:01
Speaker 3: is this real stasis on the labor market where you're
27:03
Speaker 3: continuing to see the amount of hires is not significantly
27:08
Speaker 3: record breaking. It's nowhere near some of the years that
27:10
Speaker 3: we've seen in twenty three and twenty two. But there
27:13
Speaker 3: isn't this huge uptick in people losing their jobs. It's
27:16
Speaker 3: just a little more challenging to find one, and people
27:18
Speaker 3: are a little bit more content to stay where they
27:21
Speaker 3: are and not rock the boat to look for a
27:24
Speaker 3: pay bump to go elsewhere. So it continues to be
27:27
Speaker 3: an item that should demand a lot of focus. I
27:29
Speaker 3: know we've kind of taken our eye off the ball
27:32
Speaker 3: because tariffs have taken over the whole show and our
27:35
Speaker 3: economy on a daily basis. But the labor market, I
27:37
Speaker 3: would have said to you heading into twenty twenty five
27:40
Speaker 3: was my biggest focus from an economic perspective. That and inflation,
27:44
Speaker 3: but those have taken a back seat for the time being.
27:46
Speaker 2: The Federal Reserve John Powell has said that they're really
27:49
Speaker 2: viewing this economy right now is maybe not an equilibrium,
27:52
Speaker 2: but not necessitating further rate cuts. Where do you think
27:55
Speaker 2: unemployment needs to get to for them to reprioritize that,
27:59
Speaker 2: because right now they're probably already seems to be key
28:01
Speaker 2: rates where they are no concerns about the labor market.
28:04
Speaker 2: Want to see how tariffs play out in their effect
28:06
Speaker 2: on inflation before we do anything.
28:10
Speaker 3: How we have to say four and a half percent
28:11
Speaker 3: would probably got to get to four and a half
28:13
Speaker 3: That would be my rough estimate.
28:15
Speaker 2: That was Chuck's answer too, because that's probably when you
28:18
Speaker 2: start triggering that Psalm rule again. You can get to
28:22
Speaker 2: four to three now without really any concerns about that
28:25
Speaker 2: Psalm rule indicator that has been a historical, previously a
28:29
Speaker 2: pretty good indicator of recession. My only caveat in the
28:33
Speaker 2: back of my mind is that this Federal Reserve in
28:36
Speaker 2: particular has had a high propensity to push lower rate
28:40
Speaker 2: lower rates. They've really had a bias towards rates lower,
28:43
Speaker 2: and so I think you might get some action at
28:45
Speaker 2: like four three to four four, but I'm not really
28:47
Speaker 2: worried about a recession at that point. Let's take a
28:50
Speaker 2: quick break when we come back a little bit more
28:54
Speaker 2: about the tariffs before we move on. Will we now
28:57
Speaker 2: turn to EU and is there anything that individual investors
29:00
Speaker 2: in particular need to be preparing for. That's the piece
29:03
Speaker 2: from CNBC today. We'll be right back with that next.
29:06
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30:15
Speaker 2: Well, I've got a candidate for today's bull owny article
30:20
Speaker 2: of the Day CNBC. As markets absorbed tariff news. It's
30:24
Speaker 2: a wake up call for individual investors. Experts say no, no,
30:28
Speaker 2: it is not. Tell me one lesson that individual investors
30:31
Speaker 2: need to take from yesterday's price movement on the stock
30:34
Speaker 2: market or announcements on tariffs. I don't know what that is.
30:37
Speaker 2: I haven't it's the Yeah, it's the usual lesson is
30:40
Speaker 2: that stay the course. The stuff that we we say
30:43
Speaker 2: all the time is that you know, you stay the course.
30:46
Speaker 2: To further the article, it's a wake up call for
30:48
Speaker 2: individual investors to revisit their portfolios and household budgets. Experts
30:52
Speaker 2: say what should they do about their portfolios? Should I
30:55
Speaker 2: never own a company that does that is involved in
30:58
Speaker 2: trade with Canada or Mexico? Now I only involve companies
31:01
Speaker 2: that are involved in trade with Canada and Mexico. Now,
31:05
Speaker 2: Should I be more heavy in tech stocks since they
31:08
Speaker 2: don't import a whole lot of stuff from those countries?
31:10
Speaker 2: Should I be less heavy in tech stocks because those
31:12
Speaker 2: took a big hit yesterday when the NASDAC went down?
31:14
Speaker 2: What about the news from it? This is yesterday was
31:18
Speaker 2: not a lesson for anybody. I'm sorry. There's nothing that
31:21
Speaker 2: you can really glean from yesterday and the market moves.
31:25
Speaker 2: The only lesson that I can think of is, yeah,
31:27
Speaker 2: the one that you gave Paul, which is, you know,
31:30
Speaker 2: oftentimes the best thing to do is to stay the course.
31:33
Speaker 2: The other lesson would just be if yesterday completely freaked
31:37
Speaker 2: you out and you changed your entire portfolio, then you
31:40
Speaker 2: had the wrong portfolio to begin with, right, And so
31:43
Speaker 2: those are lessons, But like we bring up that lesson
31:45
Speaker 2: every single week of hey, know what you own and
31:49
Speaker 2: understand what you're investing in before you go and place
31:52
Speaker 2: money in it, Like that's step one. And if yesterday
31:56
Speaker 2: made you lose your mind and completely change everything you own,
32:00
Speaker 2: and then you didn't own the right stuff to begin
32:01
Speaker 2: with because nothing changed yesterday. We thought everything was going
32:04
Speaker 2: to change, but nothing actually did. I think I get
32:09
Speaker 2: asked this question all the time, every time somebody wants
32:13
Speaker 2: to interview us about the subject of tariffs or anything else.
32:16
Speaker 2: The question is always going back to, so what do
32:18
Speaker 2: I do if I am that individual in my four
32:20
Speaker 2: oh one k how do I digest this news? And
32:23
Speaker 2: the answer is always the same. Understand how you're invested.
32:29
Speaker 2: Understand that sell offs much more significant than the ones
32:34
Speaker 2: that we faced yesterday happen all the time. And understand
32:37
Speaker 2: too that this president's style is one of deal making
32:42
Speaker 2: and flooding the news cycle with as much information as possible,
32:46
Speaker 2: and we're more used to that today than we were
32:48
Speaker 2: eight years ago. But it is eight years ago. Four yeah,
32:52
Speaker 2: eight years ago. But it is going to be a
32:56
Speaker 2: feature of markets and the news cycle, not a bug
33:00
Speaker 2: of them. I think that's the really only lesson you
33:03
Speaker 2: can take from yesterday, which is again as a reminder,
33:07
Speaker 2: if you have money that you're going to need to
33:09
Speaker 2: spend in six months, it probably, I won't say definitively,
33:13
Speaker 2: but probably in most people's view, has no business being
33:16
Speaker 2: anywhere near the stock market and should be invested in
33:20
Speaker 2: something more relatively conservative. Likewise, if you have stuff that
33:24
Speaker 2: you're not going to use for twenty years, then who
33:26
Speaker 2: cares about the activity in markets yesterday? I get that
33:30
Speaker 2: this stuff concerns people. I get that, you know, people
33:32
Speaker 2: are excited about the threat of tariffs, they're concerned about
33:35
Speaker 2: the threat of tariffs, they're excited about policies coming from
33:38
Speaker 2: the Trump administration, or perhaps really scared about them. But
33:42
Speaker 2: the answer is almost always that emotional investing is bad investing.
33:47
Speaker 2: But it is really important to get a fundamental understanding
33:51
Speaker 2: of how you are invested, what you're allocated to, and
33:53
Speaker 2: what that might mean In the event of tariff changes,
33:57
Speaker 2: for example, Am I subject to that more than the
34:00
Speaker 2: average investor? If you can't answer those types of questions,
34:03
Speaker 2: then those are good reasons to take a second look.
34:05
Speaker 2: It's just that that was always the case. It wasn't
34:08
Speaker 2: about yesterday. In particular, what I would tell you is,
34:11
Speaker 2: if any of this is ringing true to you, hey,
34:14
Speaker 2: I don't really fundamentally understand how I'm invested. I just
34:17
Speaker 2: kind of chose the default or trusted somebody. That could
34:21
Speaker 2: be a good thing, but it could be it might
34:23
Speaker 2: not be the appropriate thing, especially if that process didn't
34:27
Speaker 2: involve a deep analysis of how you intend to use
34:29
Speaker 2: the money. I really hesitate when I see people saying, well,
34:33
Speaker 2: I took a seven question risk survey and that's how
34:36
Speaker 2: I invested my money. Well, that doesn't really have anything
34:38
Speaker 2: to do with you. In particular, if you're facing those
34:40
Speaker 2: types of questions, want to make sure you are appropriately
34:43
Speaker 2: allocated and set up for whatever is next in your
34:46
Speaker 2: life with your investment portfolio. Give the folks at Armstrong
34:49
Speaker 2: Advisory Group a call. We offer free consultations on this
34:52
Speaker 2: exact in on this exact subject that are personalized to
34:56
Speaker 2: your personal financial situation. You can call us at eight
35:00
Speaker 2: hundred three nine three for zero zero one. We have
35:03
Speaker 2: offices all throughout in New England, and you can reach
35:06
Speaker 2: us again at eight hundred three nine three for zero
35:09
Speaker 2: zero one.
35:11
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
35:13
Speaker 1: registered investment advisor. Nothing in the ad or in any
35:16
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
35:19
Speaker 1: your own financial, tax and estate planning advisors before making
35:21
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
35:25
Speaker 1: advisory services.
35:26
Speaker 2: Wall Street journalize a piece today, a US EU trade
35:28
Speaker 2: war would threaten the world's richest economic relationship. Yes, it would. Next,
35:33
Speaker 2: and then to add to that, I was ready to
35:36
Speaker 2: kill a little deeper. What do you have.
35:39
Speaker 3: It's a very sizable economic relationship between the two countries
35:44
Speaker 3: are between the EU and the US, so if there
35:46
Speaker 3: were to be any tourtive tariff impact there, it would
35:49
Speaker 3: be significant. But I think you said that too. We
35:51
Speaker 3: don't need to get into the nitty gritty. Sometimes to
35:53
Speaker 3: these stories you have to almost hold yourself back from
35:56
Speaker 3: going into the details until it presents itself as something
35:59
Speaker 3: that's right.
36:00
Speaker 2: Even once it does right, even once it does I
36:02
Speaker 2: think the lesson from yesterday is I'll believe it when
36:04
Speaker 2: I see it and nice actually feel the impact as
36:07
Speaker 2: a consumer. Yesterday we were had an announcement from the
36:10
Speaker 2: White House of the details of how these tariffs were
36:13
Speaker 2: going to work, and anybody that places that made a
36:16
Speaker 2: bunch of maneuvers based on that is set, you know,
36:20
Speaker 2: holding the bag. So yeah, I think the lesson is Okay,
36:22
Speaker 2: I'll believe it when I see it. Millennials are reimagining
36:26
Speaker 2: a retirement. This is a bit interesting to me, and
36:29
Speaker 2: I do. I am hearing this a lot more frequently,
36:32
Speaker 2: saying that millennials in particular, but I think younger generations
36:37
Speaker 2: generally saying that they really want to live in the moment,
36:40
Speaker 2: are less focused on the fully funded retirement, want to
36:44
Speaker 2: have a more adventurous lifestyle and retirement, and are willing
36:47
Speaker 2: to work longer in order to accomplish that. I'm not
36:52
Speaker 2: sure that I buy it. I hear people saying that.
36:56
Speaker 2: I do hear more people saying I'm living in the
36:58
Speaker 2: moment and I am willing to spend that money because
37:00
Speaker 2: if not now, then when. But when it comes to oh, yeah,
37:05
Speaker 2: I know how I'm going to feel when I'm seventy
37:08
Speaker 2: year years old and know what sort of lifestyle I'm
37:11
Speaker 2: going to have at that point in time. I bet
37:13
Speaker 2: there's a bunch of seventy year olds listening right now
37:15
Speaker 2: who are saying, yeah, that's what I thought when I
37:17
Speaker 2: was thirty two as well. So I just kind of
37:20
Speaker 2: call some bs on that one, Like I just I
37:23
Speaker 2: don't think I have any idea what I'm actually going
37:27
Speaker 2: to want out of life when I am thirty years
37:31
Speaker 2: older than I am right now, and I think it's
37:33
Speaker 2: it's a little bit too your probably even guess.
37:36
Speaker 3: As you get older, your priority shifting. It's hard to
37:38
Speaker 3: know ahead of time what those priorities are going to
37:41
Speaker 3: be at that point in time. You know, when you
37:43
Speaker 3: were fifteen, what you were going to be doing at
37:45
Speaker 3: thirty five? Your estimates could you know?
37:48
Speaker 2: They vary significantly, Like yeah, living in a small home
37:51
Speaker 2: and you know, saving the money and traveling the world
37:54
Speaker 2: sounds great to me now. But when I've got like
37:56
Speaker 2: three doctor's appointments every week and I've got grand kids nearby,
38:01
Speaker 2: I'm just not sure that my priorities are going to
38:03
Speaker 2: look the same as they seem to write at this
38:05
Speaker 2: exact moment. So like with everything else, I'll see when
38:08
Speaker 2: I believe it. Let's take a quick break when we
38:11
Speaker 2: come back full market, recab markets continuing to appreciate in
38:15
Speaker 2: early trading, and we'll be right back with that after
38:18
Speaker 2: this