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Why concerns about the deficit is leading to higher treasury yields · The Financial Exchange Show

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Speaker 2: Kicking off our show, Today's Chuck, Mike and Tucker with It,
1:13
Speaker 2: and our top story is going to be the House
1:18
Speaker 2: passing their version of the tax bill through the reconciliation
1:24
Speaker 2: process this morning. I think it was around maybe six
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Speaker 2: forty five, six fifty am when this vote happened and
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Speaker 2: the House passed it. I'm actually not going to get
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Speaker 2: into too many specifics, the reason being this bill now
1:40
Speaker 2: heads to the Senate, where they're going to craft their
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Speaker 2: own version, vote on it, and then if there are
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Speaker 2: significant differences that have to be reconciled, they go to
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Speaker 2: something called conference where they then get together and decide, hey,
1:53
Speaker 2: what are we actually going to do for the final version. So,
1:57
Speaker 2: you know, we can talk about some of the broad strokes,
1:59
Speaker 2: but I'm not to get into the specifics as to like, hey,
2:02
Speaker 2: what's the tax on remittance is going to be? Or
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Speaker 2: you know, what does this mean for the salt deduction?
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Speaker 2: Because this stuff can all change.
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Speaker 3: We've been burned a few times on these types of
2:12
Speaker 3: ideas that made their way through the House and Senate.
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Speaker 3: Yet so it's through the House. I mean, what we
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Speaker 3: do know and what some market reactions are is that
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Speaker 3: almost any version of this bill is going to massively increase,
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Speaker 3: well substantially increase deficits and increase net spending after taxes.
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Speaker 2: Yeah, the various estimates, and again it's going to depend
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Speaker 2: on exactly where this goes in the Senate, but the
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Speaker 2: various estimates are anywhere between a three and six trillion
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Speaker 2: dollar increase in the deficit over the next decade relative
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Speaker 2: to baselines if this were not put into place. In
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Speaker 2: terms of again broad strokes of what's in here, it
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Speaker 2: extends the twenty seventeen tax cuts and also makes some
2:59
Speaker 2: additional changes to basically, you know, carve out some additional
3:04
Speaker 2: cuts in certain instances. There is an increase in the
3:07
Speaker 2: state and local tax deduction. The version in here is
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Speaker 2: up to a forty thousand dollars cap that then you know,
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Speaker 2: drops based on various different income levels and this and that.
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Speaker 2: And there is also a change to the standard deduction,
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Speaker 2: bumping that up, in particular bumping it up for older
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Speaker 2: people as well. There is again some changes to you know,
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Speaker 2: basically how some of the Inflation Reduction Act green energy
3:37
Speaker 2: tax credits would be phased out, with some of them
3:41
Speaker 2: being phased out by twenty twenty eight. It would also
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Speaker 2: have some significant changes to Medicaid that potentially result in
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Speaker 2: a bunch of people. The estimates i've seen or anywhere
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Speaker 2: between about seven and twelve million people ending up kicked
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Speaker 2: off of Medicaid in the event that you go through,
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Speaker 2: you know, with this exact process here. And so I
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Speaker 2: think the big thing is that ultimately it's going to
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Speaker 2: be a bill that adds some additional tax breaks, maintains
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Speaker 2: current rates, but does so without any significant offsets. And
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Speaker 2: I think that's what has people a little bit concerned
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Speaker 2: as you start to look at the deficit math. And
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Speaker 2: again I think I come back to look for the
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Speaker 2: last seventy years, people have been crying deficit and it
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Speaker 2: hasn't mattered. Is it different this time? The answer is
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Speaker 2: potentially yes. But I'm also not willing to just sit
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Speaker 2: here and be like, yes, this is going to be
4:40
Speaker 2: the thing that definitely pushes you know, the deficit into
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Speaker 2: problem territory. But I gotta tell you a couple things
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Speaker 2: that you watched and you look at it and you're like, okay,
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Speaker 2: like you're running into some issues. The first being hey,
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Speaker 2: how is the bond market reacting to this? And basically
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Speaker 2: immediately after passing this, yip saw bonds throwing up all
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Speaker 2: over themselves. Yet again, that was not exactly a great
5:02
Speaker 2: sign other things. Just if you look at the projections
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Speaker 2: for where you know it expenses in terms of like
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Speaker 2: interest on the deficit goes over the next you know,
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Speaker 2: twenty thirty years, federal interest expense becomes the single biggest
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Speaker 2: line item in the budget in about fifteen to eighteen years,
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Speaker 2: and so that becomes problematic.
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Speaker 3: Let's contextualize that because I feel like people have already
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Speaker 3: been cognizant of this and it's been making headlines because
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Speaker 3: it started exceeding defense spending recently. That doesn't make it
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Speaker 3: the single biggest line item. Though, when we talk about
5:36
Speaker 3: single biggest line items in the budget, where are we
5:38
Speaker 3: in terms of those right now?
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Speaker 2: So here's the thing. If you go back and look
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Speaker 2: at the two thousands and twenty tens, interest expense on
5:46
Speaker 2: the federal deficit was running about one percent of GDP
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Speaker 2: a year, peaking it around one and a half percent
5:53
Speaker 2: of GDPA year. The US government brings in, depending on
5:58
Speaker 2: the particular year, anywhere between like sixteen and nineteen percent
6:02
Speaker 2: of GDP in revenue in tax revenue. So if you
6:05
Speaker 2: do the math, let's take the midpoint there, let's call
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Speaker 2: it one and a quarter percent and call it, you know,
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Speaker 2: seventeen and a half percent of GDP. Through the twenty tens,
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Speaker 2: interest expense was typically about seven percent of the overall
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Speaker 2: federal budget. That's where it came in where it stands today. Again,
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Speaker 2: if you look at you know, how much the US
6:25
Speaker 2: government brings in. Again, let's kind of take that seventeen
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Speaker 2: percent numbers as a good baseline. The last fiscal year
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Speaker 2: you had interest expense being about three percent of GDP.
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Speaker 2: So you do three divided by seventeen, and now interest
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Speaker 2: expense has gone from seven percent of government spending up
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Speaker 2: to seventeen percent, Meaning for every dollar we spend, for
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Speaker 2: every dollar the federal government spends, seventeen cents of it
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Speaker 2: goes to paying for stuff that we've already spent money on, yep.
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Speaker 2: As opposed to you know, the twenty twenty tens, it
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Speaker 2: was about seven percent the projections. Okay, by comparison, the
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Speaker 2: entire defense budget is about three percent of GDP right now,
7:07
Speaker 2: Medicare is about three percent of GDP, Medicaid is about
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Speaker 2: two percent of GDP, and social Security is about five
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Speaker 2: percent of GDP, so that's what we spend on those
7:17
Speaker 2: various different programs. The projections, and this is basically it's
7:24
Speaker 2: looking out over the next fifty years, and it's using
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Speaker 2: the assumption that the effective interest rate on the deficit
7:29
Speaker 2: is also going to stay in the high three range,
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Speaker 2: so not currently, which is not currently. So it's basically
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Speaker 2: if interest rates don't go up. I don't know if
7:39
Speaker 2: that's right or wrong. I mean again, I think four
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Speaker 2: percent is a reasonable baseline to work from. If this
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Speaker 2: is the case, then over the next thirty years, interest
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Speaker 2: expense goes from three percent today up to four percent
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Speaker 2: by early twenty thirties, up to five percent by mid
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Speaker 2: twenty thirties, up to six percent by late twenty thirties,
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Speaker 2: and by twenty fifty four is about nine percent of GDP.
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Speaker 2: So to put this in perspective, we've already seen interest
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Speaker 2: expense surpass defense spending. This year is going to be
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Speaker 2: the first year that interest expense surpasses medicare spending. In
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Speaker 2: twenty forty two, based on these projections, interest expense will
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Speaker 2: surpass Social security spending and will be the single biggest
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Speaker 2: line item in the budget. Now again, let's assume that
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Speaker 2: we continue to have us you know, tax revenues, federal
8:33
Speaker 2: tax revenues seventeen percent of GDP when it surpasses Social
8:38
Speaker 2: Security interest expense is going to end up being more
8:42
Speaker 2: than a third of all government expenditures in any given year.
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Speaker 2: And this is where you get to the problems about, hey,
8:48
Speaker 2: what does it look like for you know, debt to GDP?
8:52
Speaker 2: And the questions are are twofold. The first is who
8:54
Speaker 2: buys all those bonds? The second is what's the interest
8:57
Speaker 2: rate that you need in order to sell them? Sell them?
9:01
Speaker 2: And the third is, hey, if that interest rate is
9:03
Speaker 2: too high, does the Fed just start buying a whole
9:05
Speaker 2: bunch more bonds? And in doing so do they create
9:07
Speaker 2: a bunch of inflation? Because you're not letting the market
9:10
Speaker 2: set interest rates. There are questions that we don't know,
9:13
Speaker 2: and quite honestly, we're not going to necessarily know for
9:15
Speaker 2: ten to fifteen years. Why it matters now is bond
9:20
Speaker 2: markets have been throwing a little bit of a tantrum
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Speaker 2: this week, not just this week, the last couple weeks,
9:25
Speaker 2: and this is potentially another log on the fire. It's
9:28
Speaker 2: also something where again I'm never one to just say, hey,
9:33
Speaker 2: what's moving markets is one thing, because look, there's a
9:36
Speaker 2: decent chance. Let's say we get a bad unemployment print
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Speaker 2: in the next month or two and the ten your
9:42
Speaker 2: treasury goes from four to six down to four to one.
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Speaker 2: Did the deficit picture just improve? No, the gross is
9:47
Speaker 2: what happened, has just slowed. So I don't like to
9:50
Speaker 2: attribute everything going on in the bond market to one thing.
9:54
Speaker 2: But I do think the timing of you know, passage
9:57
Speaker 2: on this and people focusing on it, as well as hey,
10:01
Speaker 2: just the general discourse around US treasuries over the last
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Speaker 2: month or two, it's something worth at least paying attention to,
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Speaker 2: even if you don't say, hey, it's this, it's this,
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Speaker 2: it's this, it's this.
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Speaker 3: This reminds me a bit of the conversations we were
10:14
Speaker 3: having a few years ago with the Chips Act. Chips
10:16
Speaker 3: Act passed under Biden. Right, bipartis an effort to expand
10:19
Speaker 3: semiconductor production in the United States. Cost a lot of
10:23
Speaker 3: money also, and not not same scale. But I remember
10:27
Speaker 3: talking about two billion dollars, right, I remember talking about
10:29
Speaker 3: in the same context of like, you know, seems to
10:32
Speaker 3: be a good intelligent bill the only criticism would be
10:35
Speaker 3: there's no offset here in tax increases or in spending
10:38
Speaker 3: in any way, shape or form. It just blows out
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Speaker 3: the deficit. Further, this is that on steroids. I do
10:43
Speaker 3: think it's a good idea to extend the tax cuts
10:45
Speaker 3: that the Trump administration put into place back in the
10:48
Speaker 3: late twenty tens. The problem is you are not raising
10:52
Speaker 3: revenue anywhere. You are blowing out the deficit in an
10:55
Speaker 3: additional few trillion dollars. And the lesson that every president
10:59
Speaker 3: has learned over the last twenty some odd years has
11:03
Speaker 3: been that it doesn't matter. It'll be somebody else's problem
11:06
Speaker 3: down the road. At some point. Maybe that narrative doesn't work.
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Speaker 3: I doubt it's today, just based on the odds of things,
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Speaker 3: But at some point.
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Speaker 2: It matters today.
11:15
Speaker 3: Like it's again, fields aren't at seven percent, So it's
11:18
Speaker 3: not today, no, But.
11:20
Speaker 2: Could it be next week, next month, next year? Yes?
11:24
Speaker 2: Could it also be a decade off, yeah, Like you
11:27
Speaker 2: don't know until it actually happens. Now. There are again
11:31
Speaker 2: things that you look at in bond and currency markets
11:34
Speaker 2: where you're kind of like, this is looking a little
11:36
Speaker 2: dodgy here.
11:37
Speaker 3: Treasury auction on twenty years the other day.
11:39
Speaker 2: Yeah, you had that as well as you know, the
11:41
Speaker 2: dollar selling off despite higher rates, and you're kind of like, oh,
11:44
Speaker 2: this is, you know, a little bit funk delicious I
11:48
Speaker 2: think is the technical term used by bond traders. That's
11:51
Speaker 2: not the term.
11:52
Speaker 3: Yeah, I'm not shaking my head, you know, I'm not
11:55
Speaker 3: a bond trader. Maybe they do say fun delicious all
11:57
Speaker 3: the time.
11:58
Speaker 2: They do it. It's their favorite word use when describing
12:01
Speaker 2: an auction. And so there are some weird things that
12:04
Speaker 2: are going on, but you still haven't seen things truly breaking.
12:08
Speaker 2: And trust me, like you, you don't root for it,
12:11
Speaker 2: but if it does happen, you'll know when it happens.
12:15
Speaker 2: It's it's not something that just like is quiet. Let's
12:19
Speaker 2: take a quick break. When we come back, let's talk
12:23
Speaker 2: about what Jamie Diamond has to say in the state
12:25
Speaker 2: of the US economy. Because look, as much as he's
12:28
Speaker 2: been a great steward of you know, managing JP Morgan,
12:32
Speaker 2: I do have to admit his calls on the broader
12:34
Speaker 2: US economy not always the most accurate, but we'll still
12:36
Speaker 2: talk about them because he's Jamie Diamond. Right after this
12:40
Speaker 2: get up.
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Speaker 2: Well to talk about Jamie Diamond. He was at the
13:34
Speaker 2: Global China Summit in Shanghai representing JP Morgan, the bank
13:39
Speaker 2: for which he works for as the CEO for.
13:42
Speaker 3: The last fifteen twenty years.
13:45
Speaker 2: He's been there for quite a while and Diamond look,
13:48
Speaker 2: he's an absolutely excellent operator. JP Morgan consistently stays out
13:57
Speaker 2: of trouble that a lot of other banks get into.
14:00
Speaker 2: I won't name names like you know, Wells Fargo or
14:02
Speaker 2: Credit Sweets or Ubs or you know those guys.
14:05
Speaker 3: But six, by the way, he's been CEO nineteen years.
14:09
Speaker 3: Then of JP Morgan since O six, Yeah.
14:11
Speaker 2: Nineteen years. It's not to say that like JP Morgan
14:14
Speaker 2: didn't have any problems during the financial crisis, but more
14:16
Speaker 2: just that, hey, they weren't the epicenter of them. They were,
14:20
Speaker 2: you know, kind of playing along rather than the leading
14:22
Speaker 2: the charge. So a couple of years ago, back at
14:25
Speaker 2: the end of twenty two, you know, he I think
14:28
Speaker 2: it's famously said, you know, there's there's a storm bruin
14:32
Speaker 2: and there's a hurricane coming. Talking about the US economy
14:34
Speaker 2: heading into twenty three and twenty twenty three and twenty
14:37
Speaker 2: four turned out to be some of the best years
14:38
Speaker 2: that we've had, both in markets as well as I
14:42
Speaker 2: won't say best years in the economy, but they were
14:44
Speaker 2: good years, still plagued by high inflation, but low unemployment
14:47
Speaker 2: and improving economic data as opposed to you know, continuing
14:52
Speaker 2: to weaken into recession.
14:54
Speaker 3: Yeah, the only criticism you can levy at the twenty
14:56
Speaker 3: three and twenty four economies, if you're to take a
14:59
Speaker 3: look at them, would be a still coming off high inflation.
15:02
Speaker 3: So sentiment was.
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Speaker 2: Bad inflation was still high though it was and b
15:06
Speaker 2: high deficit.
15:07
Speaker 3: That's crazy, yep.
15:07
Speaker 2: So you had those two problems. So here's what you've
15:11
Speaker 2: got Diamond saying. Now he's talking about, Yeah, there's you know,
15:15
Speaker 2: potentially some inflationary problems that you're running up against. There
15:18
Speaker 2: is potentially a slowdown you know globally, what's the relationship
15:22
Speaker 2: between US and China look like? And how does that
15:24
Speaker 2: impact where the economy goes? And you know, Diamond was,
15:30
Speaker 2: you know, kind of I watched the full remarks, and
15:36
Speaker 2: you know, he said some things in particular, he was
15:38
Speaker 2: talking about credit risk and you know, low quality. Bar
15:41
Speaker 2: was not just individuals but corporates, and he was kind
15:44
Speaker 2: of like, I don't know that I want to be
15:46
Speaker 2: taking on any kind of credit risk right now. I
15:48
Speaker 2: mean he was talking kind of bearishly. And one hand,
15:50
Speaker 2: you look at it, you're like, oh, this is just
15:52
Speaker 2: Jamie b and Jamie you know, same old twenty twenty
15:55
Speaker 2: two womp wamp have fun staying poor Jamie Diamond, you know,
15:59
Speaker 2: like all that kind of stuff. On the other hand,
16:02
Speaker 2: he's got a pretty good, you know, finger on the
16:04
Speaker 2: pulse of what's going on. And yes, like might have
16:09
Speaker 2: been not might have was wrong at the end of
16:12
Speaker 2: twenty twenty two. But ultimately, everyone who runs, you know,
16:16
Speaker 2: any kind of major investment firm is not right all
16:20
Speaker 2: the time. So when he says something, you take note
16:22
Speaker 2: of it, you put it in your file, and you say, Okay,
16:24
Speaker 2: let's see how everything else stacks up. Ultimately, I don't
16:28
Speaker 2: think it's more than that, because I don't think he
16:30
Speaker 2: has any you know, unique insight into predicting what will
16:34
Speaker 2: or will not happen with the economy, as evidenced by
16:36
Speaker 2: twenty twenty experience.
16:38
Speaker 3: Yeah, look, great operator of a bank. But you know,
16:41
Speaker 3: do I put more credence into his worries about stagflation
16:45
Speaker 3: than the average person on the street. Yeah, but significantly more.
16:50
Speaker 3: I'm just not sure you know where to put that.
16:54
Speaker 3: He expresses concerns about the dollar, reducing dollar assets. He
17:00
Speaker 3: expressed a number of different concerns. It's still tough for
17:04
Speaker 3: me to get to the stagflation one. It's just tough
17:08
Speaker 3: for me to wrap my arms around how we get
17:11
Speaker 3: to stagflation When you know, we'll be covering the OPEC
17:13
Speaker 3: plus increasing oil production story. Soon we'll be talking about
17:18
Speaker 3: general de escalation of trade tariffs over the last several weeks.
17:22
Speaker 3: It's still difficult for me to envision that stagflation I
17:27
Speaker 3: can predict. I can see how recession gets there. I
17:29
Speaker 3: can see how a global economic slowdown gets there. We
17:32
Speaker 3: are seeing that in other parts of the world. I
17:35
Speaker 3: just have a tough time seeing how we get to
17:38
Speaker 3: that combined with high inflation in the US in the
17:40
Speaker 3: short term.
17:42
Speaker 2: So yeah, it's look ultimately, I think I say this
17:49
Speaker 2: a lot, but knowing exactly like having the right name
17:54
Speaker 2: for what you're going through, is less important than watching
17:56
Speaker 2: the trajectory of growth and inflation in adapting they change.
18:01
Speaker 2: You know, did you need to know that inflation was
18:04
Speaker 2: going to nine percent in you know, twenty twenty two
18:07
Speaker 2: in order to be successful, No, all you needed to
18:09
Speaker 2: know that it was going up and it was accelerating
18:12
Speaker 2: like you didn't need and then hey, when it started
18:15
Speaker 2: to you know, tail off, that's what you needed to
18:17
Speaker 2: know then to know that, you know, equities had a
18:20
Speaker 2: chance to rip in twenty three and twenty four. Today,
18:23
Speaker 2: I think the question is again, growth and inflation. We get
18:28
Speaker 2: too complicated in a lot of the stuff. The only
18:30
Speaker 2: stuff that matters is what's going on with growth and
18:32
Speaker 2: what's going on with inflation growth. I do think we
18:35
Speaker 2: can say slowing from last year. How much it slows
18:39
Speaker 2: is going to be the question. Like you could have
18:40
Speaker 2: it slow and GDP growth bottoms at one and there's
18:42
Speaker 2: no recession and everything's fine. It could go down and
18:45
Speaker 2: go negative and you know, you see layoffs in this
18:48
Speaker 2: and that and it's bad. Inflation probably moving up, but
18:52
Speaker 2: we haven't seen the data yet. And it also depends
18:56
Speaker 2: what happens with demand and if demand slow's enough, does
18:59
Speaker 2: inflation stick or does it just you know, price increases
19:01
Speaker 2: can't be upheld and instead you just get demand destruction
19:05
Speaker 2: and that's what happens there. So I think it's a
19:08
Speaker 2: complex system that we're heading into here. I don't know
19:12
Speaker 2: exactly how the next nine months are going to play out,
19:14
Speaker 2: but you've got a lot of things moving and we'll
19:17
Speaker 2: just have to see. Let's take a quick break. When
19:19
Speaker 2: we come back, we got Wall Street Watch and then
19:21
Speaker 2: we're talking Nike.
19:26
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19:33
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19:38
Speaker 6: Street Watch, a complete look at what's moving markets so far.
19:41
Speaker 6: Today right here on the Financial Exchange Radio Network, well.
19:45
Speaker 5: Following yesterday's so off driven by concerns that the tax
19:48
Speaker 5: bill could worsen the US deficit, thus sending treasury eel hire.
19:52
Speaker 5: Markets today are in mixed territory. Earlier this morning, the
19:56
Speaker 5: tax bill cleared the House and now advances to the Senate.
20:00
Speaker 5: At the moment, the Dow is down by two tenths
20:02
Speaker 5: of a percent. S and P five hundred is flat,
20:05
Speaker 5: and the Nasdaq is up six tenths of a percent,
20:08
Speaker 5: or one hundred and eleven points. Russell two thousand retreating
20:11
Speaker 5: by about a quarter percent. Ten year Treasury flat at
20:15
Speaker 5: the moment, now at four point five to nine percent,
20:17
Speaker 5: and crude oil is down about one percent lower, trading
20:22
Speaker 5: just around sixty one dollars a barrel. According to the
20:25
Speaker 5: Wall Street Journal, Walmart plans to cut about fifteen hundred
20:28
Speaker 5: corporate jobs in a restructuring initiative aimed at trimming expenses
20:32
Speaker 5: and speeding up decision making. A spokesman from Walmart noted
20:36
Speaker 5: that the plans were not related to tariffs. Walmart shares
20:40
Speaker 5: are dipping into negative territory. Meanwhile, a couple of items
20:43
Speaker 5: surrounding Nike this morning, where the athletic apparel and sneaker
20:46
Speaker 5: maker announced plans to resume sales of its products on
20:50
Speaker 5: Amazon for the first time in more than five years. Separately,
20:54
Speaker 5: CNBC is reporting that Nike will raise prices on a
20:57
Speaker 5: wide range of its products as soon as this week
21:00
Speaker 5: as it braces for terraffs to hit its products. Nike
21:04
Speaker 5: shares are up one and a half percent, and Chuck
21:06
Speaker 5: and Michael have more on Nike in a matter of moments. Elsewhere,
21:09
Speaker 5: health insurance stocks are trading lower after the Centers for
21:13
Speaker 5: Medicare and Medicaid Services announced an aggressive expansion of Medicare
21:18
Speaker 5: advantage audits. Humana retreating four percent, while CBS Health and
21:23
Speaker 5: United Health are down by about two percent. Lumann Technology
21:27
Speaker 5: shares are up two percent after AIGHTE and T agreed
21:30
Speaker 5: to acquire substantially all of Luhman's mass markets fiber internet
21:35
Speaker 5: connectivity business. The five point seventy five billion dollar deal
21:39
Speaker 5: is set to close in the first half of twenty
21:41
Speaker 5: twenty six. Snowflake up by nine percent after the cloud
21:45
Speaker 5: software company up to its annual guidance after logging higher
21:49
Speaker 5: sales in the previous quarter. In advance, auto parts jumping
21:53
Speaker 5: by forty five percent after the car parts of retailer
21:57
Speaker 5: posted better than expected quarterly results and backed it's twenty
22:01
Speaker 5: twenty five guidance. I'm Tucker Silvan. That's Wall Street Watch.
22:05
Speaker 2: Nike is going to be raising prices on a bunch
22:09
Speaker 2: of stuff soon. I'll quote here from the CNBC piece.
22:15
Speaker 2: Prices for Nike aparel and equipment for adults will increase
22:17
Speaker 2: between two and ten dollars. A person familiar with the
22:19
Speaker 2: matter said, foot where a price between one hundred and
22:22
Speaker 2: one hundred and fifty, will see a hike of five,
22:23
Speaker 2: while sneakers priced above one fifty will see a ten
22:25
Speaker 2: dollars increase. The person said. The price hikes will be
22:28
Speaker 2: in effect by June first, but could be seen on
22:30
Speaker 2: shelves as soon as this week. The increases cover a
22:32
Speaker 2: large portion of Nike's assortment, but many products will remain
22:35
Speaker 2: the same price and Nike, I'll also quote from your
22:40
Speaker 2: Nike said a statement, we regularly evaluate our business and
22:43
Speaker 2: make pricing adjustments as part of our seasonal planning. The
22:46
Speaker 2: company to not say the decision was related to tariffs.
22:49
Speaker 2: Hint the decision was related to tariffs. Yeah, No, one
22:52
Speaker 2: wants to say it. Obviously it's using the Walmart cover.
22:54
Speaker 2: But look, it's clearly related to tariffs. They do a
22:58
Speaker 2: ton of manufacturing in Vietnam. Vietnam is currently a ten
23:01
Speaker 2: percent tariff rate. They were facing a forty seven percent
23:04
Speaker 2: tariff rate. Don't know where they will face a tariff
23:06
Speaker 2: rate in sixty days from now, sixty days somewhere in
23:09
Speaker 2: that general time frame when these things come back up
23:11
Speaker 2: a less uniation. And yeah, they are following suit. Nike has,
23:17
Speaker 2: you know, operating margins in the mid.
23:20
Speaker 3: To low teens, so you know, they're a little bit
23:23
Speaker 3: richer in terms of margin than say Walmart, but they
23:25
Speaker 3: still aren't just going to eat these increased costs that
23:28
Speaker 3: they are going to be facing at the border when
23:30
Speaker 3: they import their shoes, and so unsurprisingly, yeah, they're finding
23:35
Speaker 3: ways to layer these prices in somewhere.
23:37
Speaker 2: Yeah, the ninety day window for these at least initial
23:43
Speaker 2: window for these tariff negotiations ends on Tuesday, July eighth,
23:47
Speaker 2: So that's the date that we are waiting forwards now
23:50
Speaker 2: is only about forty five days away.
23:51
Speaker 3: Right, Yeah, it'll be around the corner here. I can't
23:55
Speaker 3: think of many companies that must do less manufacturing in
24:00
Speaker 3: the United States. I mean, you know, at that scale, Nike,
24:03
Speaker 3: Dollar General.
24:04
Speaker 2: Yeah, well they don't manufacture, right if they just buy
24:06
Speaker 2: stuff that's not made in the United States.
24:08
Speaker 3: Yeah, yeah, just you know, few retailers are so exposed
24:11
Speaker 3: to this as these companies. I was also reading a
24:14
Speaker 3: bit about a few years ago when both under Armour
24:17
Speaker 3: and Nike attempted to, you know, try it to manufacture
24:21
Speaker 3: in the United States. I think under Armour did it
24:24
Speaker 3: back in the mid twenty tens. They started up a
24:28
Speaker 3: bunch of manufacturing in Baltimore. Nike did the same, I
24:31
Speaker 3: don't remember where, and they tested it out for a
24:34
Speaker 3: couple of years and kind of failed miserably. The fact
24:38
Speaker 3: of the matter is that we don't make a lot
24:41
Speaker 3: of footwear in the United States. Doing so requires a
24:44
Speaker 3: fair bit of talent that we no longer have, and
24:47
Speaker 3: the costs were pretty insurmountable that you face to try
24:50
Speaker 3: to bring this stuff back to the United States. Yes,
24:52
Speaker 3: there are some companies that do it. I think New
24:54
Speaker 3: Balance famously still does some manufacturing here in the US,
24:58
Speaker 3: But even they have shifted a lot of it over.
25:00
Speaker 2: They still do a good chunk of it here. I mean,
25:03
Speaker 2: I know that you can go through some smaller brands,
25:05
Speaker 2: but of the big ones, a lot of it is overseas,
25:07
Speaker 2: just because the economies of scale and everything. And again
25:12
Speaker 2: that's just kind of what it is. If you go
25:15
Speaker 2: higher end, you get more that are manufactured in the
25:17
Speaker 2: US because you can offset the costs, you know, a
25:19
Speaker 2: little bit more in that space. But that's that's kind
25:23
Speaker 2: of where where things land. A Wall Street Journal exclusive
25:28
Speaker 2: Walmart is going to be cutting fifteen hundred corporate jobs
25:31
Speaker 2: in part of a restructuring obviously in the context of
25:35
Speaker 2: you know, one point six million US workers, this drop
25:38
Speaker 2: in the bucket.
25:39
Speaker 3: Two point one million global workers, one point six here
25:41
Speaker 3: in the US obviously, so these are all corporate jobs,
25:45
Speaker 3: all white college jobs. And I was doing some surging
25:47
Speaker 3: I could not figure out how many corporate jobs that
25:49
Speaker 3: they have. Obviously, the vast majority of Walmart employees are
25:52
Speaker 3: working in retail stores, making them one of the largest
25:56
Speaker 3: employers in the country and in the world. But yeah,
26:01
Speaker 3: fifteen hundred jobs, even at the corporate level, is probably
26:04
Speaker 3: still a drop in the bucket for Walmart's overall corporate employment,
26:07
Speaker 3: would be my guess.
26:08
Speaker 2: But it does follow along.
26:09
Speaker 3: You know, Microsoft just last week announcing their cuts of
26:13
Speaker 3: about thirty five hundred workers, and now Walmart with you know,
26:16
Speaker 3: some restructuring here in job.
26:18
Speaker 2: Cuts, and this is how you try to manage margins
26:21
Speaker 2: if you have higher input costs that are coming through.
26:24
Speaker 2: This is what we typically see sales prices cut jobs.
26:27
Speaker 2: I think this is gonna be the question of Hey,
26:30
Speaker 2: what magnitude of job cuts do you need to see?
26:33
Speaker 2: And not just job cuts, but what do we see
26:35
Speaker 2: happening with job openings and how quickly are companies, you know,
26:42
Speaker 2: filling jobs that are you know out there. I'm trying
26:45
Speaker 2: to pull it up right now, just because I know
26:48
Speaker 2: it's here somewhere. It can never find it when I
26:51
Speaker 2: want to, Oh, here we go, Nope, I got to
26:53
Speaker 2: come in right now. Indeed is a great source. Again,
26:57
Speaker 2: they're not like the be all and end all for
27:00
Speaker 2: jobs data, but again they give you a pretty good
27:03
Speaker 2: idea of what's happening in real time. And what we're
27:05
Speaker 2: seeing right now is that job openings really have been
27:09
Speaker 2: on a continued down trend since early twenty twenty two. Sure,
27:13
Speaker 2: if you look at Indeed's job index, it's fallen by about,
27:19
Speaker 2: let me call it, thirty percent since then. And year
27:22
Speaker 2: over year, the Indeed Jobs index is down eight point
27:26
Speaker 2: seven percent. Week over week, it's up point two So
27:28
Speaker 2: I think this kind of reflects, hey, in the the
27:32
Speaker 2: new environment, you know, post China rollback of tariffs, there's
27:36
Speaker 2: been a little bit of stability the last few weeks
27:38
Speaker 2: in this index, and so at least, you know, kind
27:41
Speaker 2: of the immediate declines have halted. Is that a trend
27:44
Speaker 2: with staying power, I think is a worthwhile question to ask,
27:49
Speaker 2: or is this just another brief pause of which we've
27:52
Speaker 2: seen a few of these, And does this resume you know,
27:55
Speaker 2: kind of a downward march that it's been on for
27:57
Speaker 2: the last you know, three years now.
27:59
Speaker 3: Right, it is a Thursday, so every Thursday we do
28:02
Speaker 3: get a read on filings for unemployment. Last week, the
28:05
Speaker 3: weekending May seventeenth, that advanced figure came in at two
28:08
Speaker 3: hundred and twenty seven thousand new filings for unemployment claims
28:12
Speaker 3: across the country. That was actually a decrease of about
28:14
Speaker 3: two thousand from the previous week. The insured unemployment during
28:18
Speaker 3: the weekending May tenth set at one point nine to
28:20
Speaker 3: zero three million. So these are the number of people
28:24
Speaker 3: that are still on those unemployment rolls. That was an
28:26
Speaker 3: increase of thirty six thousand from the previous week's revised level.
28:30
Speaker 3: So again we are hearing announcements here and there. But
28:33
Speaker 3: I think the continued story would be that on the
28:37
Speaker 3: government's official numbers of unemployment, we're not seeing much that's
28:41
Speaker 3: overly concerned.
28:42
Speaker 2: Not even on the government's official numbers. Basically, everything that
28:45
Speaker 2: we're seeing right now, whether private data or government data,
28:52
Speaker 2: is not really showing any huge inflection in the last
28:55
Speaker 2: month or.
28:56
Speaker 3: Two, neither in hiring nor firing.
28:58
Speaker 2: I would say, in basically any data, Yeah, I mean,
29:01
Speaker 2: is there any data point that you look at out
29:03
Speaker 2: there and you're like, man, this is really changed in
29:06
Speaker 2: the last month or two from the trend it was
29:07
Speaker 2: on before.
29:10
Speaker 3: Bond rates that's a price, not not a data point.
29:16
Speaker 2: You know, like that there's nothing else out there. There's
29:18
Speaker 2: there's nothing out there when you look at data about
29:22
Speaker 2: human behavior that says there's been any meaningful shift yet.
29:26
Speaker 2: It doesn't mean that it won't happen, but I do
29:28
Speaker 2: think it means there hasn't been anything yet. Is it
29:33
Speaker 2: too soon for it to have developed? Maybe, like we'll
29:35
Speaker 2: see what I think we'll have a much better sense
29:40
Speaker 2: after the summer. I know that that's, you know, not
29:42
Speaker 2: what anyone wants to hear, because everyone wants to answers. Now, now,
29:44
Speaker 2: what's the economy gonna do?
29:45
Speaker 3: Now?
29:46
Speaker 6: Tell me?
29:46
Speaker 2: Now, no one knows what it's gonna do now. But
29:50
Speaker 2: to this point, it's basically been doing what it was
29:53
Speaker 2: doing before. And if that changes, trust me, we'll talk
29:58
Speaker 2: about it here. You know. If it it gets better,
30:01
Speaker 2: we'll let you know. If it gets worse, let you
30:03
Speaker 2: know too. But right now, it's basically doing the same
30:07
Speaker 2: thing that it was before. Let's take a quick break.
30:11
Speaker 2: When we come back, we'll talk about opek plus and
30:16
Speaker 2: their latest decisions on production levels.
30:19
Speaker 4: After this text us at six one seven three, six
30:23
Speaker 4: two one three eighty five with your comments and questions
30:25
Speaker 4: about today's show, and let us know what you think
30:27
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30:30
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31:11
Speaker 2: OPEK plus, drop the plus, just get rid of it.
31:16
Speaker 2: Well here's I guess here's the thing. So you have
31:18
Speaker 2: all of these countries that are not in OPEC, but
31:21
Speaker 2: still try to cooperate with them. What's actually like the
31:26
Speaker 2: dividing line, Like there's no enforcement mechanism within OPEK. It's
31:30
Speaker 2: not like you join them and it's like, well the
31:32
Speaker 2: OPEC inspectors are here, we're gonna have to do what
31:34
Speaker 2: they say.
31:35
Speaker 3: Do you not get to attend the special meetings? Though,
31:37
Speaker 3: if you're in the Plus, it.
31:39
Speaker 2: Sounds like you still like discuss these things in meat,
31:45
Speaker 2: you know, like I'll even read this is from Wikipedia.
31:47
Speaker 3: So you don't get a membership pin, I don't think
31:50
Speaker 3: what But they also don't tell you the secret handshake.
31:54
Speaker 2: I bet the OPEC PLUS secret handshake is great, but
31:57
Speaker 2: it says the collaboration among OPEK Plus member county has
32:00
Speaker 2: led to the establishment of the Declaration of Cooperation the
32:04
Speaker 2: DOC in twenty seventeen, which has been subsequently extended multiple
32:07
Speaker 2: times due to its remarkable success. So it's basically like
32:10
Speaker 2: we're cooperating, we're doing all the OPEK stuff anyways, why
32:14
Speaker 2: not just like be like, hey, we're all the way
32:16
Speaker 2: in on Opek. It's not like you have to do
32:19
Speaker 2: anything different. Yeah, and why would OPEK not want these
32:23
Speaker 2: other countries in there?
32:25
Speaker 3: I don't have answers for you.
32:26
Speaker 2: I don't either.
32:27
Speaker 3: In either case, they are going to produce more oil.
32:29
Speaker 2: Yes, they are talking about an output of another four
32:32
Speaker 2: hundred and eleven thousand barrels a day for July. This
32:36
Speaker 2: would be triple the amount that is initially planned. They're
32:39
Speaker 2: expecting to make a final decision at a June first gathering.
32:45
Speaker 2: I also don't know where they meet. Is it just
32:49
Speaker 2: on Zoom? I mean, these countries are not exactly close together,
32:53
Speaker 2: you know. It's like again just within Opek, not even
32:56
Speaker 2: including the Plus. Okay, so you got the Saudi's, the Algerians,
33:02
Speaker 2: and the Venezuelans. That's a pretty big triangle that you
33:06
Speaker 2: gotta cover.
33:07
Speaker 3: They have these things now called private jets though that
33:12
Speaker 3: they do make it pretty easy to get to Saudi Era.
33:14
Speaker 2: They do, But like, do you really need to get
33:16
Speaker 2: together in order to be like, yeah, let's raise the price,
33:19
Speaker 2: raise the you know, pump as much as we can.
33:22
Speaker 3: Yes, you do. In reaction, US oil price is falling
33:25
Speaker 3: West Texas crew down about nine tenths of a percent today.
33:28
Speaker 3: We're down to sixty one bucks at barrel on this
33:30
Speaker 3: great news for pretty much all Americans that don't work
33:34
Speaker 3: in the oil industry. Yea, yeah, that's going to be
33:38
Speaker 3: a problem for you know, getting oil out of American
33:42
Speaker 3: wells at these prices. They can still make a profit
33:45
Speaker 3: at sixty bucks a barrel, would be my guess on
33:47
Speaker 3: most of this stuff, but not a heavy one. And
33:49
Speaker 3: certainly you're not drilling any You're probably not making any
33:52
Speaker 3: big offshore drilling investments at these prices, would be my guess.
33:56
Speaker 2: No, I think that's a fair you know. Again, it's
33:59
Speaker 2: just something where listen, you can have more US oil
34:05
Speaker 2: production or you can have low prices. You can't really
34:09
Speaker 2: have both.
34:11
Speaker 3: I sure like my two dollars seventy six cents a
34:13
Speaker 3: gallon gas at BJ's yesterday, though.
34:15
Speaker 2: It's great, it's wonderful. Yeah, but it doesn't result in
34:19
Speaker 2: more production in the US because they got spooked, by
34:22
Speaker 2: the way, by this exact thing back in twenty fifteen,
34:25
Speaker 2: when Russia and the Saudis were like, hey, you know
34:28
Speaker 2: what would be nice market share and decided to just
34:31
Speaker 2: pump a bunch of oil out of the ground and
34:33
Speaker 2: put a ton of US shale producers out of business.
34:35
Speaker 3: It's just a it's a tougher question to answer. Is
34:38
Speaker 3: really cheap oil a net positive or net negative for
34:42
Speaker 3: for the United States? I think it's I think it's
34:45
Speaker 3: still a net positive, but not in the same way
34:49
Speaker 3: that it was.
34:50
Speaker 2: The data I've seen is that it's pretty much a push.
34:52
Speaker 2: Is that it's pretty much a push now. Yeah, And
34:56
Speaker 2: part of it's just because we export so much not
34:59
Speaker 2: gas at this point that remember, and you say, like
35:02
Speaker 2: oil and net gas, Like, why you're those the same?
35:04
Speaker 2: They're not the same. But here's the deal. The vast
35:08
Speaker 2: majority of new production of oil in the US comes
35:11
Speaker 2: from shale deposits and fracking huge byproduct of shale deposits
35:15
Speaker 2: bunch of that gas. And so if you don't have that,
35:20
Speaker 2: it is a significant drag on the US economy because
35:23
Speaker 2: use a huge net export, and it also raises prices
35:27
Speaker 2: for US domestically, especially here in the Northeast where, oh,
35:31
Speaker 2: by the way, guess how we get our net gas
35:33
Speaker 2: here in the Northeast. We take it on a big
35:36
Speaker 2: boat instead of you know, you know, having a pipeline
35:39
Speaker 2: that you know, just transports it automatically. Hey, let's make it.
35:43
Speaker 2: Let's take the net gas. Let's make it. Let's make
35:46
Speaker 2: it really really really freaking cold, like negative two hundred degrees,
35:51
Speaker 2: and then put it on a boat that we have
35:53
Speaker 2: to have helicopters watching because it's so dangerous to transport
35:56
Speaker 2: as it goes in and out of harbors. And then
35:59
Speaker 2: instead of just shipping it up a pipeline, you know
36:02
Speaker 2: from Pennsylvania where you get the net gas, we're instead
36:05
Speaker 2: gonna ship like all the way around the country basically
36:09
Speaker 2: in order to get it into the New England region.
36:13
Speaker 2: That seems reasonable. I wonder, why are electricity costs or
36:17
Speaker 2: triple the national average? I wonder why is that? Do
36:23
Speaker 2: you think that's part of it? No?
36:25
Speaker 3: No, this was like I had a mass saved guy
36:28
Speaker 3: over He's like, oh man, you have oil. That was
36:30
Speaker 3: the first time oil made more sense than that gas
36:33
Speaker 3: in like two decades this winter. Congratulations.
36:37
Speaker 2: I just it's it's one of these things, man, it's
36:42
Speaker 2: it's one of these things.
36:43
Speaker 3: Again, have unique ways of doing things here in the Northeast, Chuck,
36:46
Speaker 3: we do.
36:46
Speaker 2: I mean, I still think it's great. Like you talk
36:48
Speaker 2: to someone keep hydro electricity from Canada pass, I just
36:52
Speaker 2: think it's great. Like you talk to someone about home
36:54
Speaker 2: heating oil and from who's not from around here, and
36:56
Speaker 2: they're like, I don't know what that is.
36:58
Speaker 3: Yeah, cousins in Arizona just are constantly confused about what
37:04
Speaker 3: I'm talking about. When the oil man comes to the house.
37:07
Speaker 2: You have an engine in your house that you have
37:09
Speaker 2: to know, like this, we burn the oil for heat.
37:13
Speaker 2: Is it whale oil? No, it's not whale oil. Well
37:16
Speaker 2: what kind of oils? I don't know. But it's heating oil.
37:19
Speaker 2: It doesn't come from whales. It's the only thing I know. Well,
37:23
Speaker 2: how do you get it? Don't know that either?
37:25
Speaker 3: A nice man in a truck.
37:26
Speaker 2: Yeah, a guy in a truck shows up and pumps
37:28
Speaker 2: it into the house. Oh how often they do that?
37:31
Speaker 2: Once or twice a year, depending on how cold it is?
37:34
Speaker 3: Oh?
37:35
Speaker 2: Great, good, luck with that. Hey, it's been working out
37:39
Speaker 2: fine for us for quite a while. We're gonna take
37:41
Speaker 2: a quick break here. When we come back, we got
37:44
Speaker 2: hour two. We're talking about a big move from open
37:47
Speaker 2: Ai after this