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Should the President be able to fire the head of the Federal Reserve? · The Financial Exchange Show

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Speaker 1: a donation Today. Face is the Financial Exchange with Mike
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Speaker 1: Armstrong and Mark Vandetti.
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Speaker 2: More than welcome back to the Financial Exchange. It's a
1:18
Speaker 2: Friday before Morial Day weekend. Here, it's Mike, Mark and
1:22
Speaker 2: Tucker with you, and we have what I would normally
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Speaker 2: call a pretty severe market selloff going on, but context
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Speaker 2: is important here. You've got the Dow off about three
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Speaker 2: hundred and fifty points eight ten percent, the S and
1:35
Speaker 2: P off fifty nine points are a full percentage point,
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Speaker 2: and Naszak off one and a quarter as we open
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Speaker 2: up the show today. All of this on the heels
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Speaker 2: of President Trump's announcement or I don't know that they
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Speaker 2: are official announcements at this point. It's a thread of
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Speaker 2: tariffs on both the European Union and Apple specifically, which
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Speaker 2: is again I get, but you're probably not actually targeting
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Speaker 2: Apple here. I'm guessing you are targeting all electronics companies.
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Speaker 2: But we will see. The European Union is set to
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Speaker 2: face tariffs of fifty percent, is the again implied threat
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Speaker 2: from the White House on the European Union goods coming
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Speaker 2: into the United States. Apple allegedly facing a two and
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Speaker 2: a half percent, sorry twenty five percent tariff on their
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Speaker 2: made products overseas after the President had previously expressed some
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Speaker 2: skepticism and frustration with Apple in their plans to move
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Speaker 2: production from China to India. At the same time, you
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Speaker 2: had Scott Bessen specifically call out India as a country
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Speaker 2: where they are pretty close to a deal on a
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Speaker 2: trade deal with so again confusing to me there what
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Speaker 2: the priorities are, but clearly the President not liking the
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Speaker 2: idea of more iPhones moving production over to India instead
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Speaker 2: of here to the United States. Why I say context
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Speaker 2: is important in terms of the markets is because, quite honestly,
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Speaker 2: if in investors believed that Apple was going to be
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Speaker 2: facing twenty five percent tariffs on pretty much every product
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Speaker 2: they sell in the United States, I would think their
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Speaker 2: stock would be off a lot more than two and
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Speaker 2: three quarters percent. Likewise, if you know, if investors thought that,
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Speaker 2: you know, airlines were going to be paying twenty five
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Speaker 2: percent tariffs on Boeing planes and you know, imported volkswagens
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Speaker 2: and all sorts of stuff made over in Europe, I
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Speaker 2: just don't think that the US markets would be selling
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Speaker 2: off only one percent, so modest sell off, I think
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Speaker 2: on quite honestly, credibility concerns when it comes to this
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Speaker 2: White House in tariff plans.
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Speaker 3: I think you know my comments in the last hour,
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Speaker 3: and thanks to those of you who texted in. Your
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Speaker 3: texts are funny, and I want to say I don't
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Speaker 3: have Trump arrangement syndrome. I have tariff arrangement syndrome. Really,
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Speaker 3: Trump did a good job on nuclear power today. I
3:53
Speaker 3: mentioned that, So I want to reiterate that I'm judging
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Speaker 3: things based on policy and their likely effects on the economy.
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Speaker 3: These erratic tariff moves in gender uncertainty, they thus hinder
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Speaker 3: long term growth. Nobody is standing up for free markets
4:10
Speaker 3: in the rule of law. That used to be traditional.
4:12
Speaker 3: Those used to be traditional Republican issues, they no longer are.
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Speaker 3: That's what I was lamenting. Just because you put a
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Speaker 3: picture of Ronald Reagan behind you and sign things that
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Speaker 3: vaguely resemble things that were done during his two terms
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Speaker 3: doesn't mean you're faithful to those principles. Principles which many
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Speaker 3: would argue helped economic growth immensely in the nineteen eighties.
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Speaker 3: They had some drawbacks, but helped them. It would be
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Speaker 3: nice if somebody were following that model, or at least
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Speaker 3: defending it. Nobody is, But to your point, markets maybe
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Speaker 3: don't believe that these tariffs will ever actually be enacted.
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Speaker 2: And danger there from a few perspectives. One the last
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Speaker 2: time investors were really doubting the president, in my mind,
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Speaker 2: was back in February and March of this year when
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Speaker 2: they said, no, this isn't going to happen. It's not
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Speaker 2: going to happen. And then the entire world was surprised
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Speaker 2: on April second when it happened.
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Speaker 3: But they but it happened for like five minutes.
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Speaker 2: It happened for seven days. Yeah, and so this is
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Speaker 2: where some of the credibility stuff comes from. But to
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Speaker 2: that point, I won't be surprised if this stuff ends
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Speaker 2: up becoming official, at least for a period of time.
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Speaker 2: So the president feels as though, hey, I've regained some
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Speaker 2: of this credibility and negotiating tactics. But again I don't
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Speaker 2: I don't know how you can believe that with what's
5:23
Speaker 2: happened with China.
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Speaker 3: I think this is the last time. I think Congress
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Speaker 3: retakes this power as soon as they're able to. Whether
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Speaker 3: it's because there's a new you'd think, you well, if
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Speaker 3: the other party takes Congress in eighteen months, they almost
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Speaker 3: certainly will I think Republicans would probably like this power
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Speaker 3: back too. It was never intended that one person be
5:41
Speaker 3: able to impose taxes, I think than in.
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Speaker 2: Emergen Hypothetically they would like this power.
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Speaker 3: This guest, this Congress will well, well, there's guys like
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Speaker 3: Grand Paul and a couple of others who've been vocal,
5:55
Speaker 3: but you're probably right, might not this Congress with this president,
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Speaker 3: but soon enough Congress will take this power back. I
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Speaker 3: don't think we'll ever have to experience these types of
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Speaker 3: policy gyrations again.
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Speaker 2: We'll see, yeah, we'll say, I mean, heck, the Supreme
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Speaker 2: Court could hypothetically slap this down. This is on their
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Speaker 2: docket in terms of hey, does this operate within the
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Speaker 2: emergency confines of the president's powers when it comes to tariffs,
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Speaker 2: and seemingly so far, the answer is yes. But that
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Speaker 2: could all change. Obviously Congress could change it. But we
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Speaker 2: asked this question frequently, which is, you know, when it
6:30
Speaker 2: comes to policies like tariffs or any executive power at
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Speaker 2: the White House, I always ask myself if the person
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Speaker 2: that I thought was least well equipped to handle the
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Speaker 2: economy was in charge of these things and had these powers,
6:44
Speaker 2: would I feel comfortable and I think generally speaking, the
6:47
Speaker 2: American public has shown, Hey, we do have some faith
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Speaker 2: and confidence in President Trump's ability to navigate this. He
6:52
Speaker 2: wouldn't have been elected otherwise. Imagine for a moment that
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Speaker 2: instead of him, it is Elizabeth Warren or whoever you
6:58
Speaker 2: consider to be the boogeyman of politics these days, in
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Speaker 2: the same position, with those same powers, And I think
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Speaker 2: you get at why we raise these concerns. I generally
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Speaker 2: don't think policies should be executed from the White House,
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Speaker 2: especially this type of policy, but in any case, it
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Speaker 2: is today, this is the rule. And today you've got
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Speaker 2: markets suffering at the behest of the White House's push
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Speaker 2: on tariffs this morning, which again fifty percent on products
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Speaker 2: coming from the European Union, twenty five percent on again
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Speaker 2: products made by Apple. I have to assume that would
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Speaker 2: apply to Samsung, Google and other electronics manufacturers that manufacture overseas.
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Speaker 3: Yeah, just except that higher less trading means lower standards
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Speaker 3: of living full stop. I mean, any country that's ever
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Speaker 3: been looked at before and after, that's been the conclusion.
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Speaker 3: So you may, for I guess political or personal preference reasons,
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Speaker 3: like the idea of making more stuff here, But.
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Speaker 2: How does China fit that narrative? Because China has been
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Speaker 2: the story of a country that has imposed massive barriers
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Speaker 2: to trade now for some fifty odd years, I think
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Speaker 2: you could easily make the argument that they would have
8:18
Speaker 2: been better off had they opened up. But we don't
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Speaker 2: have that example. Instead, we have a country that has
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Speaker 2: developed and vastly improved most most terms that we would
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Speaker 2: describe as standard of living in mainland China.
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Speaker 3: They'd be better off if they did allow more imports,
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Speaker 3: and if their people did consume.
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Speaker 2: More, the equality of life would have improved.
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Speaker 3: Yes, they like Their model is not all that different
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Speaker 3: from other Asian countries that industrialized in the sixties through
8:42
Speaker 3: the eighties and even right through the nineties, where the
8:45
Speaker 3: phrase Asian tigers was used a lot. They practiced more
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Speaker 3: or less very high, very high savings, both compelled and cultural,
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Speaker 3: with an emphasis on export industries. They were able to
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Speaker 3: do that because as they imported technology from US and
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Speaker 3: imported capital.
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Speaker 2: Imported as a delicate way of describing.
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Speaker 3: It, Yeah, I wouldn't accuse them. I mean, China pushes
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Speaker 3: the boundaries of respecting intellectual property. Okay, they do a
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Speaker 3: lot of theft. I guess I don't know, not really
9:19
Speaker 3: my area, but Asian economies China included followed a certain
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Speaker 3: model rapid industrialization, focus on export industries, discouraging consumption because
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Speaker 3: they needed those savings right to grow fast, and some
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Speaker 3: of those savings came here, which in turn allowed us
9:37
Speaker 3: to consume more than we made.
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Speaker 2: It was a.
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Speaker 3: Pretty beneficial arrangement overall. And if you don't believe that,
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Speaker 3: just look at growth rates or think about, if you're
9:46
Speaker 3: old enough, standards of living and.
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Speaker 2: How they've evolved over the last six years.
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Speaker 3: Yeah, largely favorably.
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Speaker 2: Let's take a quick break. When we come back, we're
9:54
Speaker 2: gonna be doing a little bit of trivia. But then
9:56
Speaker 2: we are also joined by Dan Griggs, is the executive
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Speaker 2: vice president and region president of Commercial Lending at Ocean
10:02
Speaker 2: First Bank, talking to us about the summer season, tourism
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Speaker 2: and what they are seeing at their bank when it
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Speaker 2: comes to the New England economy. That's next here on
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Speaker 2: the Financial Exchange.
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Speaker 2: Join us now is Dan Griggs. He's the EVP and
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Speaker 2: Regional President of Commercial Lending at Ocean First Bank and
11:21
Speaker 2: join us today to talk a little bit about the
11:23
Speaker 2: tourism sector here in the New England area and what
11:26
Speaker 2: we are seeing. Dan. Thanks for joining us, Hey Mike,
11:29
Speaker 2: good morning, pleasure to be here. So Memorial Day weekend
11:32
Speaker 2: unofficial start of the summer here, and I would imagine
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Speaker 2: hotel owners, Airbnb owners and anyone even marginally attached to
11:40
Speaker 2: the tourism industry here in New England is just wondering
11:44
Speaker 2: how it shapes out this year. What are you hearing
11:46
Speaker 2: from business owners when it comes to the big summer
11:51
Speaker 2: tourisms is in here in New England.
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Speaker 5: Yeah, So I reached out to two clients. One was
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Speaker 5: Ote Taylor and the other's ferry service and the hotel.
12:00
Speaker 5: They have fifty plus you know sites across New England.
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Speaker 5: The first thing they said is, look, dan is is
12:07
Speaker 5: you got to separate out urban versus suburban? Okay, Uh,
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Speaker 5: suburban is a little soft. Their pre booking's occupancy were
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Speaker 5: down low, sing single digits. Urban is in an airport
12:21
Speaker 5: where we're leveled to last year. So with the suburban
12:25
Speaker 5: go ahead.
12:25
Speaker 2: I'm sorry, I was going to ask you, what can
12:27
Speaker 2: we attribute the suburban to? Is the suburban typically, you know,
12:32
Speaker 2: your business traveler going out to Walfam, Massachusetts for for
12:37
Speaker 2: a client that they're consulting with, where what's the typical
12:40
Speaker 2: travel traveler Rather on a urban versus suburban hotel booking.
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Speaker 5: It's they they think it has a little bit to
12:48
Speaker 5: do with Canada unless people coming down to Canada for
12:51
Speaker 5: New England and group sales. So they're they're re engaged.
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Speaker 5: What they told me is they're re engaging kind of
12:58
Speaker 5: the marketing team. Uh. And they think they'll be okay
13:03
Speaker 5: for the year in terms of occupancy with last year.
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Speaker 5: They'll start offering like, you know, stay two nights, get
13:10
Speaker 5: a third night, fifty percent off. So they think occupancy
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Speaker 5: on the arena by level of last year, just their
13:15
Speaker 5: adr everage daily room rates will be down a little bit.
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Speaker 2: Okay, So if I'm looking for a deal this summer
13:21
Speaker 2: on a hotel, I'm more likely to find one in
13:24
Speaker 2: a maybe less urban area across New England rather than downtown.
13:29
Speaker 2: What about on the Cape? I mean obviously you know,
13:32
Speaker 2: massive cape and islands, massive tourist destination for travelers across
13:36
Speaker 2: the globe. Are you hearing anything particular about bookings there?
13:40
Speaker 5: Yeah, well, I'll just tell you so. Our ferry operator
13:42
Speaker 5: has both tourism ferry and commuter fery. Okay, when I
13:46
Speaker 5: talked to him, he talked about his tour is up
13:48
Speaker 5: seven percent pre booking year today. Tourism he said, what's that? Yeah,
13:53
Speaker 5: he said that he looked at Google analytics in Canada
13:56
Speaker 5: is down, but Europe is up, led by Ireland, so
14:00
Speaker 5: tourism bookings on the ferries up. The other thing he
14:04
Speaker 5: noted is on his commuter ferries. He said, we are
14:07
Speaker 5: at pre pandemic levels of people coming to the city.
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Speaker 5: He said that the sequences off, meaning Monday through Thursday
14:16
Speaker 5: pre pandemic, we're all pretty the same, and then Friday
14:19
Speaker 5: dropped off. He says, Monday through Wednesday are strong, higher
14:22
Speaker 5: than pre pandemic, Thursdays a little less, and then Fridays
14:26
Speaker 5: are really a lot less. So just the sequencing of
14:30
Speaker 5: the commuter's traveling has changed.
14:32
Speaker 2: Interesting. Do either of them have a read on? Hey,
14:35
Speaker 2: you know, we are clearly seeing some downturn in Canadian
14:38
Speaker 2: tourism to the US. Where is that being made up?
14:40
Speaker 2: Is it domestic tourism? Is it European travelers coming to
14:43
Speaker 2: the US?
14:44
Speaker 5: Yeah, it definitely is effected, not huge, but it's being
14:49
Speaker 5: supplanted by European travelers.
14:51
Speaker 2: Okay, Well, in the announcement this morning, obviously fifty percent
14:54
Speaker 2: tariffs on the entirety of the European Union. We'll see
14:58
Speaker 2: how that whether or not that's it's a little bit late.
15:02
Speaker 2: I supposed to be changing travel plans, but that could
15:05
Speaker 2: obviously disrupt things if they are. If they're the ones
15:07
Speaker 2: buying up that excess capacity right now from the lack
15:10
Speaker 2: of Canadian travels, We'll have to see how that plays out.
15:13
Speaker 5: But great certainly.
15:14
Speaker 2: Dan Griggs from Ocean First Bank join us talk about
15:17
Speaker 2: the regional economy in New England when it comes to
15:20
Speaker 2: tourism especially, and I think some surprising good news there
15:23
Speaker 2: from what I just heard from Dan. Thank you, Dan,
15:26
Speaker 2: appreciate it coming on and we'll talk to you again soon.
15:28
Speaker 5: My pleasure. Have a good WEEKND.
15:30
Speaker 4: All right, time for trivia here on the Financial Exchange
15:33
Speaker 4: and today's former SNL cast member Tim Robinson's forty fourth birthday.
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Speaker 4: Robinson worked on Saturday Night Live from twenty twelve to
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Speaker 4: twenty sixteen as a cast member and a writer. After SNL,
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Speaker 4: Robinson created two shows, Detroiters and I Think You Should Leave.
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Speaker 4: Robinson is currently starring in a movie with Paul Rudd
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Speaker 4: that is in theaters as of today. So trivia question today,
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Speaker 4: what is the name of Tim Robinson and Paul Rudd's
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Speaker 4: movie in theaters right now? Once again, what is the
16:05
Speaker 4: name of Tim Robinson in Paul Rudd's movie in Theaters
16:09
Speaker 4: Right now, be the third person today to text us
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Speaker 4: at six one seven three six two thirteen eighty five
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Speaker 4: thirteen eighty five will win that T shirt. See complete
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16:30
Speaker 2: We have a couple of stories here regarding nat gas
16:33
Speaker 2: and utilities here in New England that I think are
16:36
Speaker 2: worthy of discussion. The one from the Boston Globe speaks
16:40
Speaker 2: about utility bills climbing and you know, some of the
16:42
Speaker 2: root causes and possible fixes here. My answer is that
16:46
Speaker 2: they don't provide much in the way of possible fixes
16:49
Speaker 2: because the possible fixes are either eliminate a bunch of
16:54
Speaker 2: subsidies or bring down the cost of energy. So, you know,
16:58
Speaker 2: the subsidies though, I think are discussing for a moment here.
17:01
Speaker 2: Mass Save is one of those. I had a mass
17:03
Speaker 2: Save representative in my home just this week giving, you know,
17:07
Speaker 2: taking a look seeing if there's anything we need to
17:09
Speaker 2: do on installation or other areas of the home. You know,
17:13
Speaker 2: that person's not free. He was well educated in the subject,
17:16
Speaker 2: he knew what he was talking about, and he spent
17:17
Speaker 2: a couple hours of his time looking around my house
17:19
Speaker 2: that is paid for by people's utility bills. And the
17:23
Speaker 2: mass Save piece of this overall program which started, uh
17:28
Speaker 2: it started, and I think eight mass Save did with
17:30
Speaker 2: the overall goal of, Hey, we're going to add some
17:33
Speaker 2: cost to utility payers in order to try and bring
17:35
Speaker 2: down consumption of energy across the New England. Across Massachusetts.
17:40
Speaker 2: It was about three hundred and fifty six million dollars
17:42
Speaker 2: in costs in twenty ten. That's balloons now one point
17:45
Speaker 2: five billion dollars in twenty twenty four. That was the
17:48
Speaker 2: last you know, the first three quarters of twenty twenty
17:50
Speaker 2: four was an annualized rate of one point five billion.
17:52
Speaker 5: Uh.
17:53
Speaker 2: That goes right onto your utility bills. So you know,
17:55
Speaker 2: if I get a tax credit for the boiler that
17:57
Speaker 2: I put in from Massachusetts VI a mass Save that's
18:01
Speaker 2: coming on somebody else's utility bill. If I have somebody
18:04
Speaker 2: come to my house to look at my insulation from
18:06
Speaker 2: mass Save, which is a free service, and they give
18:08
Speaker 2: me some light bulbs, and I think he gave us
18:10
Speaker 2: some free free power strips. Again, I don't need free
18:17
Speaker 2: power strips, but I ultimate free power strips as part
18:19
Speaker 2: of my Mass Save program that's going on your bill,
18:23
Speaker 2: the one that I thought was absolutely crazy. The Governor's
18:27
Speaker 2: plan proposes that utilities could now issue bonds to stretch
18:31
Speaker 2: out each year's bill for Mass Save and a few
18:34
Speaker 2: other programs over twenty years. So what you're saying is, hey,
18:36
Speaker 2: we want to keep all of these programs in place,
18:39
Speaker 2: not cut their costs, but just borrow the money to
18:42
Speaker 2: fund them.
18:42
Speaker 3: Why can't we impose income requirements on Mass Save subsidies.
18:46
Speaker 2: I have no idea I should not be able to
18:47
Speaker 2: get free power strips.
18:48
Speaker 3: No, you, you definitely shouldn't. I shouldn't. Anybody with gainful
18:52
Speaker 3: deployment shouldn't. So I've done it too. Yeah, they're in
18:56
Speaker 3: my house.
18:56
Speaker 2: Why it's free? Why wouldn't I do that?
18:59
Speaker 3: You'd be a sucker not to that. It's simple, but
19:02
Speaker 3: it's it's utterly unfair, probably inefficient.
19:05
Speaker 2: I don't think we're gonna go touching low income subsidies.
19:07
Speaker 5: Right.
19:07
Speaker 2: If somebody can't afford to pay their power bill, we're
19:10
Speaker 2: not gonna let them freeze we might shift where it goes.
19:12
Speaker 2: But that's another area that's problem.
19:14
Speaker 3: Politicians behave like resources aren't scarce.
19:16
Speaker 2: Yeah, just the solutions here are silly. If you want
19:20
Speaker 2: to bring down power costs, stop shutting down nuclear power plants,
19:23
Speaker 2: bring in pipelines that everybody hates, and you'll be able
19:25
Speaker 2: to do so and power won't cost thirty percent more
19:28
Speaker 2: than everwhere else in the country. Quick Break Trivia Winner
19:32
Speaker 2: when we come back.
19:41
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20:07
Speaker 4: Trivia question today was what is the name of the
20:12
Speaker 4: movie starring Tim Robinson and Paul Rudd currently in theaters.
20:17
Speaker 4: I think it came out today. Actually, that would be Friendship.
20:20
Speaker 4: Friendship and that as an eighty nine percent on Rotten Tomatoes.
20:24
Speaker 4: And I've heard it's the return of the rated R
20:27
Speaker 4: movie Mike, which has been missing for the past fifteen
20:31
Speaker 4: years or so.
20:32
Speaker 2: I do generally enjoy just about everything that Robinson makes.
20:36
Speaker 4: Yeah, yeah, he's hilarious.
20:39
Speaker 1: Winner.
20:40
Speaker 4: Bill from Easton, Mass is our winner today, taking home
20:42
Speaker 4: a Financial Exchange Show T shirt. Congrats to Bill, and
20:45
Speaker 4: we play trivia every day here on the Financial Exchange.
20:49
Speaker 4: See complete contest rules at Financial Exchange Show dot com.
20:52
Speaker 2: In a non ruling ruling by the Supreme Court, I
20:56
Speaker 2: don't know how to phrase this one, but in a
20:59
Speaker 2: kind of straange ruling by the Supreme Court, they have
21:02
Speaker 2: made statements that seem to insulate the Federal Reserve more
21:06
Speaker 2: from the President's ability to fire them. Here's what's been
21:09
Speaker 2: going on is the President has removed the heads of
21:13
Speaker 2: several independent agencies of the federal government, and they have
21:18
Speaker 2: been suing both for hey, is this actually cause that
21:22
Speaker 2: you've removed us for and also they have brought the
21:24
Speaker 2: cases to the Supreme Court trying to stay those removals, stating, hey,
21:29
Speaker 2: the president doesn't actually have this power. And one of
21:31
Speaker 2: the arguments they made was, look, if you allow him
21:33
Speaker 2: to do this, then he is therefore allowed to remove
21:37
Speaker 2: the head of an independent agency, quasi government agency like
21:41
Speaker 2: the Federal Reserve, which is a very unique agency insofar
21:47
Speaker 2: as it is an independent central bank and also government agency.
21:51
Speaker 2: It's a quasi government agency as it gets described. So
21:54
Speaker 2: the Supreme Court, however, ruled in favor of the White
21:57
Speaker 2: House in this case and said, no, look, they can
21:59
Speaker 2: proceed with the removal. The lower court cases, which still
22:02
Speaker 2: are trying to determine is it actually for cause and
22:05
Speaker 2: therefore can they be removed for those reasons will play out,
22:08
Speaker 2: but they weren't going to stay the removal itself. However,
22:12
Speaker 2: in that ruling, they also spoke about the Federal Reserve
22:17
Speaker 2: in particular, and I'm trying to find the exact Yeah,
22:21
Speaker 2: the majority said the FED was different because it is
22:24
Speaker 2: quote a uniquely structured quasi private entity that follows in
22:29
Speaker 2: the distinct historical tradition of the First and Second Banks
22:33
Speaker 2: of the United States. This therefore suggested that the FED
22:36
Speaker 2: officials lay beyond the President's reach in terms of removal.
22:40
Speaker 2: So it's again interesting to me because it's not a ruling.
22:43
Speaker 2: They have not definitively come out and said that the
22:46
Speaker 2: Federal Reserve is protected from removal from the White House,
22:49
Speaker 2: but they have sent a pretty strong hint that if
22:53
Speaker 2: this were to be brought in front of them, they
22:54
Speaker 2: might rule in favor of J. Powell or whatever. Fed
22:58
Speaker 2: governor they attempted to remove, so.
23:00
Speaker 3: I'm not qualified to comment on a legal indoor size.
23:04
Speaker 3: I feel very comfortable though, saying that every researcher who's
23:07
Speaker 3: looked at central bank meaning the FED, the European Central Bank,
23:11
Speaker 3: Bank of Japan, that's just a general term that has
23:14
Speaker 3: looked at measures of central bank independence relative to outcomes
23:18
Speaker 3: like inflation, which we all agree I think is an
23:20
Speaker 3: important variable for the FED to get and keep under control.
23:24
Speaker 3: Arguably it should be its only band aid. But that's
23:27
Speaker 3: just because I'm a hard money YEP anti inflation fanatic.
23:30
Speaker 3: There are plenty of people who think the FED should
23:31
Speaker 3: have its eye on other balls as well. I don't
23:33
Speaker 3: think that's worked out too well. But anyone who's ever
23:36
Speaker 3: looked at central bank independence, meaning you appoint somebody who's
23:39
Speaker 3: an incredible inflation fighter and you let them do their thing,
23:43
Speaker 3: they've con and not everybody follows that philosophy. Of course,
23:47
Speaker 3: anybody who's ever looked at this has concluded that central
23:51
Speaker 3: bank independence. I won't say it's a prerequisite, because it's
23:54
Speaker 3: always hard to get the chicken egg arrow right, because
24:00
Speaker 3: those countries might have been a disciplined those those countries'
24:05
Speaker 3: governments might have been disciplined, they fight to begin.
24:09
Speaker 2: With other roles and better governance than the first place.
24:11
Speaker 3: Oh, always other factors that you have to control for
24:14
Speaker 3: in these analyzes. I will say, no one has ever
24:16
Speaker 3: come up with a convincing case that the head of
24:18
Speaker 3: the central bank should be whimsically removed or should be
24:22
Speaker 3: under the thumb of some politician. Whenever that has happened anywhere,
24:25
Speaker 3: including here, including in nineteen sixty nine nineteen seventy, when
24:29
Speaker 3: Nixon pressured his buddy Arthur Burns, who he made Arthur
24:32
Speaker 3: Burns was like the Lawrence Summers of his That may
24:35
Speaker 3: not be the best analogy, but he was a prominent,
24:38
Speaker 3: respected business cycle theorist and practitioner. Like there was nobody
24:42
Speaker 3: with better credentials than Arthur Burns. His name gets run
24:44
Speaker 3: through the mud today, but it's important to keep in
24:45
Speaker 3: mind what a revered figure he was, and at least
24:48
Speaker 3: in economic circles. Then he botched it at the FED.
24:50
Speaker 3: His name is now synonymous with how not to run
24:53
Speaker 3: a central bank. That is in partant because Nixon pressured
24:56
Speaker 3: him to keep money easy. Even Ronald Reagan, who Revere
25:00
Speaker 3: and many other people, maybe many people listening to this show,
25:02
Speaker 3: Revere his administration, not him, directly put a little pressure
25:06
Speaker 3: on Vulcar Jim Jim Baker poking Volker in the chest,
25:09
Speaker 3: don't you raise rates? Volker saying, hey, buddy, I wasn't
25:12
Speaker 3: going to. Don't worry about it. My point is, it
25:14
Speaker 3: took us decades, Mike, to get to this point, and
25:17
Speaker 3: it would be a tragedy if we sacrificed central bank
25:20
Speaker 3: independence on the altar of short term expediency. It would
25:24
Speaker 3: be That sounds like a very grandiose thing to say,
25:26
Speaker 3: but I just mean keep politicians out of it and
25:29
Speaker 3: appoint somebody with credibility.
25:31
Speaker 2: And the spring then do their thing. Again. This is
25:34
Speaker 2: not a ruling. It does not forbid the Trump administration
25:36
Speaker 2: from doing so, but rather sends a shot across the bow, saying,
25:39
Speaker 2: if this were to end up in front of us,
25:42
Speaker 2: this is likely how we review it.
25:43
Speaker 3: As my read, Trump has heard here in that he's
25:46
Speaker 3: already compromised whoever he will appoint in a year. He's
25:49
Speaker 3: already made it clear what he's looking for in a
25:51
Speaker 3: central banker, that is, somebody who will lower interest rates.
25:53
Speaker 3: When he says lower interest rates, that is not helpful
25:56
Speaker 3: for long run price stability. Trump has some good much
26:00
Speaker 3: better qualified than I am, Harvard PhD type economists directly
26:04
Speaker 3: accessible to him. I suspect they're telling him this. Kevin Walsh,
26:08
Speaker 3: who's thought to be his likely nominee to replace Jerome Powell,
26:13
Speaker 3: has good inflation fighting credentials. I'd call him a hard
26:16
Speaker 3: money guy. He puts inflation above anything else, as I
26:20
Speaker 3: think a central banker should. That would be a good choice,
26:22
Speaker 3: as long as Trump doesn't make the mistake of hamstringing
26:25
Speaker 3: him by making it some sort of requirement that he
26:28
Speaker 3: bend to Trump's will in advance. I hope that doesn't
26:31
Speaker 3: happen for all of our sakes.
26:32
Speaker 4: The United States Virgin Islands has consistently voted one of
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27:33
Speaker 2: The White House has announced that the penny is going
27:36
Speaker 2: to stop being minted next year, at the end of
27:38
Speaker 2: an era A bunch of really funny posts by the way,
27:41
Speaker 2: from people named Penny. Penny Lee, the president CEO of
27:45
Speaker 2: Financial Technology Association, said, well, this is awkward. I guess
27:48
Speaker 2: I have no one to blame from myself but myself,
27:50
Speaker 2: given that I work for the fintech industry. Hopefully people
27:53
Speaker 2: won't retire me, but the penny is going away. As
27:57
Speaker 2: it's been highly publicized, it costs about wor cents to
28:00
Speaker 2: make a penny. I think this is a purely logical
28:05
Speaker 2: and good idea to do away with the penny, given
28:08
Speaker 2: how few transactions are actually conducted with cash these days
28:12
Speaker 2: and the annoyance of pennies in general.
28:15
Speaker 3: A good argument for keeping the penny? Have you other
28:17
Speaker 3: than like nostalgic or sentimental argument?
28:19
Speaker 2: Rankly, I haven't even heard a single argument for the
28:22
Speaker 2: penny from anyone other that is, other than a lobbyist
28:26
Speaker 2: for the penny industry.
28:27
Speaker 4: Let's just do it with the nickel while we're at it.
28:29
Speaker 2: Sure, yeah, like go why? Yeah?
28:31
Speaker 3: And don saving time?
28:33
Speaker 2: Here's my only question?
28:34
Speaker 4: Quarter you can keep?
28:35
Speaker 2: I go to seven to eleven, I buy a pack
28:36
Speaker 2: of gum. They ring me up and it costs three
28:38
Speaker 2: dollars and sixty seven cents. I go to pay with
28:42
Speaker 2: my credit card. Am I charged three dollars and sixty
28:46
Speaker 2: seven cents? Or am I charged three dollars and seventy cents?
28:50
Speaker 1: I don't know.
28:50
Speaker 2: I'm same question if I go to pay for a penny.
28:53
Speaker 2: Do I have a different actual transaction price if I'm
28:56
Speaker 2: paying via a digital means? Verse says cash?
29:01
Speaker 3: No is the short answer, right, I don't.
29:03
Speaker 2: Nobody's told me. I don't think. I don't think it's necessarily.
29:06
Speaker 2: It could very well be that seven eleven says, Yeah,
29:08
Speaker 2: for all cash transactions, round down to the lowest five cents,
29:11
Speaker 2: but for all digital transactions, charge the actual penny transaction.
29:15
Speaker 2: Because what are we going to do, like across financial institutions,
29:18
Speaker 2: just start rounding up interest and and everything else.
29:21
Speaker 3: Oh economist, they're going to go crazy studying how quickly
29:23
Speaker 3: people adjust their prices, because price would just price. Stickiness
29:26
Speaker 3: is a huge research Well it's not like new but
29:30
Speaker 3: it's an interesting research area.
29:31
Speaker 2: So so those are my only and this is not
29:35
Speaker 2: a worthy conversation of not doing it with a penny.
29:38
Speaker 2: But I'm just curious. You know, if if I go
29:39
Speaker 2: and buy that pack of cigarettes or pack a gum
29:41
Speaker 2: and with the sales tax, I don't I don't know
29:45
Speaker 2: why I'd be buying a cigarette. So I ever smoked
29:48
Speaker 2: a cigarette my entire life for research?
29:51
Speaker 3: Yeah, but you smoked all twenty What do you mean
29:55
Speaker 3: we just bought a sip stinks like cigarettes.
29:59
Speaker 2: Now, let's take a quick break. When we come back,
30:02
Speaker 2: Paula Monica join us talk about the AI wave and IBM.
30:06
Speaker 2: That's next here on the Financial Exchange.
30:08
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30:34
Speaker 5: Ladies and gentlemen, the weekend.
30:40
Speaker 4: Well with Memorial Day approaching, now is a great time
30:43
Speaker 4: to register for the DAV five k, taking place on
30:47
Speaker 4: Saturday November eighth at Fort Independence on Castle Island. The
30:50
Speaker 4: race has sold out each of the past four years
30:52
Speaker 4: and slots are continuing to fill up quickly, so don't delay.
30:56
Speaker 4: Visit DAV five KT Boston reserve your spot, or join
31:01
Speaker 4: our team here at the Financial Exchange by registering under
31:05
Speaker 4: Team TFE. That's Saturday, November eighth for this year's DAV
31:10
Speaker 4: five k. Sign up now at DAV fivek dot Boston.
31:14
Speaker 2: Join us now is Paul Lamonica from Barons here to
31:17
Speaker 2: talk to us about what I think might be the
31:19
Speaker 2: least discussed AI play out there. Good old IBM. Paul,
31:24
Speaker 2: Thanks for joining us. Hapy Friday talk to us about
31:27
Speaker 2: IBM stock is kind of under the radar for me.
31:29
Speaker 2: It's up nearly twenty percent so far this year.
31:32
Speaker 6: Yeah, it's amazing. IBM big blue, the best performer in
31:38
Speaker 6: the Dow, and as you accurately pointed out, I think
31:41
Speaker 6: investors have finally realized that there is growth in the
31:48
Speaker 6: software and services business. AI is a big part of that,
31:53
Speaker 6: the cloud as well. They have products and services like
31:57
Speaker 6: Granite and Watson X that you'll big corporations are spending
32:02
Speaker 6: a lot of their IT money on and that's helping
32:05
Speaker 6: fuel the growth in the software and services businesses and
32:10
Speaker 6: probably the excitement about the stock as well. The problem though,
32:13
Speaker 6: is that, you know, IBM used to be viewed as
32:17
Speaker 6: this stodgy hardware company, and even though they still have
32:21
Speaker 6: a bit of hardware, you know, mainframes, they don't you know,
32:25
Speaker 6: have the PC and server business as much anymore. It's
32:28
Speaker 6: now an evaluation that is a lot more expensive. It
32:32
Speaker 6: used to trade it around fifteen times earnings, now up
32:35
Speaker 6: to twenty four earnings estimates. That's ahead of the S
32:38
Speaker 6: and P five hundred.
32:40
Speaker 2: Yeah, it's still pretty light compared to other companies that
32:43
Speaker 2: have exposure to the artificial intelligence industry. I think about IBM.
32:47
Speaker 2: I mean, when did they release Watson. It was early
32:51
Speaker 2: two thousands, right, This was a company that's been talking
32:54
Speaker 2: about artificial intelligence for longer than just about any company
32:58
Speaker 2: out there, but yet has failed to be on the
33:00
Speaker 2: cutting edge. Where where are they in terms of that
33:03
Speaker 2: cutting edge today? Where are they seeing success stories in
33:07
Speaker 2: artificial intelligence? And does it have staying power in what's
33:12
Speaker 2: a very fast moving industry.
33:14
Speaker 6: Yeah, I mean, I think to IBM's credit, they have
33:17
Speaker 6: had success with Watson, and there is staying power. The
33:21
Speaker 6: problem though, is that IBM is such a gigantic, diversified
33:28
Speaker 6: business that even the growth that they have in software
33:32
Speaker 6: and services isn't enough to move the needle that much. So,
33:38
Speaker 6: you know, earnings per share expected to grow about six
33:41
Speaker 6: percent this year seven percent over the next few years.
33:45
Speaker 6: That's that's not bad, but it may not justify a
33:49
Speaker 6: multiple of twenty four because when you look at what
33:53
Speaker 6: you know Wall Street refers to as a peg ratio
33:55
Speaker 6: where you divide the current pe divided by the long
33:58
Speaker 6: term earnings growth rate, it's trading about three and a
34:01
Speaker 6: half times it's projected long term growth rate. To put
34:05
Speaker 6: that in perspective that's higher than Nvidia and Alphabet and
34:10
Speaker 6: just in line with Amazon as well. And I don't
34:12
Speaker 6: think any investor in their right mind thinks that IBM
34:16
Speaker 6: is as dynamic a growth stock as those three Magnificent
34:19
Speaker 6: seven companies.
34:20
Speaker 2: Likely not. Where do analysts line up on this right?
34:22
Speaker 2: Is there a lot of optimism among the professional investing
34:25
Speaker 2: community out there?
34:26
Speaker 6: Yeah, that's interesting as well, because you know, there's a
34:28
Speaker 6: lot of people who joke about how you know, Wall
34:31
Speaker 6: Street is perpetually bullish, and you know by ratings are
34:36
Speaker 6: all the norm. IBM it's split half of the analysts
34:40
Speaker 6: that follow it having to buy the remaining fifty percent
34:43
Speaker 6: either a hold or even a couple of people with
34:46
Speaker 6: the sell. You know, that's I think telling is it
34:50
Speaker 6: shows that there's still skepticism and doubt about whether or
34:54
Speaker 6: not IBM deserves this type of multiple make the mistake.
34:58
Speaker 6: You know, you're not going to find too many people
35:00
Speaker 6: who think IBM is doing something wrong. It's not as
35:03
Speaker 6: much a concern about IBM's strategy. It's just whether or
35:07
Speaker 6: not investors are paying too much for it and if
35:10
Speaker 6: there are just too many risks to the downside with
35:15
Speaker 6: regards to execution for a stock that's now priced for perfection.
35:19
Speaker 2: It's paul A Monica join us today to talk about
35:22
Speaker 2: International Business Machines IBM and their AI exposure and their
35:26
Speaker 2: surging stock price holding up the Dow this year. Paul,
35:29
Speaker 2: thanks for joining us. Appreciate it. We'll talk to you
35:32
Speaker 2: next week.
35:33
Speaker 5: Great.
35:33
Speaker 6: Have a good weekend, guys, good long weekend.
35:35
Speaker 2: Yeah, there's the old phrase in the financial industry, right,
35:39
Speaker 2: nobody gets fired for buying IBM. I think that's a
35:42
Speaker 2: few decades outdated now, but that was like the perpetual
35:46
Speaker 2: story in fund managers and portfolio managers that you don't
35:49
Speaker 2: get fired for buying IBM, And that turned out to
35:52
Speaker 2: be the wrong advice for a few decades now with IBM.
35:56
Speaker 3: I thought that referred to purchasing services IBM, like when
36:01
Speaker 3: you've got a bunch of vendors, you don't hire the
36:03
Speaker 3: upstart whom pitches you.
36:06
Speaker 2: Oh sorry, now you're gonna.
36:07
Speaker 3: Talk O, right, Okay, I was gonna keep talking anyway. Right,
36:11
Speaker 3: So have I been using that the wrong way?
36:13
Speaker 5: No?
36:13
Speaker 2: Maybe maybe you're right, Maybe there's a vation more in
36:15
Speaker 2: the tech space.
36:16
Speaker 3: Yeah, because I think a lot of managers, investment managers
36:19
Speaker 3: get fired for holding too much IBM over the past
36:22
Speaker 3: twenty five years. Sotly another great American institution that we
36:26
Speaker 3: should probably be rooting for.
36:27
Speaker 2: Yeah, yeah, definitely fallen from its heights, but interesting to
36:31
Speaker 2: see it actually executing a little bit.
36:33
Speaker 3: I feel like I have to go back and correct
36:34
Speaker 3: myself with about five hundred people with whom I've used
36:37
Speaker 3: that stupid.
36:38
Speaker 2: It's probably equally expression, I am the wrong one on
36:41
Speaker 2: this one. Mark buyers seem to be gaining the upper
36:44
Speaker 2: hand in a what is a certainly shifting housing market,
36:49
Speaker 2: everybody seemingly wanting a deal. This is another one of
36:51
Speaker 2: those stories that I have a tough time relating to
36:54
Speaker 2: here in New England, but you are starting to see
36:57
Speaker 2: signs of it across the country that with interest rates
37:01
Speaker 2: where they are, with housing inventories continuing to tick up,
37:05
Speaker 2: and with the weakest April sales month since two thousand
37:09
Speaker 2: and nine. That's what we just finished was the single
37:12
Speaker 2: weakest April for home sale since two thousand and nine. Inventory,
37:17
Speaker 2: it seems, is just going to continue to increase again.
37:22
Speaker 2: It might not really help here in the New England
37:25
Speaker 2: area because we are so far off of this. I
37:27
Speaker 2: was looking in Connecticut again the other day. Compared to
37:30
Speaker 2: April of twenty nineteen, the state of Connecticut only has
37:33
Speaker 2: about twenty four percent of the homes for sale that
37:35
Speaker 2: they did in twenty nineteen. But nonetheless, here we are
37:39
Speaker 2: in May April of twenty twenty five, and there are
37:43
Speaker 2: nearly a million homes for sale active listings across the country.
37:47
Speaker 2: You know, this time last year we were sitting at
37:50
Speaker 2: three quarters of a million, So the uptick is happening.
37:53
Speaker 2: What happens with prices next to me is the big question,
37:56
Speaker 2: because I don't think they can be sustained at seven
37:58
Speaker 2: point one percent in straights. So all the time we
38:01
Speaker 2: have for the financial exchange this week, we'll be back
38:04
Speaker 2: at it next week with more updates on tariffs, taxes,
38:08
Speaker 2: and all the things important to the economy today. Have
38:11
Speaker 2: a great long weekend everybody. We'll see you Tuesday,