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Is Policy Uncertainty the Biggest Risk to Markets Right Now? · The Financial Exchange Show

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Speaker 1: heroes by visiting dav five K DOC Boston and making
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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: Good morning, Hope everybody is successfully digging out of the
1:18
Speaker 2: foot or more of snow blanketing New England and especially
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Speaker 2: the coastal regions there, and doing so without having heart attacks.
1:25
Speaker 2: Take your time, it's some pretty heavy snow. I got
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Speaker 2: the snowblow it twice this morning myself to get you know,
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Speaker 2: our eight minute drive over to the studio. It's Mike Armstrong,
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Speaker 2: Mark Fandetti and Tucker Silva with you on the second
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Speaker 2: day of trading after tariffs have been ruled illegal from
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Speaker 2: the Supreme Court. Will be spending a lot of time
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Speaker 2: on the new normal four tariffs, because that new normal
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Speaker 2: is changing seemingly on an hourly basis. We've got a
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Speaker 2: bunch of earnings coming up this week as well, including
1:52
Speaker 2: from the largest US company, or frankly largest publicly traded
1:57
Speaker 2: company in the world in Nvidia. So a lot to
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Speaker 2: get into, Mark, But as of this morning, there were
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Speaker 2: some thirty eight hundred flights canceled across the US on Monday.
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Speaker 2: I think that brings the grand total between Sunday and
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Speaker 2: Monday up to over five thousand flights. Nobody in their
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Speaker 2: right mind is out there driving a whole lot. Today,
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Speaker 2: I do generally wonder, you know, we've had a colder
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Speaker 2: than normal winter, some storms in areas across the country
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Speaker 2: that don't typically see storms. I'm wondering just how noticeable
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Speaker 2: the hit will be to GDP, for example, a few
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Speaker 2: months from now, when we get the first quarter results
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Speaker 2: on GDP. Because ultimately, while some of the business activity
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Speaker 2: just gets delayed in a storm like this, you know,
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Speaker 2: much of it permanently disappears. As you know, certain businesses
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Speaker 2: shut down and won't see those sales rebound for those
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Speaker 2: specific days that they do.
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Speaker 3: Yet it's typically thought of as a temporary effect. Yeah, Mike,
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Speaker 3: I don't want to downplay how people live the experience
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Speaker 3: of adverse weather, but typically, for obvious reasons, it bounces back,
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Speaker 3: doesn't affect the trend in long term growth. But that
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Speaker 3: sort of abstract, academically kind of fact is cold comfort
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Speaker 3: to people who are again it firstly affected.
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Speaker 2: But yeah, generally speaking, while we do load up on
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Speaker 2: those milk sandwiches this time of this time a year,
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Speaker 2: you know.
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Speaker 4: Milk sandwiches, what are you talking about?
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Speaker 2: Everybody, for some reason, every time a snowstorm hits buys
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Speaker 2: milk and bread yeah, yeah, I don't know what they
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Speaker 2: do with the milk and bread, but they buy six
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Speaker 2: loaves of bread, three gallons of milk, and they have
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Speaker 2: a milk sandwiches. Presumably, I'm not the first word to
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Speaker 2: make this joke. The Town of Needham police department constantly
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Speaker 2: makes jokes about milk sandwiches because the idiocy behavior of
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Speaker 2: people go into the grocery store ahead of storms. But yeah,
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Speaker 2: most of that activity, to your point, Mark, It's not
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Speaker 2: as though because I couldn't go to the grocery store today,
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Speaker 2: I'm never going to buy groceries to refill my fridge.
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Speaker 2: It's just going to get delayed. Wages that would would
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Speaker 2: have gotten paid maybe get paid in overtime later in
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Speaker 2: the week. Area that you point to, You know, when
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Speaker 2: flights get canceled, sometimes they don't get made up, and
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Speaker 2: sometimes that's permanently lost revenue for the airlines. One thing
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Speaker 2: I'm certain of is, whether you're an airline, a retailer,
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Speaker 2: or any other business that is affected in some small
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Speaker 2: way by a snowstorm, if you have bad earnings in
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Speaker 2: Q one, when you go to report in April or May,
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Speaker 2: you will almost certainly be blaming those bad earnings on
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Speaker 2: the bad weather from the first quarter of this year.
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Speaker 2: To your point, though, most of the impact economically from
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Speaker 2: this stuff tends to be temporary and made up elsewhere
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Speaker 2: in yeah, weeks and months.
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Speaker 3: Yeah, it's mostly a media thing, Mike, and including on
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Speaker 3: this show. We need something to talk about.
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Speaker 2: But it is entertaining and the Globe and Channel five
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Speaker 2: and everybody else.
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Speaker 4: What about two massive storms in one winter, though, that's
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Speaker 4: gotta have some sort of economic impact, right, No.
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Speaker 2: I think you'll be able to detect the hit to GDP.
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Speaker 2: But to Mark's point, you're probably gonna make it up
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Speaker 2: in other quarters.
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Speaker 3: Right, well, you're almost you're almost certainly gonna make it.
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Speaker 3: There's the look the serious analyst. I'm not saying we're
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Speaker 3: not serious here because we are, particularly in our day jobs.
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Speaker 3: But the serious analyst is concerned about the long term trend,
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Speaker 3: whether you're trying to estimate the fair value of a
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Speaker 3: company or trying to estimate GDP a year from now
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Speaker 3: and something like this. I mean, like you said, Mike,
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Speaker 3: it could leave if it's deep, if it's a if
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Speaker 3: it's significant destruction like a hurricane, it can leave scars, sure,
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Speaker 3: but for the most part, something like this would not
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Speaker 3: affect the longer term trends. So in ten years, no
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Speaker 3: one will look back and say, oh boy, we didn't
5:39
Speaker 3: have that blizzard. I'd be so much better off today.
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Speaker 5: Correct.
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Speaker 2: Yeah, you know, town budgets, city budgets are also going
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Speaker 2: to be affected by this. Most of them have already
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Speaker 2: blown through their snow removal budgets for the year, and
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Speaker 2: so some of those will be in the red. So
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Speaker 2: you know, there are impacts here, but for the most part,
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Speaker 2: you know, if your flight got canceled on Monday because
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Speaker 2: of the snowstorm, you'll probably fly out Tuesday. The airline
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Speaker 2: will still capture that revenue. If you were going to
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Speaker 2: go shopping today for a bunch of groceries or clothing items,
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Speaker 2: then you're probably going to do so later. And if
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Speaker 2: you're a teacher who's at home because of the snowstorm
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Speaker 2: because the school is canceled, you'll be staying later in
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Speaker 2: the year in June in order to make up the day.
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Speaker 2: So by and large, yeah, while we could see a
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Speaker 2: hit to GDP in the first quarter and a hit
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Speaker 2: to certain corporate earnings in the first quarter, most of
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Speaker 2: the time it's going to be made up elsewhere, so
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Speaker 2: not to say this doesn't suck. And yeah, hundreds of
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Speaker 2: thousands of people without power likely to be a whole
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Speaker 2: lot more as the day moves on here with the
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Speaker 2: winds and very heavy snow.
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Speaker 5: So stay safe out there.
6:45
Speaker 2: Thanks for listening to our program as you are stuck
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Speaker 2: at home without a whole lot else to do, and
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Speaker 2: don't drive. I did it myself this morning, Like I said,
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Speaker 2: I had like a three mile drive to do, and
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Speaker 2: I felt a guilty being out there because all the
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Speaker 2: snowplow drivers were looking at me like what kind of
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Speaker 2: moron is driving his car in this right now?
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Speaker 5: And uh, yeah, just that would be me. Don't do
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Speaker 5: it that that, yeah, that was me. I am the people.
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Speaker 2: I am the person that everyone should be yelling at
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Speaker 2: for causing confusion and making snow plow drivers slow down
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Speaker 2: and do all that.
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Speaker 4: And don't be a let Mike you mentioned earlier, but seriously, like,
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Speaker 4: don't be a shovel hero today. It's heavy stuff out there,
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Speaker 4: the cold in the heart, don't go real, it's not
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Speaker 4: it's not good. If you're shoveling your heart's beating. It's
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Speaker 4: not good. Because I've already heard of some circumstances where
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Speaker 4: people have dropped dead shoveling this winter.
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Speaker 5: Oh yeah, so be careful.
7:39
Speaker 2: Those hearty New Englanders refuse to face our own mortality
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Speaker 2: and realize that doing that is not necessarily a good idea.
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Speaker 2: Other stuff going on this week, we'll be hearing from Nvidia,
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Speaker 2: like I mentioned in terms of their earnings home.
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Speaker 5: Depot as well.
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Speaker 1: Uh.
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Speaker 2: You will also be getting a State of the Union
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Speaker 2: addressed from the President that will be ex expressly and
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Speaker 2: especially interesting given the Supreme Court action from Friday. Let's
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Speaker 2: take a quick break now. When we come back, we're
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Speaker 2: going to revisit the news from ten am on Friday
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Speaker 2: of last week, with the Supreme Court throwing out the
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Speaker 2: majority of President Trump's tariffs that we're based on IEPA
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Speaker 2: and now imposing new tariffs over the weekend. We'll be
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Speaker 2: covering that next here on the Financial Exchange.
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Speaker 2: So, as everyone has heard at this point, the president's
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Speaker 2: use of AIPA tariffs on many different nations was overruled
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Speaker 2: by the Supreme Court on Friday morning, or at least
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Speaker 2: the announcement was made on Friday morning, and a lot
9:49
Speaker 2: has occurred since then. I do think it's worth reading
9:53
Speaker 2: one piece from the courts on their opinions, and specifically,
9:59
Speaker 2: I'm going to re from Justice Neil Gorsich's view on this.
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Speaker 5: Entire case and the terroriffs.
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Speaker 2: I think it's relevant because it speaks directly to executive power,
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Speaker 2: and I think it's relevant for when we talked about,
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Speaker 2: for instance, the Biden's attempt to throw out student loans,
10:18
Speaker 2: and you know, several other uses of executive power. So
10:22
Speaker 2: he's quoted saying and sorry, this is a bit long.
10:24
Speaker 2: But for those who think it is important for the
10:26
Speaker 2: nation to impose more tariffs, I understand that today's decision
10:29
Speaker 2: will be disappointing. All I can offer them is that
10:32
Speaker 2: most major decisions affecting the rights and responsibilities of the
10:35
Speaker 2: American people, including the duty to pay taxes and tariffs,
10:39
Speaker 2: are funneled through the legislative process for a reason. Yes,
10:42
Speaker 2: legislating can be hard and take time, and yes it
10:45
Speaker 2: can be tempting to bypass Congress when some pressing problem arises,
10:49
Speaker 2: but the deliberative nature of the legislative process was the
10:53
Speaker 2: whole point of its design. Through that process, the nation
10:56
Speaker 2: can tap the combined wisdom of the people's elected representatives
11:00
Speaker 2: just want the not just that of one faction or man.
11:05
Speaker 2: Their deliberative tempers impulse and compromise, hammers disagreements into workable solutions,
11:13
Speaker 2: and because laws must earn such broad support to survive
11:16
Speaker 2: the legislative process, they tend to endure, allowing ordinary people
11:20
Speaker 2: to plan their lives in ways they cannot when the
11:24
Speaker 2: rules shift from day to day. In all, the legislative
11:27
Speaker 2: process helps ensure each of us has a stake in
11:30
Speaker 2: the laws that govern us and the nation's future. For
11:32
Speaker 2: some today, the weight of those virtues is apparent. For
11:35
Speaker 2: others it may not seem so obvious. But if history
11:37
Speaker 2: is any guide, the tables will turn and the day
11:40
Speaker 2: will come when those disappointed by today's results will appreciate
11:44
Speaker 2: the legislative process for the bulwark of livery. It is
11:47
Speaker 2: so a lot of words there, but I think it
11:49
Speaker 2: goes to the point here that this court, in a
11:52
Speaker 2: six to three vote. Let's remember that two of three,
11:56
Speaker 2: two out of three of Donald Trump's appointees to the
11:59
Speaker 2: Supreme Court ruled to throw out these tariffs. And I
12:03
Speaker 2: think this quote kind of sums up a lot of
12:07
Speaker 2: folks views on it, which is, yes, I may be
12:11
Speaker 2: in favor of tariffs.
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Speaker 5: I may want this to go forward. I might think
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Speaker 5: it's the best idea in the world.
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Speaker 2: But allowing this type of thing to happen, even if
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Speaker 2: you truly agree with it, paves the path for future
12:23
Speaker 2: presidents to exercise executive power in ways that I don't
12:26
Speaker 2: think most people appreciate. And so I thought that appropriately
12:30
Speaker 2: summed up why this stuff was thrown out. It does
12:33
Speaker 2: not have to do with the merits of tariffs, which
12:36
Speaker 2: we have hotly debated on this own show, and I
12:38
Speaker 2: think most people listening know that we're not in favor of,
12:41
Speaker 2: but really spoke to hey, there is a process you
12:44
Speaker 2: have to go through to implement those tariffs, and now
12:46
Speaker 2: the White House is, you know, finding themselves on a
12:48
Speaker 2: different path of needing to go down that road. So
12:51
Speaker 2: mark tariffs get thrown out at ten am on Friday,
12:55
Speaker 2: pretty much immediately. The President comes out later in the
12:58
Speaker 2: day announces ten percent tariffs under a different a different
13:03
Speaker 2: rule section one twenty two of I don't recall which act,
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Speaker 2: And most experts that I have heard have said that
13:11
Speaker 2: there is much more justification for this one on Saturday
13:16
Speaker 2: than he bumps it up to fifteen percent So what
13:18
Speaker 2: you should know about this The brand new tariffs have
13:20
Speaker 2: been implemented by the White House. They are much more
13:23
Speaker 2: of a blunt force than what was used previously. They
13:27
Speaker 2: also have a time litiment on them. From what I understand,
13:30
Speaker 2: they can only be implemented for one hundred and fifty days.
13:34
Speaker 2: Where should we take this from here, Mark, And in
13:36
Speaker 2: terms of thinking about the state of tariffs now in
13:40
Speaker 2: twenty twenty six, are we right back to April of
13:42
Speaker 2: twenty twenty five.
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Speaker 3: Well, now that the question is back where it arguably
13:47
Speaker 3: properly belongs with the legislature, we've sort of settled that
13:50
Speaker 3: legal question. Now we can focus on why tariffs are
13:54
Speaker 3: or not good, are or not likely to achieve, say,
13:58
Speaker 3: particular objectives, Mike. So I'll I'll try to stay in
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Speaker 3: my economic lane here and make a couple of quick
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Speaker 3: points about tariffs. If that's helpful please, Okay. So the
14:07
Speaker 3: idea behind tariffs, I think, Mike, is to reduce imports.
14:13
Speaker 5: The pay go ahead.
14:15
Speaker 2: Like you point that out, I'm going to say that
14:18
Speaker 2: from the Trump administration's messaging, I am unsure that that
14:22
Speaker 2: has been they shifted.
14:23
Speaker 3: I'm giving them the benefit here, though, I'm trying to
14:26
Speaker 3: lend some I am sane, washing all the helter skelter.
14:31
Speaker 3: One day, I'm putting tariffs on one country because they
14:33
Speaker 3: upset me. The next day, I'm giving somebody else a
14:36
Speaker 3: break because they made a big investment in America. I'm
14:39
Speaker 3: trying to make that more coherent and just say they
14:40
Speaker 3: want more, they want American, they want to revive American manufacturer.
14:47
Speaker 3: The problem with tariffs is that they don't do that.
14:49
Speaker 3: They make imports more expensive. Okay, we all accept that,
14:53
Speaker 3: but business is by most of the imports their inputs
14:56
Speaker 3: to further production. That's why the auto industry hates steel tariffs.
15:00
Speaker 3: That's why the candy making industry, when we used to
15:02
Speaker 3: have one in this country, we don't anymore because of
15:04
Speaker 3: sugar tariffs. They put thousands of people out of jobs.
15:06
Speaker 3: So it's important to remember that while politicians often out
15:11
Speaker 3: the jobs saved by tariffs, nobody pays any attention to
15:16
Speaker 3: the many many more jobs lost because inputs got more expensive.
15:20
Speaker 3: That's one point about tariffs to keep in mind. The
15:23
Speaker 3: second point, and related to it, is that we actually
15:26
Speaker 3: lost one hundred and twenty thousand manufacturing jobs last year. Now,
15:29
Speaker 3: we lost manufacturing jobs. The year before we lost about
15:32
Speaker 3: twenty thousand, but that pace increased. And though I haven't
15:36
Speaker 3: seen anybody tease out the effect of tariffs yet, it's
15:38
Speaker 3: hard to argue that some of that is not attributable
15:41
Speaker 3: to precisely the effect of to the effect that I
15:44
Speaker 3: was talking about earlier, the fact that tariffs may save
15:46
Speaker 3: a few jobs, but it's at the expense of many
15:49
Speaker 3: other jobs, not to mention the increased cost of things
15:52
Speaker 3: that we as consumers buy.
15:54
Speaker 2: Yeah, So look, I think that there is a very
15:57
Speaker 2: fair point there, which is there is little evidence throughout
15:59
Speaker 2: history that imposing tariffs actually increases American manufacturing capability, competitiveness,
16:07
Speaker 2: and employment. There's no evidence to support that it does.
16:11
Speaker 2: I'll also be willing to say, though, Mark, that we
16:15
Speaker 2: didn't in this case actually get to test out broad
16:19
Speaker 2: based tariffs on almost everything coming into the United States
16:25
Speaker 2: across those borders, and we rarely have in US history
16:29
Speaker 2: attempted that, in modern US history attempted that either, Right,
16:32
Speaker 2: the tariffs that we've seen that have been studied have
16:35
Speaker 2: been on specific industries, and it's pretty clear what has
16:37
Speaker 2: happened in that case.
16:38
Speaker 5: This was different.
16:39
Speaker 2: This was Hey, just about everything is getting a tariff,
16:41
Speaker 2: and it's getting a pretty substantial tariff.
16:43
Speaker 5: So I think.
16:45
Speaker 2: Uncertain what would have been in the impact, you know,
16:47
Speaker 2: over the next decade had these tariffs state in place.
16:50
Speaker 2: But also I think it's irrelevant because they can't stay
16:52
Speaker 2: in place based on how it was done. I now
16:54
Speaker 2: want to kind of turn to a few different groups
16:57
Speaker 2: and think about how things may play out over the
17:00
Speaker 2: course of.
17:01
Speaker 5: The next year.
17:01
Speaker 2: So one would be American businesses, two would be foreign
17:05
Speaker 2: trade partners, and three would be American politicians, because I
17:09
Speaker 2: think they all are going to be facing some interesting
17:13
Speaker 2: challenges over the course of the next few months. Let's
17:16
Speaker 2: start off with American businesses. So I think there's a
17:21
Speaker 2: lot of evidence that unless you were operating in an
17:24
Speaker 2: industry that was responsible for building up AI infrastructure and
17:29
Speaker 2: that specific type of manufacturing, construction, and technology, you've been
17:36
Speaker 2: sitting the last year and kind of scratching your head
17:38
Speaker 2: and just pausing a whole lot of investment plans.
17:41
Speaker 5: Right. You think through Ford Motor, you think through.
17:45
Speaker 2: Lumber yards, home builders, they've all just been kind of
17:49
Speaker 2: sitting back and saying, we don't really know what trade
17:52
Speaker 2: policy is going to look like this year, next year,
17:55
Speaker 2: and so we're not going to make a giant investment
17:58
Speaker 2: in a new American manufacturing plant. We're not going to
18:01
Speaker 2: relocate manufacturing from Canada or Mexico or elsewhere. We're just
18:06
Speaker 2: gonna kind of absorbed these tariffs, maybe pass a bunch
18:09
Speaker 2: of it onto the consumer for now, but making big
18:12
Speaker 2: investments to change our manufacturing process not going to happen
18:15
Speaker 2: until we have certainty that's now just been kicked down
18:19
Speaker 2: the you know, kick down the road for another who
18:22
Speaker 2: knows how long, right, Because at this stage, if you
18:26
Speaker 2: were confused about where tariffs were for your business six
18:29
Speaker 2: months ago, you absolutely have no idea where they're going
18:33
Speaker 2: to be at this stage.
18:33
Speaker 1: Is that?
18:34
Speaker 5: Is that fair to say in your estimation?
18:36
Speaker 3: Well, I think what happened last Friday, which you've already recounted,
18:40
Speaker 3: is evidence of that. Tariff started the day on Friday
18:43
Speaker 3: a blanket tariff at ten percent, and then I guess
18:46
Speaker 3: something happened overnight on Friday that upset the president because
18:49
Speaker 3: they went up to fifteen percent. Moreover, this will be
18:52
Speaker 3: in effect for what one hundred and eighty days, at
18:53
Speaker 3: which point Congress has to vote up or down on it.
18:55
Speaker 5: One hundred and fifty, I think one hundred.
18:58
Speaker 3: Excuse me, thank you, Yeah, jeez, I think I would
19:01
Speaker 3: have done my homework on that simple point. But thank you.
19:03
Speaker 3: So we've got six months of now a vacillation or
19:08
Speaker 3: fluid tariffs, let's say, because he could change it again tomorrow.
19:11
Speaker 3: It'd be nice if you just if you just stop
19:13
Speaker 3: doing if we could impart one bit of advice to
19:15
Speaker 3: the White House, it would be But then again, everybody's
19:17
Speaker 3: everybody feels this way, stop doing that, declare rates, stick
19:20
Speaker 3: with it, and then let's see. Then then, like you said, Mike,
19:23
Speaker 3: we can we can test it. We can't because the
19:26
Speaker 3: rules keep changing.
19:27
Speaker 2: Quick Break, No, we got quick break Wall Street Watch
19:30
Speaker 2: coming up next.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:42
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:52
Speaker 1: Street Watch a complete look and what's moving market so
19:55
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:00
Speaker 4: Markets in negative territory to begin the week, as Wall
20:03
Speaker 4: Street continues to navigate tariff uncertainty amid the Supreme Court
20:06
Speaker 4: overturning President Trump's tariffs on Friday. On Saturday, Trump said
20:11
Speaker 4: he would increase to a fifteen percent. Global tariff traders
20:15
Speaker 4: are also readying for a significant earnings report from AI
20:18
Speaker 4: and chip giant in Vidia, as well as retailer Home
20:21
Speaker 4: Depot this week. Right now, the Dow is selling off
20:24
Speaker 4: one point three percent, or six hundred and fifty five points,
20:28
Speaker 4: SMP five hundred down about three quarters of a percent
20:31
Speaker 4: or forty nine points lowered, NASDAK down seven tenths of
20:34
Speaker 4: one percent or one hundred and sixty three points. Russell
20:37
Speaker 4: two thousand selling off over one and a half percent.
20:41
Speaker 4: Ten year Treasury yield is down three basis points at
20:45
Speaker 4: four point zero five four percent. To crew to Oil
20:48
Speaker 4: up one percent higher today, trading at sixty seven dollars
20:52
Speaker 4: and twenty three cents a barrel. Eli Lilly announced a
20:56
Speaker 4: new form of its blockbuster obesi drug, zep Bound, that
20:59
Speaker 4: offers it a month's worth of doses in a single pen. Separately,
21:03
Speaker 4: Nova Nordas said its obesity treatment failed to beat the
21:07
Speaker 4: weight loss delivered by Eli Lily's zep Bound in a
21:11
Speaker 4: head to head trial. Nova Nordas shares plunging fifteen percent
21:15
Speaker 4: on that news, while Eli Lilly's stock is rising nearly
21:18
Speaker 4: four percent. Another drug maker, Megaging headline stays Merk after
21:23
Speaker 4: the company announced it's splitting its pharmaceuticals unit to bolster
21:26
Speaker 4: product launches before a crucial patent loss, where one will
21:30
Speaker 4: house its cancer drugs, including its blockbuster ki Truda. Merkstock
21:36
Speaker 4: is mostly flat. Meanwhile, Domino's Pizza posted solid fourth quarter
21:40
Speaker 4: results where its same store sales climb three point seven
21:43
Speaker 4: percent and logged a six point four percent increase in
21:47
Speaker 4: fourth quarter revenue. The pizza chain also raised its quarterly
21:50
Speaker 4: dividend by fifteen percent. Shares and Dominoes are up by
21:54
Speaker 4: three percent, and several airline stocks, including United American and Delta,
21:58
Speaker 4: trading about four percent low or amid the widespread snowstorm
22:02
Speaker 4: impacting the Northeast, resulting in thousands of flight cancelations on
22:08
Speaker 4: Tucker Silvan that is Wall Street watch mark.
22:11
Speaker 2: Before the break, we were talking about the Supreme Courts
22:14
Speaker 2: striking down the President's tariffs under the International Emergency Economic
22:20
Speaker 2: Powers Actor i EPA as it's being referred to. Also
22:25
Speaker 2: on Friday, the President referred to the process for reimbursement
22:29
Speaker 2: of tariffs. Now, it's estimated that anywhere between one hundred
22:33
Speaker 2: and thirty four and one hundred and seventy five billion
22:36
Speaker 2: dollars has been collected under these tariffs, and the President
22:40
Speaker 2: on Friday alluded to, you know, it could end up
22:42
Speaker 2: being in court for the next five years to figure
22:45
Speaker 2: out how this goes, and so that is another part
22:50
Speaker 2: of the conversation we were having around how this impacts corporation.
22:53
Speaker 2: So there's going to be this reimbursement process. I think
22:57
Speaker 2: companies are probably very aware of what they have paid
22:59
Speaker 2: into tariffs, although it's probably pretty complicated to determine which
23:02
Speaker 2: ones were under AEPA versus which ones are under other
23:06
Speaker 2: still legal tariffs such as those on autos and auto
23:09
Speaker 2: parts steal, et cetera. But I sure as an American taxpayer,
23:14
Speaker 2: sure hope it doesn't take five years. Because the other
23:17
Speaker 2: piece of this that I am almost certain is the
23:19
Speaker 2: case if the government has collected a bunch of revenue
23:23
Speaker 2: illegally and the courts have confirmed that that collection was illegal.
23:29
Speaker 2: I think these companies are going to be entitled to
23:31
Speaker 2: interest as well. So this is going to be a
23:34
Speaker 2: long drawn out process. I don't think it is going
23:36
Speaker 2: to be immediate. I also don't think it's going to
23:38
Speaker 2: be inflationary, at least measurably inflationary when the companies do
23:42
Speaker 2: receive that revenue back, because I think it's going to
23:44
Speaker 2: take so long, but gosh, if it takes five years,
23:47
Speaker 2: you can think about you know, seven percent interest compounded
23:51
Speaker 2: on the money that has to be paid back. That
23:53
Speaker 2: part sure would sting to the deficit, which you know
23:59
Speaker 2: you're talking about the reasoning behind the teriff. That was
24:01
Speaker 2: another reason that these things were introduced, or at least
24:04
Speaker 2: part of the explanation for them was, hey, we're going
24:06
Speaker 2: to use this to reduce deficits, and there at least
24:10
Speaker 2: we could measure the impact. The impact on employments in
24:13
Speaker 2: other areas was tougher to measure, but there at least
24:16
Speaker 2: we could say, Okay, yeah, this is at least doing
24:20
Speaker 2: more to balance the budget than what we had seen previously.
24:23
Speaker 3: Yeah, tariffs are a bad enough idea for reasons that
24:26
Speaker 3: we talked about, and those reasons are not intuitive, so
24:29
Speaker 3: that's why I keep reciting them. It's not obvious that
24:32
Speaker 3: restricting imports actually extrict restricts exports too, because the two
24:37
Speaker 3: move in tandem. It's not obvious that the trade deficit
24:40
Speaker 3: as a result of us not saving enough. You might
24:43
Speaker 3: wonder how are those two things related. But in fact,
24:46
Speaker 3: trade deficits and budget deficits, which are a form of
24:48
Speaker 3: to saving move together. I'm rehashing the economic arguments for
24:51
Speaker 3: a second, Mike. So on top of that you layer
24:54
Speaker 3: the administration's risky tariff implementation strategy. They could have just
24:58
Speaker 3: gone to Congress a year ago and said, we want
25:01
Speaker 3: tariffs on X y Z goods, or we want you
25:03
Speaker 3: to specifically give the president authority under I E. Amend
25:08
Speaker 3: iep is it AEPA? Is that the lage? Okay? The
25:11
Speaker 3: Congress could have amended AEPA to give the President unilateral
25:14
Speaker 3: authority to set tariffs by proclamation and to do his
25:18
Speaker 3: wheeler dealer thing. But he chose not to do that.
25:21
Speaker 3: He chose to barrel ahead with the approach that he pursued.
25:25
Speaker 3: It was legally risky, as evidenced by the lopsided Supreme
25:29
Speaker 3: Court decision. Now he doesn't have his tariff strategy and
25:32
Speaker 3: we lose the revenue. That's because of the way it
25:35
Speaker 3: was was implemented, Mike.
25:37
Speaker 2: And shame of the advisors who pushed this, right, I mean,
25:40
Speaker 2: like this was Ogley's going to be legally risky, and
25:42
Speaker 2: now it leaves the economy I think, inarguably worse off
25:46
Speaker 2: than it would have been had a different process was followed.
25:49
Speaker 2: But you brought up, you know, Congress allowing this. The
25:52
Speaker 2: other thing that this is going to do is quite
25:55
Speaker 2: possibly force a vote on tariffs which are not seemingly
26:00
Speaker 2: terribly popular with the American public, run directly contrary to
26:06
Speaker 2: the beliefs of many in the Republican Party. I know
26:09
Speaker 2: that the Republican Party, you know, looks and stands for
26:11
Speaker 2: different things, and it did a decade ago. But generally speaking,
26:14
Speaker 2: you know, many in the Republican parties still believe in
26:17
Speaker 2: the free free markets and the power of you know,
26:20
Speaker 2: low tariffs, you know, less, fewer barriers to trade, and
26:24
Speaker 2: so I think, quite honestly, lawmakers have been quite happy
26:29
Speaker 2: to not have to vote on this thing and have
26:31
Speaker 2: it on their voting record, and now more likely that
26:33
Speaker 2: they will face that pressure once again to hey, do I,
26:38
Speaker 2: you know, stand up for what my voters seemingly want
26:42
Speaker 2: and what has been a core tenant of the Republican
26:45
Speaker 2: Party for decades, or do I, you know, cave to
26:48
Speaker 2: the President's pressure to vote in these new tariff powers
26:51
Speaker 2: that he's probably going to want to have going forward,
26:55
Speaker 2: so big questions there for American lawmakers. The third group
26:58
Speaker 2: that I'm you know is thrown into a whole bunch
27:00
Speaker 2: of uncertainty now is our foreign trade partners. So several
27:04
Speaker 2: countries have inked formal trade deals with the United States.
27:08
Speaker 2: For example, last week, Japan committed to thirty six billion
27:11
Speaker 2: dollars in investments. Indonesia signed an agreement with DC under
27:16
Speaker 2: the threat of these tariffs. Presumably since those deals are inked,
27:21
Speaker 2: they stay in place. But again, this fifteen percent tariff
27:25
Speaker 2: announcement was on every country in the world. So do
27:28
Speaker 2: I have this trade deal that I signed now and
27:31
Speaker 2: then additional levies that I hadn't planned on because of
27:34
Speaker 2: all this open questions?
27:35
Speaker 5: I don't know.
27:36
Speaker 2: Other countries haven't inked trade deals with the United States,
27:39
Speaker 2: the European Union in India being two of them massive
27:42
Speaker 2: trade partners, and they both indicated over the weekend that
27:47
Speaker 2: they were going to take a pause and think through
27:50
Speaker 2: what all of this might mean for those deals.
27:53
Speaker 3: Yeah, I think stepping back and looking at the potential
27:56
Speaker 3: economic implications, just expect more. And this will happen under
28:00
Speaker 3: the next administration, whatever party controls the White House. I
28:03
Speaker 3: think because we're in a new era, a slower growth,
28:07
Speaker 3: close to zero sum era, where everybody's fighting with everybody
28:11
Speaker 3: else for their share of a more slowly growing pie.
28:14
Speaker 3: It fosters uncertainty, It increases the volatility of economic growth.
28:18
Speaker 3: We saw last year economic growth fell by a lot, actually,
28:22
Speaker 3: relative to twenty twenty four and twenty twenty three, when
28:25
Speaker 3: it grew it close to three percent. Last year it
28:27
Speaker 3: grew a lot closer to two percent, two point two
28:29
Speaker 3: to be specific. But it was a lot more volatile. Sure,
28:32
Speaker 3: one quarter was negative than two spectacular quarters, maybe as
28:36
Speaker 3: businesses purchased a lot of imports ahead of tariffs. And
28:38
Speaker 3: then we had a flat quarter in Q four GDP,
28:42
Speaker 3: And again I would expect this to happen no matter
28:44
Speaker 3: like who's in charge, Mike, more volatile and lower. So
28:48
Speaker 3: these helter skelter protectionist policies have real implications for growth.
28:54
Speaker 2: Let's take a quick break. When we come back, let's
28:56
Speaker 2: sum it all up. I want to think through. Okay,
28:59
Speaker 2: we've outlined what has happened, we've outlined what we think
29:01
Speaker 2: is likely to happen next. What does it all mean
29:04
Speaker 2: for markets? What does it mean for American companies quick break.
29:07
Speaker 2: We're gonna talk about that next on the Financial Exchange.
29:09
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29:13
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29:18
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29:24
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29:38
Speaker 2: All right, Mark, So we've got a pretty decent market
29:40
Speaker 2: selloff going on right now, with the Dow off nearly
29:43
Speaker 2: now seven hundred points one point four percent, SMP and
29:46
Speaker 2: NASDAC both down about eight tenths of a percent each.
29:50
Speaker 2: And you know, I don't think there's a whole lot
29:53
Speaker 2: of new news out there other than the new turmoil
29:58
Speaker 2: from the President's tariffs being thrown out and the reaction
30:02
Speaker 2: from the White House since then.
30:03
Speaker 5: So markets were very volatile on Friday.
30:06
Speaker 2: They opened up in the positive after the tariff announcement,
30:10
Speaker 2: then took a hit when the President started speaking, before
30:13
Speaker 2: recovering again in the afternoon. And I think what this
30:17
Speaker 2: means to markets for me is that continued uncertainty about tariffs.
30:21
Speaker 2: I find it unlikely that that uncertainty is going to
30:25
Speaker 2: be as serious.
30:27
Speaker 5: As it was back in April.
30:29
Speaker 2: Of last year when anything could really happen, because we
30:33
Speaker 2: seem to have some understanding now of what the limitations
30:37
Speaker 2: are when it comes to tariffs, but we're once again
30:41
Speaker 2: back in this mode of needing to cover newly announced
30:44
Speaker 2: trade deals and corporations further putting off that investment. And
30:49
Speaker 2: so we've seen investment drop off in areas like home construction,
30:54
Speaker 2: like manufacturing. We've seen employment in manufacturing decline over the
30:58
Speaker 2: course of twenty twenty five. And generally speaking, what's kind
31:03
Speaker 2: of propped up this economy has been artificial intelligence. I mean,
31:09
Speaker 2: it's tough to measure that out precisely, but when you
31:12
Speaker 2: look at the spending on data center construction and everything
31:16
Speaker 2: else related to that space, it has helped employment, helped spending,
31:21
Speaker 2: and generally helped this economy continue growing at a pretty
31:26
Speaker 2: decent clip through twenty twenty five. The question, I guess,
31:31
Speaker 2: the point that I would make is now even more
31:33
Speaker 2: of the burden of that continued growth falls on the
31:36
Speaker 2: shoulders of the AI industry as a whole now with
31:41
Speaker 2: these teriffs once again being called into uncertainty. Anything else
31:46
Speaker 2: to add on just kind of our conclusions about the
31:48
Speaker 2: news from Friday regarding the Supreme Court, and then the
31:51
Speaker 2: follow on new teriffs from the White House.
31:54
Speaker 3: I mean, other than to say Mike that it's like
31:56
Speaker 3: being told your individual tax rate will be varying depending
32:01
Speaker 3: on the whims of say the President, or whether or
32:04
Speaker 3: not Congress affirms those whims. Imagine if you had to
32:07
Speaker 3: adjusture withholding and you have to do that ahead of time,
32:11
Speaker 3: just like a purchasing manager has to put an order
32:13
Speaker 3: in ahead of time, and you don't know what your
32:15
Speaker 3: tax rate is going to be, but you'll be penalized
32:17
Speaker 3: if you get it wrong. In the case this analogy
32:20
Speaker 3: isn't perfect, but the penalty in the case of businesses,
32:23
Speaker 3: you might be paying a higher or a lower tariff
32:25
Speaker 3: rate in one hundred and well, you know, forty seven
32:27
Speaker 3: days now, depending on because Congress could say, well, we
32:30
Speaker 3: like the idea, but we don't like the rate, so
32:31
Speaker 3: we're going to give the President an eight percent tariff,
32:34
Speaker 3: not a fifteen percent tariff, and then the President and
32:36
Speaker 3: Congress are going to negotiate on that. So I'm not
32:40
Speaker 3: sure if there's less more or the same amount of
32:43
Speaker 3: uncertainty as there was under the tariff by whim policy
32:49
Speaker 3: that we were living under a week ago.
32:53
Speaker 2: Yeah, I'm not sure either, But I do know what
32:56
Speaker 2: I would do in those circumstances of not knowing what
32:58
Speaker 2: my personal tax rate is, which would be to reduce
33:01
Speaker 2: my spending. If I don't know how much I'm going
33:04
Speaker 2: to owe in terms of a massive bill in the future,
33:07
Speaker 2: then as a fiscally responsible individual or as the head
33:11
Speaker 2: of a company, what I'm going to do is save
33:14
Speaker 2: up a whole bunch of money in order to deal
33:17
Speaker 2: with the worst possible outcome. And I think that's what
33:19
Speaker 2: a lot of businesses are going to end up doing too.
33:22
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33:25
Speaker 4: inherits what. It also shapes how your assets are treated
33:29
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33:31
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33:39
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34:03
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34:10
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34:23
Speaker 1: The proceeding was paid for and the views expressed are
34:25
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
34:27
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
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Speaker 1: Cushing and Armstrong did not endorse each other and are
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Speaker 1: not affiliated.
34:34
Speaker 2: If you've listened to the program, then you've likely heard
34:36
Speaker 2: us talking about one other feature of the economy and
34:39
Speaker 2: markets over the last year that has been noteworthy, which
34:42
Speaker 2: is private credit companies like Blackstone, blue Out Capital, KKAR
34:47
Speaker 2: not exactly household names, but all play in the space
34:50
Speaker 2: of lending money to corporations rather than them going through
34:55
Speaker 2: the bond market, and all of them have been under
34:58
Speaker 2: immense pressure over the last few weeks again but really
35:01
Speaker 2: over the last year or so as investors question the
35:04
Speaker 2: business model. Blackstone today down seven and a half percent,
35:09
Speaker 2: having lost nearly twenty nine percent over the last twelve months,
35:12
Speaker 2: Blue Owl Capital down three and a half percent today,
35:15
Speaker 2: stocks down fifty two percent over the last twelve months.
35:18
Speaker 2: In KKR down more than seven and a half percent today,
35:22
Speaker 2: having lost nearly twenty nine percent over the last twelve months.
35:26
Speaker 2: So what I guess, how should an investor look at
35:32
Speaker 2: all of this? Because in one sense I find it
35:35
Speaker 2: quite concerning the business model. Investors are clearly demanding liquidity
35:40
Speaker 2: from these funds that are designed not to have it,
35:43
Speaker 2: and investors are also punishing the stocks of these companies
35:48
Speaker 2: for their practices. On the other hand, what I keep
35:52
Speaker 2: hearing is, hey, these companies are bad in some way,
35:56
Speaker 2: and the reason why keeps changing. Right a year ago,
35:59
Speaker 2: or not quite a year ago, six months ago, it
36:02
Speaker 2: was all about how there was rampant fraud in the
36:05
Speaker 2: private credit space and we saw a few companies go
36:07
Speaker 2: belly up because of it. Then it was you know, hey,
36:09
Speaker 2: maybe the underwriting that they've bragged about for the last
36:12
Speaker 2: twelve months or the last sorry, twelve years, maybe it's
36:15
Speaker 2: not as good as they think it is. This week
36:18
Speaker 2: and last week it's been all about how, oh a
36:21
Speaker 2: lot of the loans they made were to tech and
36:24
Speaker 2: software companies that could be made obsolete by the AI boom.
36:28
Speaker 2: And so, in one sense, I think all of those
36:31
Speaker 2: are reasonable arguments to make. In the other, it seems
36:34
Speaker 2: like there's a lot of negativity about the companies and
36:36
Speaker 2: they keep changing the narrative in order to make it
36:39
Speaker 2: fit the overall story, which is watch out for private credit.
36:43
Speaker 2: Am I misjudging something here, because whenever I hear a
36:46
Speaker 2: narrative change so rapidly, I start to question the overall narrative.
36:51
Speaker 3: Yeah, I'm not sure what the overall narrative is here,
36:53
Speaker 3: other than that markets have been frothy, and when that happens,
36:59
Speaker 3: you stress which you reach for yield. You give loans
37:02
Speaker 3: banks to it too. Obviously, you give loans to people
37:06
Speaker 3: who were less credit worthy than people you would have
37:08
Speaker 3: given loans to earlier in the economic cycle. That appears
37:11
Speaker 3: to be what happened to coincided with an influx of
37:14
Speaker 3: capital into private credit. Institutions have already met their targets.
37:19
Speaker 3: They've been funding private credit for over twenty years. Individuals,
37:22
Speaker 3: high net worth investors, and other advised people have been
37:26
Speaker 3: getting into this market. They don't have the same due
37:29
Speaker 3: diligence investigative capabilities that sophisticated institutions do. So it's capital
37:36
Speaker 3: is capital is easier to come by, and that always
37:40
Speaker 3: results in making loans again counter to parties that you
37:44
Speaker 3: wouldn't have made it to when capital was with scarcer Mike,
37:47
Speaker 3: So some of this I think is to be expected.
37:50
Speaker 5: In either case.
37:51
Speaker 2: Like we've said before, it's going to take time to determine, Hey,
37:54
Speaker 2: how ugly is this stuff? Does it take a while
37:57
Speaker 2: to come to the surface where the average person could see.
38:02
Speaker 2: It would be in their insurance companies because those guys
38:05
Speaker 2: hold a lot of this type of investment, and if
38:09
Speaker 2: it's sours then could affect all of us from the
38:11
Speaker 2: insurance perspective. Quick break market strongly in negative territory. A
38:15
Speaker 2: lot more to cover in the second hour of the show.
38:17
Speaker 2: We will be right back