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Is the US economy headed toward an uncomfortable summer? · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:06
Speaker 1: Zada and Mike Armstraw.
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Speaker 2: Another week here on the Financial Exchange, to be completely honest,
1:13
Speaker 2: not going to be the most exciting week we've ever done.
1:15
Speaker 2: Because we get CPI data on Wednesday, that'll be interesting
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Speaker 2: to see, we get some jobs claims and PPI on Thursday,
1:22
Speaker 2: and then we get consumer sentiment Friday. But today tomorrow,
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Speaker 2: it's just kind of like, Okay, we're gonna get any
1:27
Speaker 2: news out of these US China negotiations that is of note,
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Speaker 2: and other than that, we're all geared up for a
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Speaker 2: one year treasury auction tomorrow at eleven thirty am.
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Speaker 3: That may well be chuck.
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Speaker 4: But you know, going into last week, the only thing,
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Speaker 4: the only data point that I thought was really it's
1:43
Speaker 4: a big heavy jobs week, so their stuff last week, true,
1:47
Speaker 4: but it ended up being.
1:48
Speaker 2: Far more exciting ism manufacturing J Powell speaking, Jolts, Ism services, fine,
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Speaker 2: there's a ton, but it ended up being even more
1:58
Speaker 2: claims jaw Yeah. But other than that, it ended up
2:02
Speaker 2: being even more fireworks than anticipated because of the blow
2:05
Speaker 2: up between Elon Musk and Donald Trump.
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Speaker 4: So sometimes you get surprised even when you're not anticipating
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Speaker 4: a whole lot.
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Speaker 3: So just you know, let's.
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Speaker 2: Most people would argue, the only time you get surprised
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Speaker 2: is when you're not anticipating a whole lot. Otherwise you
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Speaker 2: wouldn't be surprised.
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Speaker 3: Yeah, man, you just gotta firing on all cylinders.
2:21
Speaker 2: I'm gonna I'm gonna curmudgeonally mood this morning, can you tell?
2:26
Speaker 3: So?
2:26
Speaker 2: In any case, we do have US China trade talks
2:29
Speaker 2: that are kicking off a couple hours ago over in London.
2:34
Speaker 2: I don't know if the Chinese delegation is left for
2:37
Speaker 2: lunch yet or not. The reason I bring this, do
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Speaker 2: you guys remember this from a few weeks ago? So
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Speaker 2: the US China talks that happened in it was Geneva.
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Speaker 3: Right, yep, so Switzerland not New York. What's the difference.
2:50
Speaker 2: It was happening over a weekend, and it was it
2:54
Speaker 2: was Saturday, like I don't know, maybe eight thirty in
2:58
Speaker 2: the morning. Yeah, we got updates our time, like two
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Speaker 2: in the morning. And a bunch of pictures came out
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Speaker 2: about the Chinese delegation leaving negotiations and all the talks
3:08
Speaker 2: are falling apart and this and that, and it turned
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Speaker 2: out they just went out to lunch and then they
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Speaker 2: came back and you know, kept negotiating in the afternoon.
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Speaker 2: So but like this is why I asked, like, hey,
3:18
Speaker 2: has anyone noticed if, like the Chinese delegation is left
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Speaker 2: for lunch yet? Is because during the first round that happened,
3:24
Speaker 2: you know a few weeks ago, was oh, the Chinese
3:27
Speaker 2: delegation walked out. Things are going badly? Are how are
3:31
Speaker 2: we gonna? No, they went out for lunch. You know,
3:33
Speaker 2: they had you know, some fish and chips, stuff like that.
3:37
Speaker 2: You know, it was fine, Like it ended up going fine.
3:40
Speaker 2: So I think the question is what.
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Speaker 3: Is more of a London meal? They went out for fun?
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Speaker 2: Due maybe I was saying that, maybe it's because they're
3:49
Speaker 2: in London. Now, that's what I was referencing. Yeah, Switzerland,
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Speaker 2: you can get anything. You're right next to Italy, You're
3:54
Speaker 2: right next to France. I mean you got to speak
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Speaker 2: eight languages just to live there. There is no Swiss language.
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Speaker 2: I still find interesting talk about neutrality no language for
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Speaker 2: the Swiss. In any case, they're in London today and
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Speaker 2: I think the question is, okay, like where does this
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Speaker 2: go and what are the next steps? Here's what we're
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Speaker 2: not going to see. We're not going to see any
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Speaker 2: kind of comprehensive, comprehensive, overarching agreement that drastically changes the
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Speaker 2: pre Trump's status quo in any meaningful way, just because
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Speaker 2: whenever you negotiated with China it takes forever to get
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Speaker 2: anything anyways, and b half the time they're not going
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Speaker 2: to follow through on I'm going to.
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Speaker 3: Go with the C here.
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Speaker 4: You also have a real question as to whether or
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Speaker 4: not the tariffs that President Trump imposed on China are legal,
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Speaker 4: So you know, add everything else on top of this.
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Speaker 4: China is not going to make a sweeping trade deal
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Speaker 4: when they don't know whether or not they have a
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Speaker 4: loaded gun to their head.
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Speaker 2: So let's talk a little bit about the things that
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Speaker 2: the different sides want. Because whenever I'm not entirely sure,
4:59
Speaker 2: you know how I f about something, I started asking myself, okay,
5:02
Speaker 2: like what's actually at stake here? And I can kind
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Speaker 2: of build, you know, some kind of thought once I
5:08
Speaker 2: do that. So here is what the United States wants.
5:11
Speaker 2: And this is not in any particular order or like
5:15
Speaker 2: relevance in terms of like is it going to apply today?
5:17
Speaker 2: But just here's what the US wants. They certainly want
5:21
Speaker 2: rare earth minerals to be shipped as freely as possible
5:25
Speaker 2: from China to the United States. That's been front and
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Speaker 2: center over the last couple of weeks. Yep uh. They
5:29
Speaker 2: want more protection for US intellectual property. They want the
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Speaker 2: Chinese currency to be more free floating to reflect the
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Speaker 2: amount of trade that's actually being conducted. The US side
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Speaker 2: fields rightly, so I'll add that the Chinese currency has
5:42
Speaker 2: been artificially depressed. The United States wants a removal of
5:49
Speaker 2: other non tariff barriers, such as being able to you know,
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Speaker 2: access capital markets and China opening its capital account more freely,
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Speaker 2: things along those lines.
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Speaker 4: The other one that I think they do want that
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Speaker 4: isn't going to happen is a closer balance in trade.
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Speaker 4: They've they've been very public about this, and yeah, i'll
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Speaker 4: put that on. Those other measures of getting there are
6:12
Speaker 4: how you would try to accomplish that. But I think
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Speaker 4: the focus really clearly for the last few months has
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Speaker 4: been less on these things barriers of trade, IP, intellectual property.
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Speaker 4: It's been very focused on too much of a trade
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Speaker 4: deficit with China and other countries.
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Speaker 3: Fix that.
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Speaker 2: So I think if you had to like put those
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Speaker 2: in terms of the urgency for right now, the rare
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Speaker 2: Earth's is a big thing, yep. And the trade deficit.
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Speaker 2: Those are the two big things.
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Speaker 3: Yep. What is China want out of the US?
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Speaker 2: China wants a removal on US export controls of you know,
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Speaker 2: high end chips and things along these lines. They mostly
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Speaker 2: just want to be left alone to do their own
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Speaker 2: thing without US interference in their affairs.
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Speaker 4: I think they care about student visas in the US,
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Speaker 4: but I'm not sure how much they care about it.
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Speaker 2: Yeah, if they care about that, but it's you know,
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Speaker 2: export controls over things like you know, jet engine components.
7:02
Speaker 2: There was an announcement on Friday that the US had
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Speaker 2: restricted the export of nuclear power plant components as well.
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Speaker 4: They apparently want US drugs because they just waived all
7:12
Speaker 4: tariffs on imports of US manufactured drugs for a number
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Speaker 4: of different reasons. So there are things here and there
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Speaker 4: that are important to them, but.
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Speaker 2: It's not and they want the removal of tariffs, like
7:28
Speaker 2: we didn't even mention that, but they want the US
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Speaker 2: tariffs removed ideally. Yeah, so what are we going to
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Speaker 2: get here? Remember heading into the last round of talks,
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Speaker 2: the Geneva ones going into that, Mike and I said, look,
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Speaker 2: you gotta be able to understand that, hey, the baseline
7:43
Speaker 2: coming out of this is that the tariffs are going
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Speaker 2: to come down to fifty four percent, and be open
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Speaker 2: to the idea that, hey, these negotiations could go badly
7:52
Speaker 2: and maybe they stay high. Unlikely, but we said there's
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Speaker 2: a possibility, and we also said, look, there's a possibility
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Speaker 2: that things end up better in te rates. You know,
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Speaker 2: the lowest we could see is, you know, maybe twenty
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Speaker 2: percent where they were before the April second move. What
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Speaker 2: we ended up getting was still a much better outcome
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Speaker 2: than anticipated from a trade perspective at that thirty percent rate,
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Speaker 2: and markets have absolutely soared since then in you know,
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Speaker 2: the subsequent three four weeks that we've had. So I
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Speaker 2: think when we talk about the range of outcomes that
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Speaker 2: can come out of this, I think the baseline expectation
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Speaker 2: on my side and this this is this is tougher
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Speaker 2: because it's not just terif rates like it's it's a
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Speaker 2: lot more like, hey, how much does each side value
8:38
Speaker 2: these different pieces? My baseline expectation is that the US
8:44
Speaker 2: is going to get some meaningful shift in how the
8:50
Speaker 2: rare Earth thing is being handled and some constructive certainty
8:53
Speaker 2: on that By the way.
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Speaker 4: Reuters reported on Friday that the Chinese government had green
8:57
Speaker 4: lit the sale of some of these two European automakers,
9:01
Speaker 4: as well as gm Ford and Stilantis. Yes, I found
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Speaker 4: that particularly interesting given that Tesla was not on the
9:08
Speaker 4: list of greenlit companies that are able to buy rare
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Speaker 4: earths from China. So more to come on that, but yeah,
9:13
Speaker 4: this was reported on Friday that there was already some
9:16
Speaker 4: movement on that. Obviously, automakers have been very public, but
9:19
Speaker 4: are only the tip of the iceberg of users.
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Speaker 3: Correct rare So.
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Speaker 2: I think the US and those were I think six
9:24
Speaker 2: month export licenses. So again, like no long term certainty
9:27
Speaker 2: or anything there. It's kind of you know, what's the deal?
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Speaker 2: So I think the US wants to come out of that.
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Speaker 2: What does China want more than anything else? Well, I
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Speaker 2: think certainly they're gonna want the removal of you know,
9:38
Speaker 2: some US export restrictions as well, whether you know it's chips,
9:42
Speaker 2: jet engine parts, nuclear power plants, take your pick something
9:45
Speaker 2: from there. If I'm China, by the way, and look,
9:49
Speaker 2: if if I know that I have the US over
9:53
Speaker 2: a barrel on the rare earth thing, which let's be honest,
9:57
Speaker 2: they do. We don't have any way to deal with this.
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Speaker 2: You know, if China's you know, jet engine, if China's
10:06
Speaker 2: commercial aircraft manufacturer can't make its fourteenth plane ever, the
10:11
Speaker 2: Chinese economy, it's not going to be fine because it's
10:13
Speaker 2: just that doesn't matter to the Chinese economy. Might matter
10:16
Speaker 2: to their long term designs on where they want to go,
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Speaker 2: but it doesn't impact them the way it impacts the US.
10:21
Speaker 3: With rare earths?
10:22
Speaker 4: Is it fair to say that there is no product
10:25
Speaker 4: that is on the important scale of the rare earths
10:28
Speaker 4: to the US, Like I think about semiconductors, but.
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Speaker 2: We're already not exporting thing enough of them from all its.
10:36
Speaker 4: I don't think there is any single product in the
10:38
Speaker 4: United States, or any single sector that the United States
10:40
Speaker 4: is currently restricting that is equally important. The lever that
10:45
Speaker 4: the United States has to pull is is the tiff one.
10:48
Speaker 4: We will just stop. We'll stop buying stuff from you,
10:50
Speaker 4: like entirely, but not because we restrict this one thing
10:54
Speaker 4: or hurt this one sector. We can we can really
10:56
Speaker 4: drive change. No, it's we will put an embargo on
10:59
Speaker 4: Americans buying anything from China.
11:02
Speaker 2: So I think that if I'm looking at this, there's
11:06
Speaker 2: a chance that China ends up getting the US to
11:09
Speaker 2: reduce terif rates further. Is that further from thirty percent
11:13
Speaker 2: to twenty five to twenty maybe, Like I think that
11:16
Speaker 2: that could be a possibility. Does the US get something
11:20
Speaker 2: else for that? I don't know, But like this is
11:25
Speaker 2: where things start to get dodgy, because again, it took
11:28
Speaker 2: the first Trump presidency two years to secure a two
11:33
Speaker 2: hundred billion dollar purchase order from China for a bunch
11:36
Speaker 2: of stuff they were gonna buy from the US that
11:38
Speaker 2: they then never actually bought.
11:40
Speaker 4: Yeah, that was gonna be the other low hanging fruit
11:42
Speaker 4: that I think does occur as Chinese purchases of American
11:44
Speaker 4: agricultural goods.
11:46
Speaker 2: Except they never bought them the first time they agreed
11:48
Speaker 2: to them, but they might say that they will, which
11:50
Speaker 2: if I'm the Trump administration, given what happened the first time,
11:52
Speaker 2: I'm like, show us the down payment, like I send
11:55
Speaker 2: the money now and then we can talk.
11:57
Speaker 3: I would too.
11:58
Speaker 4: But it comes back to how much do you care
12:00
Speaker 4: about headline announcements.
12:02
Speaker 3: Versus actual progress?
12:05
Speaker 4: And I think sure, I think you know, political moment,
12:07
Speaker 4: there's a lot of wishes for good headline news sure,
12:12
Speaker 4: take a quick break.
12:13
Speaker 2: When we come back, we'll talk a little bit about
12:15
Speaker 2: where the US economy stands heading into the summer.
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13:21
Speaker 2: Piece in the Wall Street Journal, the US economy is
13:24
Speaker 2: heading toward an uncomfortable summer. Is that because it's gonna
13:27
Speaker 2: rain every weekend.
13:28
Speaker 4: Uh yeah, I think that's all it is. It's also
13:31
Speaker 4: why all of us are getting grouchy here.
13:34
Speaker 2: It honestly might be.
13:35
Speaker 5: It's just like twelve straight weekends.
13:37
Speaker 2: Like just do it on a Wednesday. Yeah, you know,
13:39
Speaker 2: like it's it's not that I don't want the rain,
13:42
Speaker 2: It's just that I don't know. It's it was June
13:46
Speaker 2: what seventh on Saturday, and it was sixty five in raining.
13:51
Speaker 5: It's Saturday blue.
13:53
Speaker 1: That was not fun.
13:54
Speaker 2: And guess what next Saturday looks like it's gonna be
13:56
Speaker 2: sixty three in raining.
13:57
Speaker 4: You know it sounds pretty good right now anywhere retirement
14:02
Speaker 4: that won't help?
14:03
Speaker 3: Yeah, will Why because the weekdays have been great?
14:06
Speaker 2: Oh okay, yeah, I guess yeah.
14:08
Speaker 3: And you can go to all the places you want
14:10
Speaker 3: to go without crowds.
14:11
Speaker 2: Here's the thing for children.
14:13
Speaker 3: Sounds fantastic.
14:14
Speaker 2: You retired tomorrow, it's gonna rain the next month.
14:16
Speaker 3: Yeah, no doubt. Just to show you no doubt. No,
14:19
Speaker 3: that's not why.
14:21
Speaker 4: The Wall Street Journal says that the economy is headed
14:24
Speaker 4: toward an uncomfortable summer. But I think a lot of
14:29
Speaker 4: it has to do with Friday's jobs report or the
14:31
Speaker 4: combination of the last several jobs reports, and to describe
14:34
Speaker 4: it in one way that the Friday jobs report, you've
14:37
Speaker 4: seen one of those memes where the whole point of
14:40
Speaker 4: it is to give you a picture of something that
14:43
Speaker 4: looks normal, and then the longer you look at it,
14:45
Speaker 4: just the more weird and disturbing stuff starts to come
14:48
Speaker 4: out of that picture. Like, you know, what you thought
14:50
Speaker 4: was a child was actually like a forty five year
14:53
Speaker 4: old small person, small manh Yeah. Just all sorts of
14:57
Speaker 4: weird stuff starts coming out of those pictures. And that's
15:00
Speaker 4: what this job's report was. It's one of those weird
15:03
Speaker 4: memes that looks good on the surface and then you
15:04
Speaker 4: look close and you're like, oh no.
15:06
Speaker 3: That guy's got a hatchet in the background. Right, So
15:09
Speaker 3: what did we see here?
15:11
Speaker 2: So here's the thing is the last three job reports
15:15
Speaker 2: came in with unemployment rates at four point two percent.
15:19
Speaker 2: March was at four to two, April was at four
15:21
Speaker 2: to two. May was at four too. You say, great,
15:23
Speaker 2: the unemployment rates stable. Here's the thing. When you unround
15:27
Speaker 2: the numbers, unround like use the ones that aren't rounded.
15:32
Speaker 2: The March number was at four point one five percent,
15:35
Speaker 2: the April was at four point one nine and the
15:38
Speaker 2: May was at four point twenty four, which means your
15:40
Speaker 2: point oh one percent away from unemployment having gone from
15:45
Speaker 2: four point one to four point two to four point
15:47
Speaker 2: three ye over the last few months. And again if
15:51
Speaker 2: like literally that.
15:52
Speaker 3: Changed all the headline.
15:53
Speaker 2: If if there were one more respondent in either March
15:57
Speaker 2: or April I'm sorry March or May who said I'm unemployed,
16:02
Speaker 2: that's what would have changed this because of the number
16:04
Speaker 2: of people they actually interview on this. So what this means,
16:09
Speaker 2: and by the way, unemployment now, the unrounded number has
16:12
Speaker 2: been increasing for the last four months February March, April May.
16:16
Speaker 2: You have seen increases in the unemployment rate when looking
16:20
Speaker 2: at the number that isn't rounded, and it's moving at
16:22
Speaker 2: a pace that would have unemployment at a rate of
16:26
Speaker 2: anywhere between four and a half to four point seven
16:28
Speaker 2: percent by year end, depending on how you look at it.
16:31
Speaker 2: Now that the key on this is aside from late
16:35
Speaker 2: twenty three into mid twenty four, do you remember everyone
16:39
Speaker 2: who was listening, the PSAM rule was something that we
16:41
Speaker 2: discussed that triggered last year that basically says, hey, if
16:45
Speaker 2: the three month moving average of the unemployment rate moves
16:48
Speaker 2: up at least half a percent over the lowest it
16:50
Speaker 2: was over the last year. Keeps on going. You typically
16:53
Speaker 2: have a recession and it keeps on going. Last year
16:55
Speaker 2: was the case that broke the sum rule. It is
16:57
Speaker 2: the only time world War Two that we have seen
17:03
Speaker 2: the some rule trigger and a recession not happen concurrently.
17:08
Speaker 2: So what this means is that if we were to
17:11
Speaker 2: see something similar happen this year on the unemployment rate, statistically,
17:17
Speaker 2: it's not a great sign for the US economy. So
17:20
Speaker 2: that's on the unemployment side. Then you got all these
17:21
Speaker 2: pieces from the Wall Street Journal talking about Hey, different businesses.
17:26
Speaker 2: They got a guy who is out of Kansas City, Missouri,
17:30
Speaker 2: who runs a Again, I just have to use the
17:34
Speaker 2: language they use, because it's great. He's a manufacturer of
17:36
Speaker 2: meat processing technology. Does that means he basically makes like
17:40
Speaker 2: a bunch of really sharp stuff that he renders.
17:43
Speaker 3: Like, yeah, things like that.
17:44
Speaker 2: That's kind of what it is. But a manufacturer of
17:47
Speaker 2: meat processing technical he's the sausage king of Kansas City.
17:50
Speaker 3: Yeah. Yeah.
17:52
Speaker 2: In any case, he's got twenty million dollars in orders
17:56
Speaker 2: on stuff that he needs to import from Europe because
17:58
Speaker 2: no one in the US makes the raw stuff that
18:01
Speaker 2: he needs, and he's facing a two million dollar levy
18:04
Speaker 2: of tariffs stay at the current level, and basically he said,
18:07
Speaker 2: I'm not ordering anything else. I'm not hiring anyone else
18:10
Speaker 2: until I know where things are going to be, because
18:13
Speaker 2: if I have to pay that two million dollar tariff,
18:16
Speaker 2: it's gonna wipe out my profits for the year.
18:18
Speaker 3: Yeah, I'm done.
18:18
Speaker 2: I can't make money with it being where it is.
18:23
Speaker 2: And so the question that I think we're facing in
18:25
Speaker 2: the US economy is where is the catalyst going to
18:28
Speaker 2: come from in the second half.
18:30
Speaker 3: Of the year.
18:30
Speaker 2: Because the things that have driven the US for the
18:32
Speaker 2: last few years, big data center, boom AI spending, well,
18:36
Speaker 2: that's leveling off and rolling over. As far as just
18:39
Speaker 2: the annual rate of growth, it's just not there anymore.
18:41
Speaker 2: They're still building them, but it's not an accelerating curve.
18:45
Speaker 2: Housing in the dumps with rates around seven percent, you're
18:49
Speaker 2: not seeing new construction is slowing as well. So that's
18:52
Speaker 2: something that's not going to be at consumer spending. Plenty
18:55
Speaker 2: of signs that the consumer's starting to get tapped out.
18:58
Speaker 2: Does it actually happen this year, maybe, But there's also
19:01
Speaker 2: no real impulse on the consumer spot side that you
19:04
Speaker 2: can get at this.
19:05
Speaker 4: Rumors of the consumer's demise have been exactly three years.
19:10
Speaker 2: Yeah, but is there going to be another leg that
19:13
Speaker 2: they can tap into? I just don't know. So this
19:16
Speaker 2: is the point we're at with the US economy. Not hey,
19:19
Speaker 2: do you definitively go into recession? But is it just
19:22
Speaker 2: kind of again, one of these periods where you just
19:24
Speaker 2: kind of stagnate and maybe growth slows to like one
19:27
Speaker 2: percent for a bit. Maybe, and maybe there's some way
19:31
Speaker 2: that you power through that we're just not seeing yet.
19:33
Speaker 2: Quick break here. Wall Street Watch is next.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter. Act
19:45
Speaker 1: TFE show. Breaking business news is always first right here
19:50
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:55
Speaker 1: Street Watch. A complete look at what's moving markets so
19:58
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:04
Speaker 5: Well markets at the beginning of the week in the
20:06
Speaker 5: mixed territory as investors are keeping a close SiGe in
20:09
Speaker 5: developments out of London today, where trade officials from both
20:12
Speaker 5: the US and China are meeting right now. The Dow
20:16
Speaker 5: is off by a quarter percent, or one hundred and
20:18
Speaker 5: three points. SMP five hundred is up by nine points
20:22
Speaker 5: and the Nasdaq up by about half a percent. Russell
20:25
Speaker 5: two thousand is up by about two thirds of a percent.
20:28
Speaker 5: Ten Year Treasure reeled flat at four point five zero percent,
20:31
Speaker 5: and Crew to Oil is up about half a percent higher,
20:34
Speaker 5: trading just below sixty five dollars a barrel. Big news
20:38
Speaker 5: in the media world this morning after Warner Brothers Discovery
20:40
Speaker 5: and Now is to plans to split into two standalone,
20:44
Speaker 5: publicly traded entertainment companies, separating its HBO Max streaming service.
20:49
Speaker 5: If that's what's going to be called, who knows movie
20:51
Speaker 5: studio and TV production business from its cable networks. Warner
20:55
Speaker 5: Brothers shares are jumping by seven percent on that news. Meanwhile,
20:59
Speaker 5: Tesla continue used to garner attention amid the online feud
21:02
Speaker 5: between President Trump and Elon Musk. Furthermore, Baired downgrade to
21:06
Speaker 5: the ev maker stock to neutral from buy, where the
21:09
Speaker 5: firm said Musk's comments on ROBOTAXI plans are a bit
21:13
Speaker 5: too optimistic and that his relationship with Trump adds considerable uncertainty.
21:18
Speaker 5: Tesla stock is down by about three quarters of a percent,
21:22
Speaker 5: according to The.
21:22
Speaker 3: Wall Street Journal.
21:23
Speaker 5: Satellite wireless company Echo Star is considering a bankruptcy filing
21:28
Speaker 5: as it faces a regulatory review of its spectrum licenses.
21:32
Speaker 5: That stock sinking by eight percent. Shares in Robinhood and
21:35
Speaker 5: app Lovin are dropping five percent. After the trading platform
21:39
Speaker 5: and advertising technology company We're seen as probable additions to
21:43
Speaker 5: the S and P five hundred and the indexes quarterly rebalance. However,
21:48
Speaker 5: no membership changes were made, and Apple shares are up
21:51
Speaker 5: two thirds of a percent ahead of its worldwide Developers
21:54
Speaker 5: conference set to kick off at one o'clock Eastern this afternoon.
21:59
Speaker 5: I'm Tucker's when that's Wall Street Watch.
22:01
Speaker 2: Mike, Let's talk a little bit about the Reconciliation bill
22:06
Speaker 2: that has passed the House and now is into the Senate.
22:11
Speaker 2: And there's a piece in the Wall Street Journal. It's
22:13
Speaker 2: titled Republicans and Economists at odds over whether megabill will
22:18
Speaker 2: spur growth boom And so obviously, look as we see
22:23
Speaker 2: with every you know, bill that Congress tries to pass,
22:27
Speaker 2: regardless of who's an office, everyone always wants to, you know,
22:30
Speaker 2: to tell you like, yeah, this is gonna be great,
22:32
Speaker 2: Like this is gonna be amazing. We remember when the
22:34
Speaker 2: Inflation Reduction Act was being passed. All we were hearing
22:37
Speaker 2: was Oh, I guess this is gonna do you know, X,
22:39
Speaker 2: Y and Z, and it's gonna be the greatest thing.
22:41
Speaker 2: And we kind of looked at were like, Okay, do
22:43
Speaker 2: we really want to subsidize evs in this fashion? Is
22:46
Speaker 2: that actually the best thing for us? And I think,
22:51
Speaker 2: you know, we came to the conclusion, Hey, this is
22:52
Speaker 2: not necessarily something that you want to be spending taxpayer
22:56
Speaker 2: dollars on in this way, simply because of you know,
22:59
Speaker 2: a number of different reasons.
23:01
Speaker 4: And a few of my conclusions there and the way
23:03
Speaker 4: I think it's easy to look at it here to
23:06
Speaker 4: remove partisan bias, because some people, I'm sure, believe that
23:10
Speaker 4: EV subsidies are the most important thing in the world
23:13
Speaker 4: right now and they must be passed to modernize the
23:17
Speaker 4: US grid and all sorts of things. And whether it's
23:19
Speaker 4: the Chips Act, the Tax Cuts and Jobs Act of
23:22
Speaker 4: twenty seventeen, the Big Beautiful Bill. The way that I
23:25
Speaker 4: try and remove that partisan lends from it is just
23:29
Speaker 4: the moment in which you are passing a big spending
23:32
Speaker 4: you know, a net deficit spending bill increase, which is
23:35
Speaker 4: what this big beautiful bill would be. It's what the
23:38
Speaker 4: Chips Act was what the IRA was.
23:42
Speaker 3: All of these things did that.
23:43
Speaker 4: And the way that I look at it is, you know, okay,
23:46
Speaker 4: take a look at the economy at the moment and
23:47
Speaker 4: think about the capacity for massive increases in net government
23:52
Speaker 4: spending at that moment. Right, does the economy need that?
23:57
Speaker 4: Can it absorb it without causing more? And what does
24:01
Speaker 4: it do to overall deficits?
24:03
Speaker 1: Right?
24:04
Speaker 4: I think that's an important way to judge a bill,
24:07
Speaker 4: rather than purely looking at it from the lens of policy.
24:11
Speaker 3: Is a good policy bad policy? It's start.
24:13
Speaker 2: We all have things that like we would prefer to
24:15
Speaker 2: see in legislation that that's not really relevant to the conversation,
24:19
Speaker 2: Like how how I feel about a particular spending item
24:23
Speaker 2: is not really use.
24:25
Speaker 3: That's what elected officials are for.
24:26
Speaker 4: Yes, for this part, it's hey, what would this spending
24:29
Speaker 4: do to the net economy? And that was my main
24:33
Speaker 4: criticism I think back of uh, well, frankly, the Tax
24:37
Speaker 4: Cuts and Jobs Acting President Trump's first administration. Uh, pretty
24:41
Speaker 4: much every major piece of legislation that the Biden administration
24:44
Speaker 4: signed was putting something into place at this moment, is
24:49
Speaker 4: a unnecessary to continue to benefit the United States economy
24:53
Speaker 4: and be continues to run it up deficits at a
24:55
Speaker 4: time where we can ill afford it. The time to
24:58
Speaker 4: run up deficits, in my opinion, at least, is when
25:01
Speaker 4: you are either a at war or b facing a
25:04
Speaker 4: big financial calamity that would be difficult to address otherwise,
25:09
Speaker 4: or not even.
25:10
Speaker 2: A financial one. Like I think there are certain things
25:15
Speaker 2: that you need to do in order to ensure national
25:21
Speaker 2: security long term, which is why even at the time
25:25
Speaker 2: that it passed the Chips Act, I looked at it
25:27
Speaker 2: and I said, this is probably bad economics. Like you
25:31
Speaker 2: can you can go back and like pull the it's
25:34
Speaker 2: not tape anymore, but whatever it is that you pull
25:36
Speaker 2: these days, you go back and pull the video or
25:39
Speaker 2: the audio from you know, two three years ago, whenever
25:42
Speaker 2: it was, and you'll hear me saying the Chips Act
25:45
Speaker 2: is probably bad economics, but that doesn't make it bad policy,
25:49
Speaker 2: because you need to make this stuff here and right
25:51
Speaker 2: now we don't. Right on the other hand, with the
25:56
Speaker 2: Inflation Reduction Act, you'd probably hear us saying, hey, this
26:00
Speaker 2: is bad economics, and I'm not sure it makes sense,
26:03
Speaker 2: because why do you need to produce evs here right now?
26:08
Speaker 2: At this particular point in time, and how do we
26:09
Speaker 2: know this is the policy that we should even be pursuing.
26:13
Speaker 2: And that's kind of where we landed, like, does it
26:16
Speaker 2: make sense to employ bad economics, which is, hey, throw
26:20
Speaker 2: a bunch of deficit on the fire when the economy's
26:22
Speaker 2: already read hot, unemployments at or near historic lows. This
26:26
Speaker 2: is the time when we should be trying to trim
26:28
Speaker 2: the deficit, not expanding it. And we said that at
26:31
Speaker 2: the time.
26:32
Speaker 4: Now I think you actually have a more compelling argument
26:35
Speaker 4: today on the big beautiful bill that hey, the economy
26:38
Speaker 4: has shown some signs of weakening and this is a
26:41
Speaker 4: way to preempt that without things falling apart. The flip
26:46
Speaker 4: side of that coin is the economy has just barely weakened.
26:51
Speaker 4: Unemployment is still quite low, and there's quite a bit
26:55
Speaker 4: of focus on deficits right now in a way that
26:57
Speaker 4: there wasn't of for the last few years.
26:58
Speaker 2: So I think in looking at this the different they've
27:02
Speaker 2: got four different economics groups that they that they survey on.
27:06
Speaker 2: It's not survey that they discuss the study results on, uh,
27:10
Speaker 2: the Tax Foundation, pen Wharton, the Joint Committee on Taxation,
27:14
Speaker 2: and the Ale Budget labs, so four different economic groups,
27:17
Speaker 2: and basically what they all show is that the estimates
27:21
Speaker 2: from each of those groups come to the conclusion that
27:26
Speaker 2: this bill would add somewhere between point zero five two
27:29
Speaker 2: point two percent to GDP on an annual basis, so
27:33
Speaker 2: not a ton that it adds. And for the most part,
27:35
Speaker 2: by the way, that's because the biggest chunk of what
27:38
Speaker 2: this bill is doing renewing existing is just continuing existing
27:42
Speaker 2: tax cuts. It's not doing anything beyond that, and so
27:46
Speaker 2: I don't think you would expect it to be some huge,
27:49
Speaker 2: uh you know, trend changer for the economy, because it's
27:53
Speaker 2: just saying, hey, we like the policy we currently have,
27:55
Speaker 2: We're going to continue that, yeah, with some changes around
27:59
Speaker 2: the edges that have yet to be finalized, because it's
28:01
Speaker 2: not through the Senate, right, which.
28:05
Speaker 4: I think is why A you shouldn't expect a huge
28:08
Speaker 4: boon to activity like boost activity like you did back
28:11
Speaker 4: in the late twenty tens.
28:13
Speaker 2: Because when this originally passed, it did result in a
28:16
Speaker 2: ton of additional economic tax cuts because it was a
28:19
Speaker 2: change from the prior baseline.
28:21
Speaker 4: Today, it's just a renewal of existing cuts, and therefore
28:24
Speaker 4: I just don't know who out there is saying, oh, yeah,
28:27
Speaker 4: you know, I was planning on paying Do you know
28:29
Speaker 4: anybody that was like, oh yeah, I'd budgeted in an
28:32
Speaker 4: extra fifteen percent in taxes that I was going to
28:35
Speaker 4: have to pay next year, But now I'm going to
28:37
Speaker 4: save that, and so I'm going to go spend that. Like, No,
28:39
Speaker 4: everybody assumes that those are going to be locked in already.
28:42
Speaker 2: No, Mike, it's not even that most Americans don't plan
28:45
Speaker 2: know what It's not even don't plan. Those Americans don't
28:48
Speaker 2: know what the tax rates are going to be next year.
28:50
Speaker 3: No you know.
28:52
Speaker 4: Yeah, yeah, we're the only ones that, along with the accountants,
28:55
Speaker 4: that actually look at what tax rates should be come
28:57
Speaker 4: twenty twenty six.
28:58
Speaker 3: If nothing happened, Yeah.
28:58
Speaker 2: We have no life.
29:00
Speaker 3: Yeah.
29:01
Speaker 2: Everyone else everyone else right now is out there like, hey,
29:04
Speaker 2: it's you know, wet, hot American summer, and we're like, well,
29:08
Speaker 2: all the tax code for twenty like this is our life.
29:11
Speaker 3: It's wet, cold American summer. Thank you.
29:13
Speaker 2: Actually, yeah, that is twenty twenty five. Yeah, it's kind
29:18
Speaker 2: of the feeling that we got right now. We'll just
29:19
Speaker 2: keep coming back to that one as long as we can.
29:21
Speaker 2: The well is full from all the rain that we've gotten,
29:24
Speaker 2: So we'll go back to it quite often. Let's take
29:27
Speaker 2: a quick break here, and when we come back, hmmm,
29:33
Speaker 2: do we want to talk? We we got talked? What
29:36
Speaker 2: just happened? Did you show me why I can't hear you? Anyways,
29:41
Speaker 2: we're gonna take a quick break. We're gonna talk dollar
29:44
Speaker 2: after this. I got something on college sports too. There's
29:46
Speaker 2: enough meat there. I might push that back a bit
29:49
Speaker 2: because I got a lot of thoughts on.
29:50
Speaker 5: What I was gonna talk to you about.
29:52
Speaker 2: Okay, I appreciate you. You read my mind? Why can't
29:55
Speaker 2: I read yours? Quick break here Dollar when we come back.
30:00
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30:06
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30:07
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30:12
Speaker 1: six one seven three six two one three eight five
30:15
Speaker 1: with your comments and questions about today's show. This is
30:18
Speaker 1: the Financial Exchange Radio Network.
30:50
Speaker 3: All right.
30:50
Speaker 2: We got a piece in the Wall Street Journal. It's
30:53
Speaker 2: titled will America's unbalanced trade doom the Dollar? And here's
31:02
Speaker 2: how I know that it won't doom the dollar? Is
31:05
Speaker 2: America's trade has been unbalanced for really unbalanced for like
31:10
Speaker 2: forty years now, and when I look at, you know,
31:16
Speaker 2: kind of the long term trend of you know, the
31:20
Speaker 2: broad dollar index as one does. Here's what I see
31:27
Speaker 2: the dollar index as of right now? Is it ninety nine?
31:31
Speaker 2: That's you know, compared to big, broad sure basket of
31:34
Speaker 2: international currencies. If I go back to I don't know
31:38
Speaker 2: what what year do you want me to go back?
31:40
Speaker 2: I'm looking back fifty years? Do you want me to
31:41
Speaker 2: go back longer than that? Like I could do one hundred.
31:44
Speaker 3: One hundred starts to get irrelevant.
31:46
Speaker 2: Actually I can't. I can only go back sixty. Okay,
31:48
Speaker 2: Here's what I know is that in October of nineteen
31:53
Speaker 2: seventy seven, the dollar index was at one hundred, basically
31:58
Speaker 2: the exact same place. The US dollar relative to a
32:01
Speaker 2: broad basket of other currencies has neither weakened nor strengthened
32:04
Speaker 2: over the last fifty five years now. It's had periods
32:09
Speaker 2: during that time where it has been either strong or weaker.
32:12
Speaker 2: The immediate aftermath of the period I just noted, dollar
32:15
Speaker 2: indix went from you about one hundred down to around
32:17
Speaker 2: eighty two, and then it shot up to one hundred
32:20
Speaker 2: and sixty four in the mid eighties, before going back
32:23
Speaker 2: down to seventy eight in the mid nineties, back up
32:26
Speaker 2: to one hundred and twenty one in the early two thousands,
32:29
Speaker 2: and back down to around seventy in the mid two thousands.
32:32
Speaker 4: If you're worried about the value of the dollar, then
32:35
Speaker 4: you're focusing on the wrong deficit.
32:38
Speaker 2: The trade deficit in the dollar.
32:40
Speaker 4: Doesn't The trade deficit matters, and so far as it
32:43
Speaker 4: matters that, you know, American businesses are harmed by uh,
32:49
Speaker 4: you know, bad unfair policy from other countries, right, China
32:54
Speaker 4: is the biggest problem here. EU other countries are also
32:58
Speaker 4: you know, problematic, but it matters for American businesses.
33:02
Speaker 3: From that perspective, it doesn't matter for the dollar.
33:05
Speaker 4: What you could make a real argument matters for the
33:06
Speaker 4: dollar is the budget deficit and the total US government
33:11
Speaker 4: debt and what that could do.
33:13
Speaker 3: And it hasn't mattered at all.
33:14
Speaker 2: Hasn't mattered, right, Like, we have to acknowledge the possibility
33:18
Speaker 2: that it might not matter still, but.
33:20
Speaker 4: At least I think there's a sound economic theory as
33:22
Speaker 4: to why it should matter, right generally speaking, Like, sure,
33:25
Speaker 4: the budget deficit gives you a real clear supply and
33:29
Speaker 4: demand story that you can go and and you know,
33:34
Speaker 4: narrate and play all the way through to say this
33:37
Speaker 4: is why it would readily matter to the value of
33:39
Speaker 4: the dollar. I don't understand any sound economic theory that
33:43
Speaker 4: gives you the same result with trade deficits.
33:46
Speaker 1: No.
33:46
Speaker 2: I mean, look, if you want like the good side
33:51
Speaker 2: of the trade story as it relates to the US
33:54
Speaker 2: dollar specifically, here's the thing that's actually kind of remarkable.
34:00
Speaker 2: The United States can go out and print a dollar, yes,
34:07
Speaker 2: and then we can go and actually buy like and
34:09
Speaker 2: someone will then take that dollar and let me buy
34:13
Speaker 2: something with it, something real, gas, steel, aluminum, fish, not
34:21
Speaker 2: all at once, because you wouldn't want to mix those
34:23
Speaker 2: things like it's not great, but like the remarkable thing.
34:28
Speaker 2: And this is why in the aggregate, I will continue
34:31
Speaker 2: to be someone who says, look, the problem is not how.
34:33
Speaker 2: The problem is not free trade, it's how we implemented it.
34:37
Speaker 2: In my opinion, it's the fact that we didn't take
34:42
Speaker 2: care of the people that were left behind when those
34:44
Speaker 2: jobs went overseas. Because someone like me, who does not
34:47
Speaker 2: work with his hands, I benefited a ton from free trade.
34:50
Speaker 2: Oh yeah, I can sit in front of a computer
34:53
Speaker 2: looking at a screen all day. And yet I can
34:57
Speaker 2: take those dollars, not even physical ones, just umbers on
35:00
Speaker 2: a screen, and I can go buy a gallon of
35:02
Speaker 2: gas with them. How is that not a huge benefit?
35:06
Speaker 2: But the people that lost their jobs in manufacturing, in mining,
35:11
Speaker 2: in construction, we did a horrible job taking care of them.
35:16
Speaker 2: And that was the downfall of the entire free trade idea,
35:20
Speaker 2: is that we didn't take care of the people whose
35:22
Speaker 2: jobs we were displacing. And that's why we're where we
35:24
Speaker 2: are right now, by.
35:25
Speaker 4: The way, yep, Yeah, And I think I go back
35:29
Speaker 4: to right. The Trump administration has done. I think President
35:32
Speaker 4: Trump himself has done a really good job of calling
35:35
Speaker 4: attention to the problem. The implementation, for instance, on I
35:42
Speaker 4: Keep Liberation Day, Yeah, was a lazy solution to the
35:48
Speaker 4: right problem.
35:49
Speaker 2: Yeah, we haven't gotten there to The answer was.
35:52
Speaker 4: It was, Hey, we're instead of going after root problems
35:55
Speaker 4: of imbalanced trade that are affecting American workers and businesses
36:00
Speaker 4: and unfairly punishing them for unreasonable trade policies of other countries,
36:05
Speaker 4: We're just gonna look at every country and see who
36:07
Speaker 4: as the biggest deficit, when again, there are good reasons
36:10
Speaker 4: that we have deficits with many of these countries that
36:13
Speaker 4: still employ pretty fair trade.
36:15
Speaker 3: Such as Israel.
36:16
Speaker 4: They specialize in one area, we specialize in another, and
36:19
Speaker 4: that results in a trade and balance one direction or another.
36:21
Speaker 4: I don't think you can say that we have a
36:23
Speaker 4: trade surplus with the UK because the United States is
36:26
Speaker 4: imposing unfair trade on the United Kingdom.
36:30
Speaker 2: We're just better at making lawnmowers, I guess, so just fine.
36:35
Speaker 2: They happy to do that, you know. So I think
36:38
Speaker 2: ultimately we're gonna have to see where the whole thing
36:41
Speaker 2: on trade goes, because I'm very much a believer, like
36:43
Speaker 2: we're not at you know, a finished point yet. We're
36:45
Speaker 2: gonna have to see how it evolves over the next
36:47
Speaker 2: couple of years. But well, America's unbalanced trade doom the dollar.
36:54
Speaker 3: I don't even get the argument.
36:56
Speaker 2: I don't quite honestly, I don't get that argument. So yeah,
37:04
Speaker 2: I'm not there. Warner Brothers Discovery got to say. I
37:09
Speaker 2: called this one. They're gonna be splitting themselves in two,
37:11
Speaker 2: spinning out their cable business and their streaming and studio business.
37:15
Speaker 2: And boy, I feel like a freaking profit on this
37:20
Speaker 2: because who was the company that kicked this off like
37:22
Speaker 2: eight months ago or a year ago when they decided
37:25
Speaker 2: to do this. I can't even remember.
37:27
Speaker 3: I don't. All of these media companies.
37:30
Speaker 2: Are basically all doing this, and they're all just gonna recombine.
37:32
Speaker 2: It's gonna be one company with all the cable stations
37:35
Speaker 2: and one with all the streaming properties, and that's what's
37:37
Speaker 2: gonna be left.
37:38
Speaker 3: At the end.
37:38
Speaker 4: It once again makes me feel like the only people
37:41
Speaker 4: making any money on these deals are the investment bankers. Yes, yes,
37:46
Speaker 4: get advising these companies to merge, then break up, then
37:49
Speaker 4: sell off parts. And yeah, you're getting back to that
37:52
Speaker 4: point where the only one making any money on this
37:55
Speaker 4: are the people advising them to do.
37:57
Speaker 2: So what's gonna be wild out of all of this
37:59
Speaker 2: is is like something weird happens and the cable businesses
38:03
Speaker 2: end up being the only ones that make money somehow.
38:06
Speaker 2: I'm not saying it's likely, but it would be the
38:08
Speaker 2: funniest possible outcome. Let's take a quick break here. We
38:12
Speaker 2: still got more to come here on the financial exchange,
38:15
Speaker 2: including we're talking the business of college sports. A lot
38:19
Speaker 2: of meat on that bone in just a bit