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Can the US economy continue to stay resilient? · The Financial Exchange Show

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1:06
Speaker 1: and Mike Armstrong.
1:10
Speaker 2: Kicking off the first week in March. It's Chuck, Mike
1:13
Speaker 2: and Tucker with you. They like to say that March
1:18
Speaker 2: comes in like a lion, it goes out like a lamb. Oh, yeah,
1:23
Speaker 2: you've never heard that. I have?
1:24
Speaker 3: You have?
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Speaker 1: Yeah?
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Speaker 2: I think mainly from you though, to be fair, I
1:28
Speaker 2: like to always come in like a lion and then
1:31
Speaker 2: just fall asleep wherever I am. That's kind of my thing.
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Speaker 2: But listen, we got March kicking off here, and it's
1:37
Speaker 2: a pretty busy week. As far as economic data, we're
1:40
Speaker 2: pretty much through earning season, so there's not much more
1:42
Speaker 2: on that side of things, but we do have some
1:45
Speaker 2: economic data this week. Today we get ISM manufacturing and
1:48
Speaker 2: construction spending. On Wednesday, we're gonna be getting ISM services,
1:53
Speaker 2: the ADP Employment Report, which no one really pays attention to,
1:56
Speaker 2: but it still exists, so we at least, you know,
1:59
Speaker 2: have it out there. We get factory orders data on
2:02
Speaker 2: Wednesday as well. On Thursday, we're gonna be getting initial
2:06
Speaker 2: jobless claims and continuing claims. Now we're also gonna be
2:09
Speaker 2: getting productivity and unit labor costs for Q four, the
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Speaker 2: final numbers, the final revision for the quarter as well.
2:17
Speaker 2: And then on Friday, we've got the jobs report for
2:22
Speaker 2: the month of February that is coming out, And we
2:25
Speaker 2: also have five different FED speakers scheduled. So if you
2:29
Speaker 2: want something to do from ten to fifteen to one pm,
2:32
Speaker 2: there you have a Schmorgasborg of FED speakers to potentially
2:38
Speaker 2: entertain you during that time. For the next two hours,
2:41
Speaker 2: you're stuck with us. Indeed, and so looking at the
2:44
Speaker 2: economic data that we got this morning, I think it
2:46
Speaker 2: dovetails nicely into this piece from the Wall Street Journal.
2:50
Speaker 2: We got ism manufacturing seven minutes ago ten am, and
2:55
Speaker 2: what it showed was a slight deceleration from a reading
2:58
Speaker 2: of fifty point nine to fifty point three. Now ism manufacturing,
3:03
Speaker 2: it's what's known as a diffusion index. They basically go out,
3:05
Speaker 2: they survey a bunch of purchasing managers for manufacturing companies
3:10
Speaker 2: and ask them questions about what's your backlog, how's your employment,
3:14
Speaker 2: what do your orders look like? How much are you
3:16
Speaker 2: having to pay for stuff? And they basically rate it
3:18
Speaker 2: on a scale from one to one hundred. Readings above
3:21
Speaker 2: fifty typically indicate growth. Readings below fifty contraction and generally
3:25
Speaker 2: it spends most of its time between like forty five
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Speaker 2: and sixty. That's kind of where it tends to live.
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Speaker 4: I'd imagine there's a fair bit of confusion at the
3:33
Speaker 4: moment among manufacturing managers, just specifically with White House policy
3:39
Speaker 4: around tariffs and things along those lines.
3:41
Speaker 2: Well, and here's the thing, this has been a report
3:44
Speaker 2: that has had absolutely no signal for the last three years.
3:48
Speaker 2: So let's get this out of the way up front.
3:51
Speaker 2: I don't even know if we should be talking about
3:52
Speaker 2: this report because it's kind of useless right now, and
3:56
Speaker 2: it has been useless of this cycle because it's been
3:58
Speaker 2: a different business site than every other one that came before,
4:02
Speaker 2: and so typically, you know, look for the last few years,
4:05
Speaker 2: ism manufacturing has been sitting around like forty six to
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Speaker 2: forty eight, and generally that tells you in a really
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Speaker 2: bad recession, especially for manufacturing. Despite that, we've not seen
4:17
Speaker 2: recessionary data in the United States. We actually have seen
4:21
Speaker 2: a huge increase in domestic manufacturing spend, predominantly on the
4:26
Speaker 2: semiconductor side of things, but also electric vehicles think things
4:30
Speaker 2: along those lines, and so the data just has meant nothing,
4:35
Speaker 2: quite honestly.
4:36
Speaker 4: So it's not the only one. There's been a lot
4:40
Speaker 4: of stuff that has not worked. And I think the
4:42
Speaker 4: danger though that we have to be careful not to
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Speaker 4: fall victim to is permanently saying it doesn't matter, because
4:48
Speaker 4: at some point it probably will again. It's just really
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Speaker 4: tough to know when. For example, the PSALM rule, the
4:55
Speaker 4: unemployment rule where if you know the unemployment rate spikes
4:58
Speaker 4: by more than half percent with it twelve month period,
5:00
Speaker 4: the three month average, yeah.
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Speaker 2: Above the low.
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Speaker 4: Easier to just explain the unemployment rate spikeing by half percent, Yes,
5:08
Speaker 4: three month averages on either side of it was historically
5:13
Speaker 4: from nineteen sixty and on a perfect recession indicator with
5:17
Speaker 4: no false positives and broke last summer. Does that mean
5:20
Speaker 4: that it's never going to work again? Probably not, But
5:22
Speaker 4: important to contextualize.
5:24
Speaker 2: So key components of ism manufacturing that people want to
5:27
Speaker 2: pay attention to right now. Number one, Hey, what are
5:30
Speaker 2: you seeing in terms of prices, because with all the
5:32
Speaker 2: talk about tariffs and this and that, are you seeing
5:33
Speaker 2: anything there? Well, the price is paid component increased from
5:36
Speaker 2: fifty four point nine to sixty two point four. Now
5:39
Speaker 2: that doesn't mean the prices went up eight percent for
5:41
Speaker 2: the month Remember this is a diffusion index. It's not
5:43
Speaker 2: telling you how much things cost, but more just hey,
5:46
Speaker 2: how are respondents saying prices are moving? And this has
5:48
Speaker 2: respondent saying, yeah, they're moving faster than they were previously. There,
5:52
Speaker 2: you know, we're seeing higher pricing coming through. On the
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Speaker 2: other side of things, new orders declined from fifty five
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Speaker 2: to one to forty eight. Okay, it's not great for
6:01
Speaker 2: new orders are slowing and employment went from fifty point
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Speaker 2: three to forty seven point six. What does this mean?
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Speaker 2: No idea quite honestly, and anyone being like, oh, well
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Speaker 2: this look if you think this report means something, which
6:15
Speaker 2: it hasn't for the last three years, it's telling you
6:18
Speaker 2: that manufacturers are seeing higher prices coming through and they
6:22
Speaker 2: are seeing fewer new orders and needing to hire less.
6:26
Speaker 2: That's possible, but it also hasn't matched up with the
6:28
Speaker 2: data that we've seen for the last few years. The
6:33
Speaker 2: question on this is at what point does this regain
6:35
Speaker 2: some kind of validity, And once again the answer is
6:38
Speaker 2: I don't know, but it does exist and historically it
6:41
Speaker 2: has had some signal value. So you continue to monitor
6:44
Speaker 2: and see if it starts to correlate with you know,
6:47
Speaker 2: things in the real economy. Again, the reason that I
6:51
Speaker 2: think this dovetails nicely with this piece from the Wall
6:53
Speaker 2: Street Journal. The pieces titles titled Worries a mount that
6:56
Speaker 2: Trump agenda is testing economy's resilience. And what we've started
7:00
Speaker 2: to get the last few weeks is some weaker economic
7:02
Speaker 2: data that's been coming out, good amount of it in
7:05
Speaker 2: the form of, you know, survey data, just saying that
7:08
Speaker 2: there is a little bit of growing discomfort that's out there.
7:12
Speaker 2: But we also have had some weak data points as
7:14
Speaker 2: well that need some clarification from additional ones that will
7:19
Speaker 2: be coming out over the next couple months or so
7:22
Speaker 2: to see if there is any change that is happening
7:25
Speaker 2: in the economy.
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Speaker 4: So I've got two what I call soft data points
7:29
Speaker 4: surveys how do you feel about things? And two hard
7:32
Speaker 4: data points, actual numbers that I would voice when it
7:35
Speaker 4: comes to this slight turn in January. In terms of
7:39
Speaker 4: the data, you had the University of Michigan consumer sentiment
7:41
Speaker 4: with a big one month drop down to seventy one
7:44
Speaker 4: point seven, which is not great, but it's also better
7:48
Speaker 4: than where we were pretty much all of last summer,
7:50
Speaker 4: and we didn't get a recession so I don't want
7:51
Speaker 4: to read too much into that. We had a corresponding
7:53
Speaker 4: one from the conference board when it comes to consumer
7:56
Speaker 4: confidence that basically said the same thing. People are worried
7:58
Speaker 4: about the state of the economy. They're worried about prices
8:01
Speaker 4: going up, so confirmation. There two different surveys of households
8:05
Speaker 4: that I think historically have done a pretty good job,
8:08
Speaker 4: although are heavily influenced by political bias.
8:10
Speaker 2: And then the two hard data points.
8:12
Speaker 4: I would look at weekly job as claims last month
8:15
Speaker 4: or sorry last week rather, which measured two weeks ago
8:18
Speaker 4: slightly elevated. And then the personal consumption expenditures report, which
8:24
Speaker 4: came out on Friday of last week dipped negative to
8:27
Speaker 4: negative point two percent, and that happened at the same
8:31
Speaker 4: time that incomes were generally up, and so you could
8:35
Speaker 4: read that a as people lacking confidence about the economy
8:39
Speaker 4: and choosing not to spend in January. You could also
8:42
Speaker 4: read it as a bunch of wildfires and extremely cold
8:45
Speaker 4: weather ripping through the country and causing people not to
8:48
Speaker 4: spend because of that. So I think you can create
8:51
Speaker 4: a narrative around which direction you think the economy is
8:54
Speaker 4: going in either case, and if you want to spin
8:57
Speaker 4: this in a positive direction, your main argument is, look,
9:00
Speaker 4: we've seen this type of thing a lot over the
9:02
Speaker 4: last four years, and it has signified nothing in the
9:05
Speaker 4: way of economic slow down or recession.
9:08
Speaker 2: I think ultimately where I sit is, hey, we have
9:12
Speaker 2: a new administration that is, you know, changing the way
9:16
Speaker 2: that things are done in DC, and we need to
9:20
Speaker 2: see how the next couple months play out in order
9:23
Speaker 2: to see what the actual economic impact is going to be.
9:27
Speaker 2: And I think it's too early to be able to say,
9:30
Speaker 2: you know, definitively in either direction, but we're starting to
9:33
Speaker 2: see some signs of potential slowing in the US economy.
9:36
Speaker 2: And quite honestly, quite honestly, if you are talking about
9:42
Speaker 2: reducing the size of the federal workforce and reducing federal spending,
9:48
Speaker 2: you are talking about slowing the economy down. Like, let's
9:52
Speaker 2: let's be clear on this, like federal spending and what
9:54
Speaker 2: in government employment is real, Like, these are people that
9:57
Speaker 2: are employed induce You may say, well, I don't like
10:01
Speaker 2: what they're doing or I don't think that's a good
10:03
Speaker 2: use of my tax dollars, but that's different from saying
10:06
Speaker 2: they don't exist and the money is not being spent.
10:09
Speaker 2: So when talking about this, if you say, hey, we
10:14
Speaker 2: are going to lay off X number of people and
10:18
Speaker 2: reduce government spending by why, well, that's going to be
10:21
Speaker 2: money that's no longer going into the economy. And so
10:24
Speaker 2: I think the question that is out there that we
10:28
Speaker 2: need to be watching is, hey, is this happening in
10:32
Speaker 2: a manner that is going to allow for an improvement
10:37
Speaker 2: in the US fiscal situation while also not throwing the
10:42
Speaker 2: US into recession That would inherently make the fiscal situation
10:46
Speaker 2: worse because then you have less tax revenue coming in
10:49
Speaker 2: and more outlays for things like unemployment and stuff like that.
10:53
Speaker 2: And so this is what the next three to six
10:56
Speaker 2: months is going to be about, is hey, if you're
10:59
Speaker 2: making these changes, how do they impact the broad economy?
11:03
Speaker 2: Because they they are going to we can't say that
11:06
Speaker 2: we're just going to see large changes with no impact
11:09
Speaker 2: and everything's going to be fine. We need to look
11:12
Speaker 2: at it and see how things actually evolve. And to
11:15
Speaker 2: this point, I don't think we have any data because
11:20
Speaker 2: we're six weeks into this, puppy. Yeah, we're six weeks in.
11:23
Speaker 2: We don't even the February data, you know, February started
11:29
Speaker 2: eleven days after the inauguration, So I think that where
11:34
Speaker 2: I stand is, hey, we're gonna need to see February, March,
11:40
Speaker 2: and maybe even April data to be able to have,
11:43
Speaker 2: you know, a conclusive trend of more than one data
11:46
Speaker 2: point as to exactly what all of this means. And
11:52
Speaker 2: I think it very much is something where we should
11:55
Speaker 2: expect to see a slowing economy. If you're talking about
11:59
Speaker 2: pulling demand out out of the economy, you would expect
12:02
Speaker 2: to see that. The question is going to be the
12:04
Speaker 2: pace and the depth of that slowing, because that's ultimately
12:08
Speaker 2: what you are trying to manage in doing this is
12:12
Speaker 2: can you avoid recession if you are reducing the amount
12:16
Speaker 2: of demand in the economy. I mean, generally, reduced demand
12:19
Speaker 2: is not something that you aim for. I think in
12:22
Speaker 2: a perfect world you prefer not to do it, but hey,
12:24
Speaker 2: when you have excess spending that has built up, this
12:29
Speaker 2: is the world that we are in. So I think
12:32
Speaker 2: that my point on this is, yeah, we have some
12:36
Speaker 2: questions there. The place that I get more concerned is
12:40
Speaker 2: with what is going to be kind of our next topic,
12:43
Speaker 2: which is we'll touch on after the break here, but
12:46
Speaker 2: tariffs and the uncertainty surrounding them. This I think is
12:51
Speaker 2: creating some unnecessary problems for the US economy. And so
12:55
Speaker 2: let's discuss what we're seeing on the tariff side of things.
12:58
Speaker 2: When we return.
13:00
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13:04
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13:07
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13:23
Speaker 2: You'd have the ticket, all right, I gotta read this
13:30
Speaker 2: quote from this New York time piece here New York Times.
13:34
Speaker 2: Not the time. New York Time is ten twenty two am.
13:38
Speaker 2: When President Trump announced last week and an additional ten
13:40
Speaker 2: percent tariff on Chinese goods would take effect on Tuesday,
13:43
Speaker 2: Logan Fung Galley, Yeah sure, immediately called the logistics company
13:49
Speaker 2: that was handling a one hundred and twenty thousand dollars
13:51
Speaker 2: shipment of aquarium products for a small business. The cargo
13:54
Speaker 2: was on a ship and route from Boston to Boston
13:56
Speaker 2: from China. His message was clear, get this thing off
13:59
Speaker 2: the boat please. And so obviously there's you know, this
14:03
Speaker 2: looming deadline at midnight tonight, where these additional ten percent
14:06
Speaker 2: tariffs on China and potential tariffs on Mexico and Canada
14:11
Speaker 2: at twenty five percent could go into effect. And so
14:15
Speaker 2: you have some businesses that are still saying, look, I
14:18
Speaker 2: need to bring in, you know, the supplies that I have.
14:21
Speaker 2: But in talking with more and more business owners over
14:25
Speaker 2: the last couple of weeks, I'm finding more that are
14:29
Speaker 2: just kind of in a state of we don't know
14:32
Speaker 2: what to do. We're building contingency plans in case something happens,
14:37
Speaker 2: but we don't want to execute on anything because we
14:40
Speaker 2: potentially get hurt either way. So here here's an example.
14:43
Speaker 2: Let's say that I am, like, I run a a
14:49
Speaker 2: business importing dishes from Canada. I don't know why they're
14:55
Speaker 2: made there, but they're they're made in Canada. China from Canada.
14:58
Speaker 2: China from Canada is what I is, what I sell,
15:02
Speaker 2: And so in this world, I say, hey, my import
15:07
Speaker 2: cost right now is ten dollars per plate, and I
15:11
Speaker 2: sell it at you know, seventy percent or you know,
15:14
Speaker 2: two hundred percent markup, so you know, I sell it
15:16
Speaker 2: for you know, thirty dollars a plate or whatever, and
15:19
Speaker 2: with my overhead and everything. I end up making, you know,
15:21
Speaker 2: three dollars a plate. Okay, great, So I'm importing this
15:26
Speaker 2: stuff from Canada, and now I get hey, there's this
15:28
Speaker 2: twenty five percent tariff that might come in. So my
15:31
Speaker 2: ten dollars import cost goes up to twelve fifty just
15:34
Speaker 2: as an example, and my three dollar per plate profit
15:37
Speaker 2: goes down to half a dollar fifty cents. So I'm
15:41
Speaker 2: sitting there and going what could I do? Now? I
15:43
Speaker 2: find that the fine folks in Minnesota have similar plates,
15:49
Speaker 2: similar China. This is China for Minnesota. Yeah, that I
15:52
Speaker 2: can buy, and I'm spending eleven dollars a plate. I've
15:56
Speaker 2: talked to the supplier before, but I never wanted to
15:58
Speaker 2: use them because the cost was just hiring. It would
16:00
Speaker 2: eat into my margins. Sure, And so do I go
16:05
Speaker 2: to them and say, yes, I'm willing to pay you
16:08
Speaker 2: for you know, your your product. Because if the tariffs
16:12
Speaker 2: don't go into effect, then my competitors go to my
16:15
Speaker 2: original supplier and say, hey, we'll take that inventory at
16:18
Speaker 2: ten and undercut Chuck, who's now having to sell at
16:21
Speaker 2: a higher price or a lower margins. And I'm out
16:24
Speaker 2: of luck if the tariff doesn't go into effect.
16:26
Speaker 4: Right, or alternatively, do I go to my Canadian supplier
16:30
Speaker 4: and give me say, give me all you got, I'm
16:32
Speaker 4: gonna take it, buy it all giant loan to buy
16:34
Speaker 4: as much as I can ahead of tariff implementation, to
16:37
Speaker 4: go and sit on that. But I have to finance
16:39
Speaker 4: it at ten percent because I'm a small business.
16:42
Speaker 2: And and they say, because it's a bigger order than
16:44
Speaker 2: we normally do, We've got a higher additional staff, you know,
16:46
Speaker 2: work extra shifts, and so you're not going to be
16:48
Speaker 2: paying ten You're going to be paying ten fifty or
16:50
Speaker 2: eleven anyways for it.
16:52
Speaker 4: Now, that's a pretty simple situation of a company that
16:54
Speaker 4: just sells, presumably to customers in the United States. Imagine
16:57
Speaker 4: for instead of buying China from Canada, you are instead
17:01
Speaker 4: manufacturing cars that are sold across the globe. And you say, Okay,
17:08
Speaker 4: where should I have my facilities set up to build
17:10
Speaker 4: these things? And what if I go and try and
17:13
Speaker 4: do that and I pull manufacturing back out of Mexico
17:16
Speaker 4: into the United States, Am I actually gonna be able
17:19
Speaker 4: to sell my car in Mexico in a place where
17:22
Speaker 4: I'm already trying to compete with Ultra cheap cars from
17:26
Speaker 4: BYD that are by most accounts better electric vehicles and
17:32
Speaker 4: hybrids than the United States is able to make.
17:34
Speaker 2: So this is complicated. This is why I ultimately have
17:38
Speaker 2: kind of gotten to the point where I'm sitting there
17:40
Speaker 2: and I go implement the tariffs, are don't We can't
17:44
Speaker 2: go through this every month. We can't just keep doing
17:48
Speaker 2: this every month because it adds a ton of uncertainty
17:53
Speaker 2: to businesses and makes them hesitant to invest. And if
17:56
Speaker 2: businesses don't invest, then you end up with slower ECONO growth.
18:01
Speaker 2: So I kind of look at it and say, hey,
18:04
Speaker 2: if you if you want to move forward with tariffs,
18:06
Speaker 2: let's go, like this is what you know we think
18:10
Speaker 2: is going to help the US economy in the long run,
18:13
Speaker 2: let's go. And if not, then we need to stop
18:18
Speaker 2: putting a potential impediment to a business expanding in the
18:22
Speaker 2: way every four to six weeks, because it becomes challenging
18:25
Speaker 2: for that business to know what the lay of the
18:28
Speaker 2: land is going to be and feel comfortable with business expansion.
18:33
Speaker 4: The other piece of artist mentioned about this that has
18:36
Speaker 4: nothing to do with the business decision, but investors I
18:39
Speaker 4: think are very very clearly not believing yeah, calling the
18:45
Speaker 4: Trump bluff, and that in and of itself might be
18:48
Speaker 4: dangerous for Don Trump because if markets are then I
18:50
Speaker 4: would imagine Canada and Mexico are as well, and that
18:53
Speaker 4: administration may feel that, hey, in order to regain legitimacy
18:58
Speaker 4: and regain you know, people actually believing us, we need
19:01
Speaker 4: to go and implement these things even though we don't
19:03
Speaker 4: truly want to. And so I think it is kind
19:07
Speaker 4: of forcing this administration into a corner a little bit,
19:09
Speaker 4: uh to not necessarily do something tomorrow. But they can't
19:13
Speaker 4: keep playing this game forever or else it's gonna be
19:15
Speaker 4: Boy who Cried Wolf and they're not gonna be able
19:18
Speaker 4: to actually negotiate anything positive for the United States.
19:20
Speaker 2: So I think we'll see what ends up happening here.
19:22
Speaker 2: But again, the deadline is midnight tonight and Cox's ticking
19:27
Speaker 2: quick break here. We got Wall Street Watch coming up next.
19:40
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19:55
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20:02
Speaker 3: Well, a new month is upon us and at the moment.
20:05
Speaker 3: Markets are relatively quiet and mixed territory at the moment,
20:10
Speaker 3: fairly bumpy so far at the opening bell as Wall
20:13
Speaker 3: Street awaits developments on the terror front ahead of the
20:16
Speaker 3: looming midnight deadline, and investors are also looking toward a
20:20
Speaker 3: jobs report on Friday. Right now, the Dow is up
20:24
Speaker 3: by only thirteen points, s and P five hundred is
20:27
Speaker 3: down by merely five points, and the Nasdaq is off
20:30
Speaker 3: by about three tenths of a percent or fifty two points.
20:33
Speaker 3: Russell two thousand down by nine points, ten year treasure
20:37
Speaker 3: yield is pulling back by three basis points now at
20:40
Speaker 3: four point one to nine percent, and crude oil off
20:43
Speaker 3: four tenths of a percent, trading at sixty nine dollars
20:46
Speaker 3: and forty eight cents a barrel. Several crypto stocks are
20:49
Speaker 3: seeing gains on the day after President Trump announced the
20:52
Speaker 3: creation of a strategic crypto reserve for the US. Bitcoin
20:56
Speaker 3: itself jumped ten percent to ninety four thousand dollars after
20:59
Speaker 3: day to just under eighty thousand dollars on Friday. Shares
21:03
Speaker 3: in coinbase, Robinhood, and micro Strategy are all climbing on
21:07
Speaker 3: the news. Meanwhile, Kroger Chairman and CEO Rodney McMullen has
21:12
Speaker 3: resigned after an internal investigation into his personal conduct. Shares
21:16
Speaker 3: in the grocery store chain are down by one percent.
21:19
Speaker 3: According to Bloomberg, Allegro Microsystems has drawn takeover interest from
21:24
Speaker 3: on Semiconductor. The report also notes that other suitors could
21:29
Speaker 3: emerge for a Legro, and the company hasn't indicated whether
21:33
Speaker 3: it would be open to a potential sale. Legro shares
21:36
Speaker 3: jumping by twenty percent on the news. Separately, Bloomberg also
21:41
Speaker 3: reporting that Prada could soon close a deal to buy
21:44
Speaker 3: Versace from luxury fashion house Capri in a deal worth
21:49
Speaker 3: one point six billion dollars. That deal could close this month,
21:54
Speaker 3: according to the report, Capri shares jumping by seven percent.
21:58
Speaker 3: Elsewhere at Tesla jumping by two after Morgan Stanley named
22:01
Speaker 3: the ev maker a new top pick in US autos,
22:04
Speaker 3: with expectations of roughly or excuse me, roughly fifty percent
22:08
Speaker 3: bounce in store, JP Morgan downgraded Southwest Airlines to an
22:13
Speaker 3: underrate rating, with the analyst said the stock's valuation was
22:17
Speaker 3: too high. That stock pulling back by a third of percent.
22:20
Speaker 3: Chipotle was upgraded by Morgan Stanley to overweight, with the
22:23
Speaker 3: firm noting that the stock is currently trading at an
22:26
Speaker 3: attractive entry point. Four investors Chipotle up by two percent,
22:31
Speaker 3: and tomorrow morning, ahead of the opening bill, we'll see
22:33
Speaker 3: fourth quarter earnings from AutoZone, Target, and Best Buy. I'm
22:38
Speaker 3: Tucker Silvan. That's Wall Street Watch only.
22:42
Speaker 2: The big high end fashion companies really confused me with,
22:48
Speaker 2: well everything.
22:51
Speaker 4: Yeah, you're not exactly speaking my language in terms of
22:54
Speaker 4: areas of expertise. But what do they confuse you about specifically?
23:00
Speaker 2: Well, so Tucker mentioned the name Capria. I don't even
23:03
Speaker 2: know if it could be Capri, Like, you know, I'm
23:05
Speaker 2: going Capri o those Capri but they could be like
23:08
Speaker 2: Capri pants or Capri Son could be but I'm going
23:11
Speaker 2: Capri anyways, So they own Versace. Indeed, do you know
23:18
Speaker 2: who else they own other Italian companies? No, really, Michael
23:24
Speaker 2: cors okay and Jimmy Chow okay, which is kind of
23:29
Speaker 2: like Okay, So here's I don't know like any of
23:32
Speaker 2: these brands. I've never bought anything from any of them
23:34
Speaker 2: because I just I don't do that. That's not me.
23:38
Speaker 1: Yeah.
23:38
Speaker 2: You then also have Tapestry, which is the name of
23:41
Speaker 2: the holding company that owns Coach and Kate Spade sitting
23:47
Speaker 2: there and something called Stuart Weitzman. I don't know what
23:51
Speaker 2: that is, but fine, like it's it's it's there, I guess,
23:54
Speaker 2: and so I guess I kind of look at it.
23:57
Speaker 2: And what I'm getting at here is all these companies
24:00
Speaker 2: that they're named after people because they were like designers
24:04
Speaker 2: who you know, made clothes originally, and now you just
24:07
Speaker 2: kind of end up under this big arm where you're
24:11
Speaker 2: just this publicly traded company that the only goal is
24:15
Speaker 2: to sell more stuff each year. Like it's almost like
24:19
Speaker 2: you ruin the fashion part of it, and I don't
24:22
Speaker 2: care about fashion, Like I'm sitting here in a black
24:24
Speaker 2: sweatshirt or sweater, so like okay, but it doesn't it
24:30
Speaker 2: feel like more selly Audi than other businesses. It's kind
24:36
Speaker 2: of like when Ferrari went public. Don't you kind of
24:39
Speaker 2: have a problem with that in a way that you
24:41
Speaker 2: don't with Forward going like public? I suppose because the
24:46
Speaker 2: whole point of these companies is to make something exclusive
24:50
Speaker 2: and to you know, heavily restrict the market for your
24:53
Speaker 2: good and to make something that's like really high quality
24:56
Speaker 2: that's so in demand.
24:57
Speaker 4: And I do have to wonder, by the way, so
24:59
Speaker 4: if we take the the top ten luxury brands, which
25:02
Speaker 4: you just mentioned, like six of them, how many of
25:05
Speaker 4: those products are manufactured by like the three same manufacturing
25:09
Speaker 4: facilities in some part of central China. I have no, say,
25:15
Speaker 4: ninety plus percent of it. And so I mean to me,
25:19
Speaker 4: that's where the economies of scale come from. From Owning
25:21
Speaker 4: all these brands is saying, Okay, well, you know you
25:23
Speaker 4: were previously sourcing your material and you're manufacturing from these
25:27
Speaker 4: five places. But seeing is how we can consolidate under
25:30
Speaker 4: this one manufacturer. We can save some money there. But yeah,
25:35
Speaker 4: I get I suppose your point that the idea of
25:38
Speaker 4: luxury fashion is by definition exclusivity and restrictiveness of supply,
25:45
Speaker 4: and I suppose you're not getting there. But I don't
25:49
Speaker 4: know that being public does anything to change that, right
25:52
Speaker 4: That was the same.
25:53
Speaker 2: I don't know. You've got like a fiduciary duty to
25:55
Speaker 2: shareholders in a way that you sell much if you
25:58
Speaker 2: are a privately held company, And so I don't know.
26:01
Speaker 4: It just it feels, which is probably why fashion brands
26:05
Speaker 4: in and of themselves do not stay in vogue for
26:09
Speaker 4: a terribly there's.
26:09
Speaker 2: A huge tension there in my mind. I just I
26:12
Speaker 2: can't get past it with some of these companies, and
26:16
Speaker 2: I don't know it just whenever, it still bothers me
26:19
Speaker 2: that Ferrari is a publicly traded company. You know, it's
26:23
Speaker 2: like I think, I think they sell like something. Here
26:28
Speaker 2: we go. So Ferrari sells about nine thousand cars annually,
26:33
Speaker 2: nine thousand across the entire world. And so you look
26:37
Speaker 2: at it, and if you're a publicly traded company, there
26:40
Speaker 2: are two ways, three ways that you can make more money.
26:43
Speaker 2: The first is to reduce your costs and increase your margins.
26:46
Speaker 2: The second is to increase your prices and increase your margins,
26:49
Speaker 2: and the third is just to sell more stuff and
26:52
Speaker 2: maintain your margins. And so you look at that and
26:55
Speaker 2: you're like, well, if I'm buying a Ferrari, do I
26:58
Speaker 2: really want them to be in like cost?
27:02
Speaker 1: No?
27:02
Speaker 2: Not really, I'm not looking for Ferrari. I don't want
27:05
Speaker 2: my Ferrari to run efficiently. I want my Ferrari to
27:08
Speaker 2: be a Ferrari.
27:09
Speaker 4: You actually only want one outcome. You want the future
27:12
Speaker 4: prices to get more expensive, Yes, because if they start
27:15
Speaker 4: selling more of them, then you don't like that either,
27:17
Speaker 4: because the higher idea of owning a Ferrari is that
27:20
Speaker 4: you don't ever see any other Ferraris out on the streets.
27:23
Speaker 2: So I guess I kind of look at it and
27:25
Speaker 2: I go okay. So with Ferrari, the bet effectively has
27:30
Speaker 2: to be that, because wealth inequality is going to get worse,
27:35
Speaker 2: you're going to be able to sell at higher prices
27:38
Speaker 2: because there will be more demand from that ultra high
27:41
Speaker 2: net worth person. Correct, Because remember, here's the other thing
27:44
Speaker 2: about Ferrari. You can't buy a new Ferrari unless you've
27:48
Speaker 2: already owned an old one. They don't let you buy
27:52
Speaker 2: a new Ferrari unless you've already had a pre owned
27:54
Speaker 2: one that you bought. I see, you cannot just be
27:57
Speaker 2: a buyer of a new Ferra. Now, I'm sure that
27:59
Speaker 2: if you're you know, if you're you know, whoever has
28:03
Speaker 2: you know, twenty five billion dollars, I'm sure they'll make
28:05
Speaker 2: an exception. But otherwise, you like, that's the entryways. You
28:09
Speaker 2: have to have bought a used one before they will
28:12
Speaker 2: let you buy a new one to begin with. So
28:15
Speaker 2: isn't this inherently in conflict with the idea of making
28:21
Speaker 2: more money? No, kind of I think the only.
28:29
Speaker 4: There's just one path that you have to take if
28:31
Speaker 4: you're a brand like Ferrari, which as prices go higher
28:35
Speaker 4: by a good five to ten percent every year, and
28:37
Speaker 4: that's the only way that you can drive your price growth.
28:39
Speaker 2: And just feel some tension there, I guess, Yeah, it
28:42
Speaker 2: just feels odd to me, But I digress.
28:47
Speaker 4: Joe, you sorry, or you do what Elon Musk has
28:50
Speaker 4: been doing over the course of the last few years,
28:52
Speaker 4: which is sell other types of things that you consider
28:55
Speaker 4: to be luxury brands under the same sure thing. So
28:59
Speaker 4: you can buy Tesla tequila, Tesla flamethrower, and maybe someday
29:03
Speaker 4: a Tesla robot. So there's a fourth way I just
29:05
Speaker 4: figured out for.
29:07
Speaker 2: Our robots that don't drink tequila.
29:10
Speaker 3: What if I buy a Ferrari hat or sneakers because
29:14
Speaker 3: they sell those? Yeah, do they let me buy a
29:17
Speaker 3: vehicle at that point?
29:18
Speaker 2: No, Here's the other thing about Ferrari. Remember, so this
29:22
Speaker 2: is another thing where you sit there and you're like
29:25
Speaker 2: something that's inherently in conflict with the idea of share price.
29:28
Speaker 2: Ferrari is one of ten teams that competes in Formula
29:32
Speaker 2: one racing. Now I don't know a ton about F one.
29:35
Speaker 2: I know enough to be dangerous, but I know that
29:37
Speaker 2: it costs hundreds of millions of dollars a year to
29:40
Speaker 2: run an F one team, and there's basically a direct
29:43
Speaker 2: correlation between how much you invest into the team and
29:45
Speaker 2: how well you do, with no correlation as to the
29:48
Speaker 2: profits that you actually make from it. How do you, like,
29:53
Speaker 2: how does that end up attached to a publicly traded
29:55
Speaker 2: company in any way that makes sense? So I guess
30:01
Speaker 2: I just kind of struggle with some of this stuff.
30:03
Speaker 2: I say that it's fine. This is what you get
30:06
Speaker 2: after I've been away for a week, is you know,
30:07
Speaker 2: pontificating on whether or not Ferrari should be a publicly
30:10
Speaker 2: traded company and whether it messaged with capitalism in you know,
30:13
Speaker 2: the United States.
30:14
Speaker 4: Chuck was clearly hanging out in Florida for a few
30:16
Speaker 4: weeks and saw a lot of luxury cars driving down
30:18
Speaker 4: the strip.
30:19
Speaker 2: Gout while I was driving by Toyota Siana to you know,
30:24
Speaker 2: carry the kids around and everything.
30:25
Speaker 3: You're wearing a Ferrari hat.
30:27
Speaker 2: Obviously, take a quick break here when we come back.
30:31
Speaker 2: We'll talk jobs after this, since we get the jobs
30:33
Speaker 2: before coming up on Friday.
30:35
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31:00
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31:04
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31:15
Speaker 2: Friday this week, we're gonna get the jobs report for
31:18
Speaker 2: the month of February, and what we are expecting to see,
31:23
Speaker 2: or rather what the market is expecting to see, is
31:26
Speaker 2: not really too much change in direction from January. Expecting
31:31
Speaker 2: to see between one hundred and fifty one hundred and
31:33
Speaker 2: sixty thousand jobs created January as one hundred and forty three.
31:37
Speaker 2: The unemployment rate is projected to stay at four percent.
31:41
Speaker 2: Average hourly earnings expected to grow at a point three
31:44
Speaker 2: percent rate for the month year over year at four
31:46
Speaker 2: point one which would be the exact same as the
31:48
Speaker 2: prior month. Participation rate expected to stay at sixty two
31:53
Speaker 2: point six percent. Weekly hours not expected to change. So overall,
31:59
Speaker 2: basically the market is saying, yeah, we think that the
32:03
Speaker 2: labor market that we've seen really for the last four
32:05
Speaker 2: or five months, kind of dating back to I think
32:07
Speaker 2: it was like September October where things started to turn
32:10
Speaker 2: up still going to be in a pretty good spot
32:13
Speaker 2: with no meaningful deviation there. And based on you know,
32:18
Speaker 2: some of the other higher frequency indicators that we've seen,
32:20
Speaker 2: things like weekly jobless claims and the like, Yeah, that
32:23
Speaker 2: seems to be a fairly good approximation, but obviously you've
32:28
Speaker 2: got you know, different outliers. I saw one investment bank
32:31
Speaker 2: thinks there might only be sixty thousand jobs created, and
32:33
Speaker 2: others up in you know, kind of the two twenty range,
32:36
Speaker 2: So we don't really know when. The other thing that
32:38
Speaker 2: you always have to talk about on this is there
32:40
Speaker 2: are always revisions and then revisions to the revisions. Usually
32:44
Speaker 2: those revisions, when they're finally all said and done, end
32:47
Speaker 2: up being like eighty thousand jobs either way. And so
32:51
Speaker 2: again you're gonna know as much as you can, but
32:55
Speaker 2: we're not really expecting anything either in terms of a
32:59
Speaker 2: growth expl qosion or a falling off a cliff. For
33:02
Speaker 2: the February numbers. Yeah, I would tend to agree.
33:04
Speaker 4: There'll be some interesting wage stuff in there, of course,
33:06
Speaker 4: as there always is, But.
33:08
Speaker 2: All sources where consumers are.
33:11
Speaker 4: Worried about right now would be layoffs. And whether you're
33:14
Speaker 4: looking at those weekly jobles claims, I'm looking at some
33:16
Speaker 4: data from a company called Warren Tracker that basically scours
33:20
Speaker 4: public disclosures because companies are required to file layoff claims
33:24
Speaker 4: with certain states. And whether you take a look at
33:27
Speaker 4: that data, the weekly job as claims, there's just no
33:29
Speaker 4: indication that companies are looking at layoffs, at least on
33:36
Speaker 4: a wide spread basis.
33:38
Speaker 2: Like I've heard of stories.
33:39
Speaker 4: Here and there of plans that have been announced, but
33:42
Speaker 4: none that have actually been implemented, and very few that
33:45
Speaker 4: have actually been implemented, and we're not seeing it show
33:49
Speaker 4: up in the data as of yet. Pace of hiring
33:52
Speaker 4: different story that has dramatically slowed and arguably might not
33:55
Speaker 4: be keeping pace with the growth of new people entering
33:58
Speaker 4: the workforce, But in terms of job elimination, just not
34:03
Speaker 4: seeing it to date.
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35:17
Speaker 2: I want to talk a little bit about Ray Dalio's
35:20
Speaker 2: latest statements. So, Ray Dolli, if you're not familiar with him,
35:27
Speaker 2: he founded a hedge fund called Bridgewater that is at
35:31
Speaker 2: this point one of the largest and most successful hedge
35:33
Speaker 2: funds in the history of hedge funds.
35:35
Speaker 1: Yeah.
35:36
Speaker 2: Not an idiot, No, not an idiot. And I remember
35:38
Speaker 2: when I was like twenty four years old, I thought
35:40
Speaker 2: that Ray was like the smartest dude in the room.
35:42
Speaker 2: And he's still a smart dude. He's smarter than me,
35:45
Speaker 2: but he's just another smart dude in the room, not
35:49
Speaker 2: the smartest dude in the room in my opinion. It's
35:52
Speaker 2: a technical title. So he he's got a book that
35:55
Speaker 2: he is selling and it's all about the danger of
35:59
Speaker 2: having too much debt. And so he's on the podcast
36:02
Speaker 2: and financial news media tour right now talking about Hey,
36:07
Speaker 2: and his quote here, if you don't reduce the deficit
36:11
Speaker 2: in the next three years, they're going to be in trouble.
36:13
Speaker 2: I can't tell you exactly when it'll come. It's like
36:15
Speaker 2: the heart attack. You're getting closer. My guess would be
36:18
Speaker 2: three years, give or take or something like that. Okay,
36:23
Speaker 2: So here's the thing about So.
36:26
Speaker 4: You've got some hedges against the US market and economy
36:29
Speaker 4: that expire in three years.
36:30
Speaker 2: Is that what you're telling us, right, Well, here's the
36:32
Speaker 2: thing about this is, you know, Dalio comes out every
36:38
Speaker 2: now and then, and usually it's around a book that
36:40
Speaker 2: he has, and it's usually around like whatever the prevailing
36:44
Speaker 2: sentiment is at the time, and he talks about this stuff.
36:46
Speaker 2: So today he's you know, talking about, hey, there's going
36:49
Speaker 2: to be this debt crisis heart attack within three years.
36:53
Speaker 2: Back in twenty nineteen, he was on the book tour
36:56
Speaker 2: and everything, and he said that income inequality is a
37:00
Speaker 2: national emergency and there's gonna be conflict because of it,
37:02
Speaker 2: because that's what everyone was talking about at the time,
37:04
Speaker 2: was income inequality. So I'm just not sure that there's
37:10
Speaker 2: anything here because again, like you see this every couple
37:15
Speaker 2: of years from me, he has like this this big
37:17
Speaker 2: idea that he comes out with, and it's this thing
37:19
Speaker 2: that he's talking about. And it's not to say that
37:21
Speaker 2: it won't or can't happen, but much more, I don't
37:26
Speaker 2: know that his track record of like public pronouncements is
37:30
Speaker 2: particularly good on vague macro ecoity issues. And the funny
37:34
Speaker 2: thing is that his fund is basically designed to be
37:37
Speaker 2: able to handle like the big macro picture very well,
37:40
Speaker 2: and it has done well. Yeah, but I just don't
37:43
Speaker 2: know that his public pronouncements hold much value at this point.
37:47
Speaker 4: To be clear, his statement isn't all that different from
37:49
Speaker 4: my own view on the problem of the debt crisis
37:52
Speaker 4: in the United States. The key, very important difference is
37:56
Speaker 4: he's calling for it with a three year timeline, and
37:58
Speaker 4: I'm openly saying that I have no idea when this
38:02
Speaker 4: becomes a straw that breaks the camel's back.
38:05
Speaker 2: Now, if he's right, I will do the reverse Jeremy Siegel,
38:09
Speaker 2: where I still bring up the fact that Jeremy Segul
38:11
Speaker 2: last September was calling for one hundred and fifty bases
38:13
Speaker 2: points of rate cuts within a week, and I will
38:16
Speaker 2: bring that up till the day I die. If he's
38:18
Speaker 2: right about this, Okay, Ray, you got it. Let's take
38:22
Speaker 2: a quick break here. Hour two is coming up in
38:24
Speaker 2: just a little bit.