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How will the Fed respond to the market downturn? · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back, Tariff top continuing here on the
1:17
Speaker 2: financial exchange, and markets are whip saw in this morning.
1:20
Speaker 2: I just what was it ten minutes ago, now, Tucker,
1:23
Speaker 2: I was speaking about markets. You had the S and
1:26
Speaker 2: P off about four and a half to five percent,
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Speaker 2: NASDAK significantly worse the DOO. If you remember, I was
1:32
Speaker 2: mentioning down like fourteen hundred points. We've seen a swing
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Speaker 2: positive one percent now on that. So again all markets
1:40
Speaker 2: still sharply in negative territory. But now the Dow only
1:43
Speaker 2: down two point eight percent, about eleven hundred and fifty
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Speaker 2: points on the Dow, three and a half percent on
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Speaker 2: the S and P, three and three quarters on the Nasdaq.
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Speaker 2: Still clabbered in those small cap names six and a
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Speaker 2: half percent to the downside on those names. All of
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Speaker 2: this in reaction to Wednesday's and nounce on tariffs that
2:01
Speaker 2: occurred at four pm from the Trump White House lawn.
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Speaker 2: We then saw this morning overnight really China announcing their
2:09
Speaker 2: response to tariffs, and frankly, I don't find that immensely surprising.
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Speaker 2: There was not much room for negotiating. I don't think
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Speaker 2: when it came to the US and China when it
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Speaker 2: comes to these tariffs, and I don't think China was
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Speaker 2: about to bow down and do any sort of negotiating
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Speaker 2: at least first, when it came to these tariffs. What
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Speaker 2: I think remains all important here over the course of
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Speaker 2: the next five days is what do we hear from
2:34
Speaker 2: the White House, from other countries and allies is to
2:38
Speaker 2: in terms of what the next steps are. So far,
2:41
Speaker 2: you know, whether it's Japan, Korea, most of Europe, it
2:44
Speaker 2: has been pretty quiet, willing to just let this all
2:47
Speaker 2: play out, see what happens, and maybe come to the
2:52
Speaker 2: table on negotiations the Trump President Trump himself has now
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Speaker 2: said that he has opened to those negotiations, contraying a
3:00
Speaker 2: number of members of his staff who said this is
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Speaker 2: not a negotiation point.
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Speaker 3: These are in place.
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Speaker 2: There's also been some announcements about the TikTok ban coming
3:09
Speaker 2: as soon as Saturday and potential negotiations going on there.
3:14
Speaker 2: But yeah, this is a market right now that is
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Speaker 2: struggling to find its footing. It's bouncing all over the place,
3:20
Speaker 2: vix is shooting through the roof. This is the fear
3:23
Speaker 2: gauge that gets mentioned a lot on Wall Street. The
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Speaker 2: volatility CBOE Volatility Index, just to give you a sense
3:30
Speaker 2: of where that is. So the volatility indecks sitting at
3:35
Speaker 2: thirty nine. We last got to those types of levels
3:39
Speaker 2: during the selloff of COVID, right, We were last seeing
3:43
Speaker 2: those types of volatility levels. It got substantially higher in
3:45
Speaker 2: March of twenty twenty, but it was around fifty back then.
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Speaker 2: To give you a comparison, here go take a look
3:51
Speaker 2: at Great Recession in terms of volatility we were seeing then.
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Speaker 2: We're right around those levels. Forty ish is where we
4:00
Speaker 2: god during peak recession. Concerns during the Great Recession.
4:03
Speaker 4: And part of the reason why these dips are so severe,
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Speaker 4: they're associated with crises. Historically, you don't get two, four
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Speaker 4: or five percent drops in a row outside of severe
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Speaker 4: economic contractions. So are we headed into one? Obviously, it's
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Speaker 4: difficult to say stock pullbacks can themselves precipitate economic contraction
4:22
Speaker 4: because people spend less and people get afraid. This was
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Speaker 4: one of the mechanisms that helped transmit and I'm not
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Speaker 4: making a parallel here. I'm sort of, but I'm not
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Speaker 4: suggesting this will be the outcome which helped to transmit
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Speaker 4: the Great Depression. If you think about it makes sense
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Speaker 4: your wealth goes down, or you see other people's wealth
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Speaker 4: going down, or you see these spectacular headlines of market carnage,
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Speaker 4: and you pull back, particularly on durable goods, more expensive stuff,
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Speaker 4: or stuff you have to finance. So that's a potential
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Speaker 4: mechanism for economic damage. But I'll say again, these pullbacks
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Speaker 4: are unusual outside of a crisis. Sure, but it may
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Speaker 4: have something to do with the valuations from which we start.
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Speaker 4: Did Mike, You've we talk a lot about stocks being pricey.
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Speaker 2: Let's remind me, I sense that there's probably more people
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Speaker 2: tuning into today's broadcast the Financial Exchange than than your
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Speaker 2: average day where markets aren't selling off by four percent
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Speaker 2: two days in a row. So let's talk about that
5:15
Speaker 2: starting point and just historically, how rich valuations were back
5:19
Speaker 2: in February of this year, when.
5:22
Speaker 4: We really really high, as you and Chugs out to
5:25
Speaker 4: talk about a lot, roughly at all time for all
5:27
Speaker 4: intents and purposes, for our purposes here, they were roughly
5:29
Speaker 4: at all time highs. And when we say valuations, we
5:31
Speaker 4: mean the price of a stock relative to either its
5:34
Speaker 4: past most recent twelve months earnings, or some other version
5:38
Speaker 4: of it. It's a way to compare stocks to themselves
5:41
Speaker 4: across time, and stocks cross sectionally, if you will, to
5:44
Speaker 4: one another.
5:44
Speaker 2: And that's valuable because I think everyone knows that stocks
5:47
Speaker 2: were at all time hies back in February. The important
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Speaker 2: piece here is not only were they at all time highs,
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Speaker 2: but that indicated that investors were willing to pay all
5:58
Speaker 2: time high prices right for those stocks compared to any
6:02
Speaker 2: other time in Witch Street other than I guess the
6:05
Speaker 2: only caveat would be right before dot Com bom.
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Speaker 4: Yeah, that's not a reassuring caveat. But no, if you're right,
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Speaker 4: technically speaking, things were crazier than I guess if some
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Speaker 4: people find that reassuring. So the point is, expensive stocks
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Speaker 4: are a little bit fragile, uh, investors are don't need
6:22
Speaker 4: much of an excuse to sell off kind of frantically,
6:26
Speaker 4: to precipitate a frantic sell off. So I'm trying to
6:30
Speaker 4: find a loophole here, Mike. Maybe we're not falling mid
6:35
Speaker 4: single digits two days in a row because there's some
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Speaker 4: tidal wave coming to take out the US economy. Maybe, rather,
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Speaker 4: it's just that stocks were very expensive and we're ripe
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Speaker 4: for a pullback. Of ten to twenty percent. Those are,
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Speaker 4: after all, normal. It's not normal to lose several percentage
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Speaker 4: points two days in a row. And maybe we won't.
6:53
Speaker 4: Maybe we'll finish up today. I mean we'll be back. Nos.
6:55
Speaker 3: Yeah, it's been quite there are quite a website.
6:56
Speaker 4: It's possible that this is just a deflation, if you will,
7:00
Speaker 4: of what was feeling like a bubbly market in traditional
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Speaker 4: valuation terms. Now there's a catalyst. So that sounds a
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Speaker 4: little stupid, because people are JP Morgan this morning upping
7:10
Speaker 4: their recession odds to sixty percent from under forty. They
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Speaker 4: employ a lot of PhD economists who use the same
7:16
Speaker 4: sophisticated models that say the FED uses, So that does
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Speaker 4: get one's attention. I don't want to pretend there's nothing
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Speaker 4: going on in the real economy here.
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Speaker 2: Potentially President Trump just apparently speaking about the Federal Reserve
7:30
Speaker 2: saying this would be the perfect time for the FED
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Speaker 2: to begin cutting rates. No doubt, members of the Federal
7:37
Speaker 2: Reserve Board are sitting here watching today's market actions. They
7:40
Speaker 2: do not ignore what happens in the stock market because
7:42
Speaker 2: they recognize exactly what Mark just mentioned, that drops and
7:47
Speaker 2: asset values can cause drops in consumer behavior, which is
7:52
Speaker 2: what the FED really cares about really, Like, you know,
7:55
Speaker 2: they're not necessarily worried about how much your investment portfolio is.
7:58
Speaker 2: But if the value of your investment PORTFOLI begins to
8:00
Speaker 2: affect your spending patterns, then they do care about that.
8:04
Speaker 2: What do you suppose the war room is looking like
8:06
Speaker 2: at the Federal Reserve this week as they digest all
8:09
Speaker 2: of the new announcements on terraffs.
8:11
Speaker 4: Well, there, the Fed's job is to care, and a
8:14
Speaker 4: war room is to keep unemployment far is I'm aware, Yeah,
8:16
Speaker 4: they might have the equivalent is to keep unemployment as
8:19
Speaker 4: low as as consistent with stable inflation, if you had
8:22
Speaker 4: to summarize their so called dual mandate. So they're always
8:25
Speaker 4: looking at unemployment or some proxy for it. We talk
8:27
Speaker 4: about the jolt support, there are other measures of slack
8:30
Speaker 4: or tightness in the labor market. They're always got. They've
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Speaker 4: got one eye on that and the other eye on inflation,
8:36
Speaker 4: and there are lots of different measures of that. So
8:38
Speaker 4: the Fed is thinking about the inflation implications of tariffs.
8:41
Speaker 4: They are, as we talked about in the last hour,
8:42
Speaker 4: a supply shock. That's a little bit technical, but just
8:45
Speaker 4: think of it like oil going up by a lot.
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Speaker 4: Prices of everything else don't change at the same time.
8:50
Speaker 4: So you now have less money to spend because you
8:52
Speaker 4: can't cut back on gasoline. You got to go to work.
8:54
Speaker 4: Does the Fed accommodate? Do they print more money to
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Speaker 4: prevent the economy from slowing? Do they? That's called accommodating
9:01
Speaker 4: a supply shock. I use that phrase last segment.
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Speaker 3: Can we find something else of than oil since oil's
9:07
Speaker 3: cratering today?
9:08
Speaker 4: Yeah? Car, They get a little esoteric there are, Well,
9:13
Speaker 4: supply shocks have to be sort of big to be meaningful.
9:17
Speaker 4: You see them in productivity, you see them in commodities.
9:20
Speaker 4: Food is another one. Maybe that's a better example. There
9:23
Speaker 4: were a couple of food price supply shocks in the
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Speaker 4: nineteen seventies too, that contributed to the overall a pattern
9:30
Speaker 4: of inflation during that decade. So what's the FED doing today?
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Speaker 4: They're thinking, well, we've got to respond to the slowing economy.
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Speaker 4: Probably they may need to print more money to support it.
9:39
Speaker 4: But what about our inflation goal? Remember they've got one
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Speaker 4: eye on that. Inflation is running at an elevated clip,
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Speaker 4: probably close to somewhere in the low threes right, based
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Speaker 4: on underlying measures. Is a slowing economy going to bring
9:51
Speaker 4: that down? I know I'm adding more complexity as I
9:53
Speaker 4: go on, and my explanation here, and then you've got
9:56
Speaker 4: the President now chirping the FED needs to lower interest rates.
9:59
Speaker 4: Does that make them more less likely to act? It
10:01
Speaker 4: probably doesn't affect their views at all, but it does
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Speaker 4: affect markets, which feedback into the Fed's decisions. Yeah, would
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Speaker 4: not want to be a FED policy maker under these conditions.
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Speaker 2: My guess actually I would. But you know, my guess
10:14
Speaker 2: right now would be that if we're going to take
10:19
Speaker 2: recent history as a guide, my guess would be that J.
10:23
Speaker 2: Powell and the FED are going to be, as you
10:25
Speaker 2: would put it, willing to accommodate those supply shocks, even
10:28
Speaker 2: through the lessons that the Yeah.
10:29
Speaker 4: I don't think they're going to slow the money supply, Mike,
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Speaker 4: even though even though we could get see inflation tick up.
10:34
Speaker 4: I don't think they're going to slow it. They don't
10:35
Speaker 4: want the finger pointed at them for recession. Unfortunately, it's
10:39
Speaker 4: my personal view, and this is just conjecture that the
10:41
Speaker 4: President wants to take over the FED. He's taken over,
10:44
Speaker 4: and I'm not saying this a bad thing. By the way,
10:45
Speaker 4: I think the President should be able to fire the
10:46
Speaker 4: chair of the FED. I think they should be more accountable.
10:49
Speaker 4: It would be unfortunate if he appointed in Powell's place
10:52
Speaker 4: a real dove. There are some good people who he's
10:54
Speaker 4: talked about appointing who are solid on monetary policy. I
10:57
Speaker 4: hope that's the switch he makes, but I don't think
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Speaker 4: the market will take it well when he steps in,
11:02
Speaker 4: which again just my little prediction for our little wall
11:04
Speaker 4: there not being analytical at all. The next step is
11:07
Speaker 4: him firing Powell. He fired the first salvo, I think
11:10
Speaker 4: this morning, and he's known all along he wants to
11:12
Speaker 4: do it. The question for me is how will the
11:14
Speaker 4: markets take that?
11:16
Speaker 3: In terms of the next FED meeting.
11:19
Speaker 2: Regularly scheduled FED meeting is not for another several weeks.
11:22
Speaker 2: Next FED meeting scheduled for May seventh. At this moment,
11:27
Speaker 2: according to the Chicago Mercantale Exchange, the likelihood of a
11:30
Speaker 2: rate cut at that meeting is increasing dramatically.
11:33
Speaker 3: Today.
11:34
Speaker 2: A month ago there was only about a hold on
11:39
Speaker 2: just a moment. Just double checking here, a month ago
11:43
Speaker 2: there was actually a pretty significant likelihood of a rate cut.
11:46
Speaker 2: A week ago, there was only about a one in
11:48
Speaker 2: five chance that the FED would be cutting rates at
11:51
Speaker 2: that next meeting. It is now about fifty to fifty
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Speaker 2: in terms of the CME forecasts here for rate cuts.
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Speaker 4: Yea. That makes sense. Also makes sense, yeh.
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Speaker 2: A logical move upwards and probability on rate cuts in
12:04
Speaker 2: reaction in part to what we're seeing in equity markets.
12:07
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Speaker 2: I mentioned we're gonna taxes, which we will hopefully get to.
14:02
Speaker 2: But as we predicted, the announcements and news are coming
14:07
Speaker 2: quickly here when it comes to tariffs, and the latest
14:10
Speaker 2: has to do with Vietnam sending Nike shares on the rise.
14:13
Speaker 2: But according to CNBC, Trump is saying that Vietnam is
14:19
Speaker 2: negotiating a tariff deal in place here and so we
14:24
Speaker 2: will see where that goes. The effective rate that Vietnam
14:28
Speaker 2: was imposing on US goods was already pretty small, so
14:31
Speaker 2: unclear where those talks go. But obviously a company like
14:36
Speaker 2: Nike manufactures about a quarter of its footwear in Vietnam.
14:40
Speaker 2: Their shares had plummeted on the forty six percent tariff
14:44
Speaker 2: news Wednesday on Vietnam. Today, Nike stock is actually moving
14:49
Speaker 2: up now in reaction to this hint of a deal
14:52
Speaker 2: to come when it comes to Vietnam's forty six percent tariffs.
14:56
Speaker 2: Nike stock this morning up four point six percent in
15:00
Speaker 2: trading so far.
15:01
Speaker 4: Yeah, and you might be wondering, is do you mind
15:03
Speaker 4: if I talk about the trade deficit for a second
15:05
Speaker 4: or did.
15:05
Speaker 3: You want to go into something else trade deficit?
15:06
Speaker 4: Will this help the trade deficit or not? What causes
15:09
Speaker 4: the trade deficit? And you probably won't be surprised to
15:12
Speaker 4: hear that it likely won't because the trade deficit results
15:15
Speaker 4: from US having an investment surplus. We're a welcoming country
15:21
Speaker 4: with a lot of favorable investment opportunities that requires foreign
15:24
Speaker 4: they require foreign capital because we don't save enough to
15:27
Speaker 4: finance all that. The flip side to that is we
15:30
Speaker 4: send our dollars abroad on goods and services, so our
15:34
Speaker 4: exports are lower than our imports because we import. It's
15:38
Speaker 4: not intuitive, but it's useful to keep in mind that
15:41
Speaker 4: the trade deficit is related to something called the capital
15:44
Speaker 4: account surplus. And the reason one is in deficit is
15:47
Speaker 4: because the other is in surplus. And the reason that
15:51
Speaker 4: we have a deficit is that we don't save enough.
15:54
Speaker 4: So if we don't fix, for example, the federal budget deficit,
15:57
Speaker 4: it's not just private savings I'm talking about.
15:58
Speaker 3: Yay, you're talking about the government eletronic.
16:01
Speaker 4: And I know we're going to talk about taxes I
16:02
Speaker 4: think in this segment. So if we don't fix the
16:04
Speaker 4: budget deficit, you're not going to be able to fix
16:06
Speaker 4: the trade deficit. One off deals are great, they make
16:08
Speaker 4: for good photo ops and stuff, but you'll still have
16:11
Speaker 4: a massive trade imbalance overall. It becomes a game of
16:15
Speaker 4: whack a mole.
16:16
Speaker 2: Yeah, And that's the part where I'm unclear is does
16:19
Speaker 2: the United States actually need to fix the trade imbalance
16:22
Speaker 2: with Vietnam and or to get these teriffs down or
16:24
Speaker 2: are we going to see an announcement here that's more
16:28
Speaker 2: symbolic in nature. I think we'll have to wait and see.
16:30
Speaker 2: But on that subject of deficits and spending, obviously, the
16:35
Speaker 2: Trump administration has made a big deal of their attempts
16:38
Speaker 2: to cut government spending.
16:39
Speaker 3: We are seeing the layoffs.
16:41
Speaker 2: We've pointed out that the promises made by Doze are
16:44
Speaker 2: almost certain to not come to fruition because of the
16:47
Speaker 2: depth of cuts that would need to be made to
16:49
Speaker 2: things like Medicare, Medicaid, Social Security, and defense in order
16:52
Speaker 2: to get there. But the other side of that equation
16:54
Speaker 2: is tax bill. And Scott bessent on Wednesday afternoon after
16:58
Speaker 2: the tariffs were announced of his trip down to Capitol
17:01
Speaker 2: Hill to talk to Congress about those tax cuts. And
17:05
Speaker 2: we're starting to get day to day more and more
17:07
Speaker 2: hints as to what's in, what's out, what's being taken seriously,
17:11
Speaker 2: what's not. And I think my surprise is that there
17:15
Speaker 2: are more of the Trump wish lists from his campaign
17:18
Speaker 2: that seem to be making their way into at least
17:20
Speaker 2: serious debate on this tax bill. So items that are
17:24
Speaker 2: in there include the tax on tips piece that was
17:27
Speaker 2: debated that is being made into some drafts. The piece
17:31
Speaker 2: when it comes to the salt deductions the state and
17:33
Speaker 2: local taxes, that was a big push after he visited
17:36
Speaker 2: New York State, also apparently making it into some of
17:40
Speaker 2: these drafts. Here, the question becomes using the tools that
17:43
Speaker 2: the Republicans are which is budget reconciliation. You have some
17:48
Speaker 2: very strict rules in terms of how much you can
17:50
Speaker 2: actually cut taxes. You have to be able to work
17:54
Speaker 2: it within the budget. And this is the first reporting
17:58
Speaker 2: that I've seen here of them actually figuring out how
18:01
Speaker 2: they're going to raise some of that revenue, which is
18:03
Speaker 2: Republicans apparently debating hiking the top income tax rate to
18:07
Speaker 2: forty percent for millionaires from the current thirty one.
18:09
Speaker 4: Raising the salt capital offset some of that. Yep, they'll
18:12
Speaker 4: be able to reduce their taxable people in that bracket
18:14
Speaker 4: will be able to presumably to reduce their taxable income
18:16
Speaker 4: a little bit. They're not raising the salt cap enough,
18:18
Speaker 4: I don't think to make up for that, so pouraging
18:20
Speaker 4: that they're talking about.
18:21
Speaker 2: Pre Donald Trump tax cuts, the top rate for those
18:25
Speaker 2: earning more than six hundred and twenty some one thousand
18:28
Speaker 2: dollars was thirty nine point six percent, So this is
18:31
Speaker 2: pretty much just a reversion back to that pre cut norm.
18:35
Speaker 2: I just found it very very interesting, and it's also
18:39
Speaker 2: why I'm taking it a little bit more seriously that Hey,
18:41
Speaker 2: I think this administration is actually really focusing on tax
18:44
Speaker 2: cuts for the middle class and the corporate tax cuts
18:47
Speaker 2: that they want to remain locked in. Because again, does
18:51
Speaker 2: this get traction doesn't land anywhere? I don't know, but
18:54
Speaker 2: the Republican Party is talking about increasing tax rates on
18:58
Speaker 2: million a.
18:58
Speaker 4: Little aty bit, and by the time this gets to
19:00
Speaker 4: the point of being seriously considered, the economy could be
19:03
Speaker 4: in a very different place. An economic slowdown or worse
19:06
Speaker 4: will lead to ballooning deficits and will present a whole
19:10
Speaker 4: new host of fiscal challenges.
19:12
Speaker 2: We're going to take a quick break here. We will
19:14
Speaker 2: have the trivia winner when we come back. But Powell
19:17
Speaker 2: making some statements immediately after, perhaps in response to I'm
19:22
Speaker 2: not sure yet to President Trump's statements on interest rates.
19:25
Speaker 2: We'll be covering those statements next.
19:40
Speaker 6: Bringing the latest financial news straight to your radio. Every day,
19:45
Speaker 6: it's the Financial Exchange On the Financial Exchange Radio Network.
19:51
Speaker 6: Find daily interviews and full shows of the Financial Exchange
19:54
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19:55
Speaker 1: Like us on YouTube and get caught up on anything
19:58
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20:01
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20:07
Speaker 3: All right.
20:07
Speaker 5: The trivia question for today was how many teams from
20:11
Speaker 5: New England have won the men's NCAA tournament. That will
20:16
Speaker 5: be two Yukon won six national championships for men and
20:20
Speaker 5: holy Cross won their loan championship way back in nineteen
20:25
Speaker 5: forty seven. Winner today of the new Financial Exchange Show
20:29
Speaker 5: t shirt was Kevin from Standishmaine. Congrats to Kevin, and
20:33
Speaker 5: we played trivia every day here on the Financial Exchange.
20:37
Speaker 5: See complete contest rules at Financial Exchange Show dot com.
20:40
Speaker 2: If you blink, you might miss what's happening in markets here.
20:43
Speaker 2: So I'm going to recap a couple of breaking news
20:45
Speaker 2: stories that broke during the show today. First off, there's
20:48
Speaker 2: reporting that Vietnam may be in negotiations with the Trump
20:52
Speaker 2: administration for a reduced tariff rate. More to come on
20:56
Speaker 2: that if we see any sort of official announcement. But
20:58
Speaker 2: Nike shares I haven't checked within the last.
21:02
Speaker 5: Lastly checked, it was up four percent. Yeah, but you
21:05
Speaker 5: checked like five minutes ago four point one percent. You're right,
21:08
Speaker 5: four point one six percent. I mentioned before the break
21:11
Speaker 5: that the odds of a rate cut at the next
21:13
Speaker 5: May meeting for the Federal Reserve was previously sitting around
21:16
Speaker 5: fifty to fifty. Then Jerome Powell started talking, and those
21:19
Speaker 5: rates have now been reduced to about a one in
21:23
Speaker 5: three chants of a rate.
21:25
Speaker 4: Cut dot com account right now as we watch him live.
21:29
Speaker 2: So let's talk about j Powis comments here, because they
21:35
Speaker 2: I do not believe were crafted in response to President
21:38
Speaker 2: Trump's and just meant these were pre organized remarks, correct. Yeah,
21:44
Speaker 2: So these were remarks that were prepared in a speech
21:46
Speaker 2: delivered to business journalists in Arlington, Virginia, and his main
21:51
Speaker 2: message was the effect of tariffs are highly uncertain in
21:56
Speaker 2: terms of what they do to both inflation and employment
21:59
Speaker 2: and air force. We're probably not going to be doing
22:01
Speaker 2: anything anytime.
22:02
Speaker 4: Well, he actually went a little further and said they
22:03
Speaker 4: might be. I'm gonna use the word stagflationary because that
22:07
Speaker 4: describes pretty well what happens when prices go up and
22:10
Speaker 4: supply goes down. But that's basically what he said. And
22:12
Speaker 4: apparently he's he's further digging himself a hole with the President.
22:16
Speaker 4: He's elaborating on those comments right now, ironically under an
22:19
Speaker 4: exit sign, which is Tucker still pointed out, some wag
22:24
Speaker 4: is gonna is gonna post that to social media. Yeah,
22:26
Speaker 4: he's speaking right under an exit sign. It looks like
22:28
Speaker 4: it's just holiday in.
22:29
Speaker 5: It's not great setup overall.
22:31
Speaker 4: It just it looks cheesy.
22:32
Speaker 5: It looks like it looks like it's in some like
22:33
Speaker 5: weird office.
22:35
Speaker 2: If you're a fan of South Park, you might have
22:37
Speaker 2: seen these scenes from the airport Hilton Denver, Right, it
22:40
Speaker 2: kind of looks like that. Yeah, it's not a terribly
22:42
Speaker 2: luxurious place. But regardless, I've said.
22:46
Speaker 4: What's on now? Like house rap? What is that? Look
22:48
Speaker 4: at that back here?
22:49
Speaker 2: It looks like in either case, that's not the most
22:52
Speaker 2: important thing that's going on with this press conference. The
22:54
Speaker 2: most important thing is that he is directly contradicting what
22:57
Speaker 2: the president wants, which is lower interest rates and lower
23:00
Speaker 2: or interest rates. Now Jome Powell instead saying, look, this
23:04
Speaker 2: could create more inflation, it could create a stagflationary environment,
23:09
Speaker 2: and setting himself up for I think, as Marcus alluding
23:13
Speaker 2: to here, he's done being fired, Get up, get out
23:17
Speaker 2: the head as the head, and I have to say
23:20
Speaker 2: that we talked a lot about this over the last year.
23:23
Speaker 2: I don't know what that does to markets. If he
23:25
Speaker 2: does get removed, it is going to inject a whole
23:29
Speaker 2: new degree of uncertainty if that does.
23:31
Speaker 4: Unchartered. And we have had an independent central bank since
23:34
Speaker 4: roughly the early nineteen fifties, when the FED and the
23:36
Speaker 4: Treasury agreed to let the FED conduct monetary policy to
23:39
Speaker 4: stabilize the economy. That's evolved over the decades. We take
23:43
Speaker 4: it for granted that the FED is independent, but it's
23:46
Speaker 4: a creature of Congress, and Congress gave the president power
23:49
Speaker 4: to a point it's head there. I'm no legal scholar. Obviously,
23:52
Speaker 4: there's probably a good argument for removing him, not on
23:55
Speaker 4: some pretext that he's not done a good job, but
23:57
Speaker 4: I mean an argument that the president can do it.
23:59
Speaker 4: I'd like to assume that the president could do it,
24:01
Speaker 4: because the FED chair should be accountable ultimately to the people.
24:04
Speaker 4: I'm not comfortable personally with the idea for what it
24:06
Speaker 4: is worth of a FED chair being entirely insulated from
24:11
Speaker 4: the will of the voters, even during his appointment period.
24:14
Speaker 4: That said, it's going to depend on who the president
24:15
Speaker 4: puts in his place, and we just can't speculate on
24:18
Speaker 4: that right now, even though I'd love to but was
24:19
Speaker 4: told not to.
24:20
Speaker 2: Yeah, Mark desperately wanted to start listing candidates when there
24:23
Speaker 2: hasn't even been yet a hint of removal from the
24:26
Speaker 2: White House. But to your point, I think you are
24:28
Speaker 2: potentially painting a path here. And in spite of the
24:31
Speaker 2: fact that I've said on this program that I think
24:33
Speaker 2: Jerome Powell has done an excellent job sidestepping any of
24:36
Speaker 2: the policy or politics questions to this point, and frankly
24:39
Speaker 2: is doing so again today. He is not interjecting and
24:42
Speaker 2: saying I think we should be doing this or that
24:44
Speaker 2: on terror any or spending cuts. He is merely saying
24:47
Speaker 2: that the results of those tariffs, good, bad or ugly
24:51
Speaker 2: are just uncertain, but in any case setting it up
24:55
Speaker 2: for a potential battle between the White House and and
24:59
Speaker 2: the Federal Reserve.
25:00
Speaker 4: Given the political climate, he should probably just shut up
25:03
Speaker 4: for a while. I've always thought a lot of researchers
25:05
Speaker 4: think this. The Fed officials should just shut up and
25:07
Speaker 4: do their thing at press conferences and releases maybe after decisions,
25:11
Speaker 4: but in this climate especially, he can only get himself
25:14
Speaker 4: in troubling for the good of the country, for the
25:17
Speaker 4: good of our institutions, he should shut up, maybe go
25:19
Speaker 4: meet with the president privately. But it's more than his
25:23
Speaker 4: job that's on the line here. It's fed independence and
25:26
Speaker 4: long run obviously, I think that will be destabilizing if
25:28
Speaker 4: we lose that as an institutional characteristic of the way
25:32
Speaker 4: the economy works.
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26:34
Speaker 2: Just going back to markets here for a moment, and
26:37
Speaker 2: I'm not even going to recap where they are. I'll
26:38
Speaker 2: do that at the end of the program because they
26:40
Speaker 2: are just bouncing around so much now, off more than
26:42
Speaker 2: four percent on the S and P five hundred. Why
26:45
Speaker 2: we are paying a lot of attention to that, not
26:48
Speaker 2: only because we are a markets and business news program,
26:51
Speaker 2: but we've talked about this stat a couple of times
26:54
Speaker 2: now over the course of the last few months. As
26:56
Speaker 2: of the most recent data, about half of all consumer
27:01
Speaker 2: spending is coming from the very top ten percent of
27:04
Speaker 2: income earners, who predominantly drive a lot of their wealth
27:09
Speaker 2: increase over the last few years, who drove a lot
27:11
Speaker 2: of their wealth increase from last few years from the
27:13
Speaker 2: stock market, from their value of their home over the
27:18
Speaker 2: course of the last few years.
27:20
Speaker 3: That that has been the main driver.
27:23
Speaker 2: In my guest, this is all a guest like we
27:25
Speaker 2: don't know with certainty why those top ten percent are spending,
27:28
Speaker 2: but we know that they are spending a lot more
27:31
Speaker 2: as a percentage of the total amount of spending that
27:33
Speaker 2: we've seen any time in history. And so my guess
27:36
Speaker 2: as to why they're doing it is because they feel wealthier.
27:38
Speaker 2: I think that there's plenty of economic research too.
27:40
Speaker 4: Since the bigger share they're taking a bigger share of
27:43
Speaker 4: overall in I don't mean taking is and they don't
27:45
Speaker 4: earn it. I just mean they are a.
27:47
Speaker 3: Bigger shit the top ten percent representing to them.
27:50
Speaker 4: Yeah, so it's wealth and it's income they're accruing larger shares.
27:54
Speaker 2: And so when we talk about the possibility of a recession,
27:57
Speaker 2: you know what a company's a recession is many things,
28:00
Speaker 2: but it's an uptaken unemployment and a decrease in spending.
28:02
Speaker 2: And we are such a spending based economy these days, right.
28:06
Speaker 2: We are not an industrial economy. We are not today
28:09
Speaker 2: at least an economy that produces a whole bunch of stuff.
28:12
Speaker 2: We are an economy that buy stuff in that move.
28:15
Speaker 4: So we produce a lot of services. Mike, I mean
28:16
Speaker 4: you can't a lot of services? Yeah, I know, you're
28:19
Speaker 4: not downplaying. But this idea that can I talk about
28:21
Speaker 4: this because this is another pet peeve. I'll be a
28:23
Speaker 4: really brief. People say, oh my god, manufacturing jobs, we
28:26
Speaker 4: lost them all. We got to get them back. We
28:28
Speaker 4: make more than we ever have. We just do it
28:30
Speaker 4: with very few people. Nobody laments the fact that only
28:33
Speaker 4: one or two percent of the population spends their time
28:35
Speaker 4: on agriculture anymore. Yet we feed the whole population and
28:38
Speaker 4: then some, so it's sort of normal to move on
28:40
Speaker 4: from less sophisticated agriculture and manufacturing. Although some manufacturing processes
28:45
Speaker 4: were obviously very sophisticated. I'm painting with a very broad
28:48
Speaker 4: brush into things that are more technologically intensive, like services.
28:53
Speaker 4: So this idea that the economy has been hollowed out
28:56
Speaker 4: is again belied by the growth numbers where we're trounce
29:00
Speaker 4: everybody else because we're the world's leader in services. I
29:03
Speaker 4: just I have to make that point because it gets
29:05
Speaker 4: thrown in with all this other stuff about what tariffs
29:08
Speaker 4: are supposed to cure, and it's misguided.
29:11
Speaker 2: Let's take a quick break. When we come back. Paula
29:13
Speaker 2: Monica is joining us next to talk about the big
29:16
Speaker 2: IPO that went off earlier. This week Newsmax. We'll be
29:19
Speaker 2: back with that next on the Financial Exchange.
29:21
Speaker 1: The Financial Exchange streams live on YouTube. Like our page
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29:45
Speaker 1: ladies and gentlemen the weekend.
29:54
Speaker 3: Joining us now is Paul la Monica from Baron's.
29:57
Speaker 2: Talk to us about the the IPO that kind of
29:59
Speaker 2: went and often then got well clawbird and trading afterwards.
30:03
Speaker 3: But Paul, thanks for joining us. Appreciate it, Thank.
30:06
Speaker 7: You very much. Yeah, Newsmax. I think a lot of
30:08
Speaker 7: people were focused.
30:09
Speaker 6: On core Weave, the.
30:12
Speaker 7: Tech company that was that went public on Friday, as
30:16
Speaker 7: you know, potential savior of the IPO market. But almost
30:19
Speaker 7: out of nowhere, Newsmax, the you know, conservative cable news
30:24
Speaker 7: and social media company went public on Monday, and it
30:30
Speaker 7: just was a mind boggling debut. The stock priced at ten,
30:35
Speaker 7: went up more than seven hund on its first day,
30:38
Speaker 7: more than doubled again. It's cooled off, you know, in
30:43
Speaker 7: the past few days with all the market volatility. But
30:46
Speaker 7: you know, I think it's fair to wonder if this
30:48
Speaker 7: is the new MAGA trade, if you will, you know,
30:52
Speaker 7: replacing DJT Trump Media.
30:54
Speaker 2: So when we take a look at the ipo market,
30:56
Speaker 2: like I think a lot of people were reading into hey,
30:59
Speaker 2: this core we ipo failing. It didn't fail. It did
31:02
Speaker 2: go off, but it far reduced price. Yeah, and it
31:05
Speaker 2: has since bounced back. But I think there's a lot
31:07
Speaker 2: written after that ipo of Hey, this has echoes of
31:11
Speaker 2: the dot com bubble, when IPOs were just not going
31:14
Speaker 2: off the way they meant to. Does this Newsmax ipo
31:18
Speaker 2: reassure anybody out there in terms of the IPO market.
31:21
Speaker 3: I know a lot's changed obviously since Monday.
31:23
Speaker 2: Of this week, but but you know, in of itself,
31:26
Speaker 2: they are very different companies obviously raising a sizably different
31:30
Speaker 2: amount of money as well. Should anyone take stock of hey,
31:34
Speaker 2: this might be healthy for the ipo market based on
31:36
Speaker 2: what happened with Newsmax, I.
31:38
Speaker 7: Don't think so. When you look at Newsmax, I mean
31:41
Speaker 7: one seven and a half million shares being offered, it's
31:46
Speaker 7: a very small fraction of the overall shares outstanding, so
31:50
Speaker 7: you have that scarcity value and probably you know, a
31:54
Speaker 7: fervent loyal base of potential retail investors who might the
32:00
Speaker 7: fans of Newsmax is a content much in the same
32:04
Speaker 7: way that Trump Media kind of went bonkers last year
32:09
Speaker 7: after that SPAC deal closed, and it's you know, cooled
32:12
Speaker 7: off as reality has set in. You know, the good news,
32:15
Speaker 7: if you want to call it that with Newsmax versus say,
32:18
Speaker 7: Trump Media, is that, you know, Newsmax is a legitimate
32:22
Speaker 7: media company with a very strong presence. It's fourth in
32:27
Speaker 7: the ratings behind CNN, MSNBC and Fox News, which is
32:33
Speaker 7: an affiliate company you know, related to my parent company,
32:36
Speaker 7: News Corp. Deouns, Barons and dal Jones uh. And it
32:40
Speaker 7: does have a significant chunk of revenue. It is losing money,
32:46
Speaker 7: but you know, the revenue base is much larger.
32:49
Speaker 6: It's it's just.
32:50
Speaker 7: That when you look at the valuation for Newsmax and
32:53
Speaker 7: compare it to the larger media companies that own cable
32:57
Speaker 7: news companies like Warner Brothers, Discovery, CNN and comcasts with
33:02
Speaker 7: MSNBC and you know Fox with Fox News. You know,
33:06
Speaker 7: the valuation even on a price to revenue standpoint, even
33:10
Speaker 7: after the stock has come down later this week, is
33:14
Speaker 7: still quite frankly exorbitant, to put it mildly. I mean,
33:18
Speaker 7: you're talking about a company that's got a plus seven
33:21
Speaker 7: billion dollar market seven billion dollar plus market cap, you know,
33:24
Speaker 7: on only one hundred and seventy million or so in
33:26
Speaker 7: annual revenue.
33:28
Speaker 2: Paul, how did they conduct this IPO, because I was
33:30
Speaker 2: hearing about it from a lot of different areas. Was
33:33
Speaker 2: it through your typical investment bank or did they go
33:36
Speaker 2: after a different group to participate in the public offering itself?
33:41
Speaker 7: Yeah, this was not done in the you know, in
33:46
Speaker 7: the same way that you know, you've have a lot
33:48
Speaker 7: of other traditional IPOs with big investment banks such as Goldman,
33:53
Speaker 7: Sachs and Morgan Stanley, et cetera.
33:55
Speaker 6: This had a you.
33:56
Speaker 7: Know, a smaller it was a smaller offering obvious slay
34:00
Speaker 7: being only seven and a half million shares, and you know,
34:04
Speaker 7: the the investment banker was not one of the kind
34:07
Speaker 7: of bulge bracket big Wall Street firms. So you know,
34:10
Speaker 7: whether or not that added to the allure since this
34:13
Speaker 7: was not a perceived as being a Wall Street you know,
34:19
Speaker 7: mainstream type VIPO, as possible.
34:22
Speaker 2: Paul Lamonica from Baron's joining us to talk about the
34:25
Speaker 2: IPO of Newsmax that went off on Monday of this week,
34:29
Speaker 2: and it's following seven hundred percent surge that day in
34:32
Speaker 2: the days after. Thanks Paul, appreciate it, and we'll talk
34:35
Speaker 2: to you next week. So Mark, anything that you wanted to
34:39
Speaker 2: jump on for stack Roulet was what was your top
34:41
Speaker 2: pick for the day?
34:42
Speaker 4: Eighty million people Mike will be filing their own tax
34:44
Speaker 4: returns in a couple of weeks, if they haven't already.
34:47
Speaker 4: Some might be tempted to cut corners because of staff
34:49
Speaker 4: cuts at the IRS. Wall Street Journal as an article
34:51
Speaker 4: today warning us, maybe warning me specifically.
34:55
Speaker 2: Not to You should not admit live on radio that
34:58
Speaker 2: you intend to I have that.
35:00
Speaker 4: I thought I thought nobody was guarding the hen house,
35:04
Speaker 4: so it would be a good time. Hey, fudge your
35:06
Speaker 4: number here or there. Stupid idea. Don't do it. IRS
35:09
Speaker 4: gets everything from your employer, from brokerage accounts. You might
35:12
Speaker 4: have W two's, ten ninety nine's, you name it, so
35:14
Speaker 4: much of it as automated software matches up your return.
35:17
Speaker 4: Apparently glad this was in here now I know with
35:21
Speaker 4: things that brokerage firms and other entities that report to
35:24
Speaker 4: the IRS report. There's not somebody with green eye shades
35:27
Speaker 4: looking over every return. If you make a mistake on
35:30
Speaker 4: something that somebody can that that that an entity submits
35:34
Speaker 4: a form like a W two or a ten ninety
35:36
Speaker 4: nine to four on your behalf, you're going to get
35:38
Speaker 4: an automatic bill. There goes my spending money.
35:41
Speaker 2: I'll also mentioned that this is the I think second
35:44
Speaker 2: year in a row where IRS is offering filers in
35:48
Speaker 2: twenty five participating states who only reports certain types of income.
35:54
Speaker 2: So you can only have W two, wages, social Security, unemployment,
35:58
Speaker 2: comp interest income, retirement income. But if you fall into
36:02
Speaker 2: that category, then you can actually file for free directly
36:05
Speaker 2: with the I r S and their online tools, rather
36:08
Speaker 2: than needing to go to a paid service.
36:10
Speaker 3: Again, twenty five states.
36:12
Speaker 2: Only about half of the states are actually participating in this,
36:14
Speaker 2: but I know a few of them are in New England.
36:17
Speaker 2: I don't have the list in front of me, but
36:19
Speaker 2: pretty big change from the way things were done just
36:21
Speaker 2: a few years ago.
36:23
Speaker 3: Any interesting recession indicators that you have your eye on.
36:27
Speaker 2: Marketer, the Wall Street Journal is mentioning the the the
36:31
Speaker 2: bag lunch.
36:33
Speaker 3: Oh okay, yeah, I like this.
36:35
Speaker 4: I've just reviewed some data. I don't see anything. You're
36:37
Speaker 4: going with? You going with sandwiches?
36:39
Speaker 3: I like sandwiches.
36:40
Speaker 1: Yeah.
36:40
Speaker 4: Else.
36:41
Speaker 2: Whenever I have the OPPORTUNITYNG to talk about sandwich index
36:45
Speaker 2: closing in on noon, I always do so. But the
36:48
Speaker 2: Wall Street Journal is printing that more people are bringing
36:51
Speaker 2: lunch to work, which is a bad economic indicator. I
36:53
Speaker 2: don't know how they measure that one other than people
36:57
Speaker 2: aren't people aren't shopping.
36:58
Speaker 4: At what's in that bag? Hey, screw you, CREEPO. Is
37:02
Speaker 4: that a peanut butter and jelly?
37:03
Speaker 1: I see there?
37:04
Speaker 5: What's going on?
37:06
Speaker 3: I do?
37:08
Speaker 2: I do genuinely love these these weird recession indicators.
37:13
Speaker 3: I know.
37:15
Speaker 2: Fidelity used to have some chart where they were looking
37:18
Speaker 2: at I think taxi cab volumes in New York City
37:22
Speaker 2: or something along those lines, which is a fairly good indicator.
37:25
Speaker 2: Warren Buffett had always used his men's underwear indicator, which
37:29
Speaker 2: might be why he bought Fruit of the Loom ultimately
37:31
Speaker 2: just to release that one indicator.
37:33
Speaker 4: That's what he told his wife as to why he
37:34
Speaker 4: had all those catalogs.
37:35
Speaker 2: Anyway, research O boy, oh boy. Economic research taking a
37:42
Speaker 2: look at markets as we close out the Financial Exchange
37:46
Speaker 2: for the week.
37:47
Speaker 3: They are they are, They're not looking good.
37:50
Speaker 2: Dow off nearly fourteen hundred points three and a third percent,
37:54
Speaker 2: SMP off two hundred and six three point eight percent,
37:57
Speaker 2: in the NASDAK off six hundred and fifteen points three
37:59
Speaker 2: point seven percent. As we close out the show today,
38:03
Speaker 2: we will be right back at it tomorrow, and everyone
38:05
Speaker 2: is looking for those announcements on negotiations. We'll be covering
38:08
Speaker 2: that and more next week here on the Financial Exchange.