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Why is inflation still so misunderstood? · The Financial Exchange Show

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Speaker 1: and Mark Fandetti.
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Speaker 2: Wednesday, Here Chuck, Mark and Tucker with you and continuing
1:15
Speaker 2: to digest what the world looks like now that we've
1:19
Speaker 2: had these new tariffs implemented for the better part of
1:23
Speaker 2: a week in some case, about a.
1:24
Speaker 3: Week and a half in other cases.
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Speaker 2: And this morning at eight thirty am, we received the
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Speaker 2: retail sales report for the month of March, which, obviously,
1:36
Speaker 2: if you pull open your calendar, not while you're driving,
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Speaker 2: please we want you to stay focused on the road,
1:44
Speaker 2: but if you pull open your metaphorical calendar and you say, oh, gee,
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Speaker 2: March was before the April second tariff announcement date, obviously
1:55
Speaker 2: we are dealing with a set of data that a
1:57
Speaker 2: is a little bit out of date, and B it
2:01
Speaker 2: was something where people were anticipating this April second announcement.
2:04
Speaker 2: We didn't know what was going to come of it,
2:07
Speaker 2: but you did hear from an awful lot of people, Gee, like,
2:10
Speaker 2: I'm nervous about this. Do you think I should stock
2:12
Speaker 2: up on that?
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Speaker 4: Like?
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Speaker 3: You know?
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Speaker 2: So you can you can see a path towards a
2:17
Speaker 2: rebound in the March retail sales data compared to what
2:21
Speaker 2: we had seen for a rather disappointing month of February,
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Speaker 2: and in fact, what we saw was a good March reading,
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Speaker 2: coming in at one point four percent month over month
2:34
Speaker 2: gains in retail sales, fairly broad based but somewhat concentrated
2:39
Speaker 2: in as you would expect. And as we talked about
2:43
Speaker 2: motor vehicle Parts and Dealers Tucker on Monday, Mike and
2:45
Speaker 2: I had done a little bit of a prediction as
2:49
Speaker 2: to where we thought the motor Vehicle Parts and Dealers
2:52
Speaker 2: number would come in. I believe I was at plus
2:54
Speaker 2: six point five percent month over month and Mike was
2:57
Speaker 2: plus four correct four point zero put right in the
3:00
Speaker 2: middle five point three percent, So that was kind of fun.
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Speaker 2: But in any case, you're not going to see five
3:07
Speaker 2: point three percent monthly gains in auto sales forever, just
3:10
Speaker 2: because there aren't that many people who both need vehicles
3:13
Speaker 2: and can't afford to buy them. So I think my
3:17
Speaker 2: takeaway on this report, Mark is it's a good bounce
3:22
Speaker 2: back from what was a week February number, which we
3:26
Speaker 2: thought we were gonna get anyways, just because February there
3:28
Speaker 2: was so much weather and sickness and everything going around
3:30
Speaker 2: that we were expecting something better. But this is also
3:35
Speaker 2: a data series that is, you know, skewed because of
3:37
Speaker 2: abnormal buying patterns, and was before the April second tariff announcement.
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Speaker 2: And so I think in terms of like how much
3:46
Speaker 2: I wait this in my my you know, model of
3:49
Speaker 2: what the economy is doing or what it may do.
3:52
Speaker 2: It's one where I discounted pretty heavily just because it's
3:56
Speaker 2: pretty stale at this point.
3:58
Speaker 5: Yeah, major changes in policy or the expectation of major
4:02
Speaker 5: changes in policy, distort the picture. This is obvious, and
4:06
Speaker 5: it's why forecasting becomes difficult in environments like this. There
4:11
Speaker 5: was another set of reports issued this morning, not as
4:13
Speaker 5: widely followed. The Federal Reserve tracks industrial capacity and capacity utilization.
4:20
Speaker 5: Industrial production excuse me in capacity utilization. They both declined
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Speaker 5: a little bit month over month last month. That's mainly
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Speaker 5: due though, to those indices I should mention. Track production
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Speaker 5: at factories, mines, and utilities. Utilities is the key component.
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Speaker 5: Last month. It was warmer than average or than in
4:42
Speaker 5: recent previous months over the same same span. That is,
4:47
Speaker 5: so production at utilities declined. It dragged both as a consequence,
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Speaker 5: industrial production and capacity utilization down, But other categories within
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Speaker 5: these FED reports, such as orders of business equipment manufacturing activity,
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Speaker 5: those all ticked up, perhaps also in response to businesses
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Speaker 5: pulling forward demand in anticipation of higher prices.
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Speaker 6: Soon.
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Speaker 3: When we look.
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Speaker 2: At the retail sales data, when do you think we're
5:19
Speaker 2: going to get a clear look at what the new
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Speaker 2: trend looks like? Because obviously you had clearly some front
5:26
Speaker 2: running on the vehicle side, and maybe some other places
5:29
Speaker 2: as well in terms of the March data April. Anecdotally,
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Speaker 2: we're continuing to hear I was driving in this morning
5:37
Speaker 2: and I heard three different announcements for car dealers, three
5:42
Speaker 2: different advertisements for car dealers that were advertising that they
5:45
Speaker 2: had tariff free models for a limited time. I mean, again,
5:49
Speaker 2: I'm not surprised, like anything that you can do to
5:53
Speaker 2: sell a car, like certainly you're going to But at
5:57
Speaker 2: what point do you think we're through the initial run
6:00
Speaker 2: buying and we start to get a sense of the
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Speaker 2: new trend, Because I suspect you're probably like you got
6:08
Speaker 2: to be looking at like the June maybe July date.
6:10
Speaker 2: It might be like three four months from now.
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Speaker 5: That assumes we get a clear policy and we stick
6:14
Speaker 5: with it. If policy keeps changing, then people's expectations will
6:18
Speaker 5: keep changing. Retail sales jumped a lot post COVID, Obviously
6:23
Speaker 5: we're still not. I'm just eyeballing this. I haven't run
6:25
Speaker 5: the numbers, which I should. But what doesn't look like
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Speaker 5: we're back to the old trend line. We're back to
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Speaker 5: the old growth rate. The slope of the series, so
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Speaker 5: to speak, is the same. That's what I'm eyeballing here. Sure,
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Speaker 5: but we're above where we would have otherwise been. Maybe
6:40
Speaker 5: there's more reversion to take place there. It's going to
6:42
Speaker 5: be hard to tease out all these things. So to
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Speaker 5: answer your question, when do we know that the trend
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Speaker 5: is you asked what I interpret as a broader question,
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Speaker 5: a bigger question, more general one. When do we know
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Speaker 5: a trend is change, whether it's inflation or GDP or productivity.
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Speaker 5: How do you know? You don't have enough data in
6:57
Speaker 5: the moment. You need at least several months. In the
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Speaker 5: case of most of these things, GDP only comes quarterly.
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Speaker 5: You may not know for years that a trend has changed.
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Speaker 5: There are different ways to measure the trend if you're researcher.
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Speaker 5: So the answer, Chuck, the short answer is that you
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Speaker 5: really don't for some time, and even then not with certainty.
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Speaker 3: When in terms of what this means.
7:21
Speaker 2: Let's talk about what this means just in terms of
7:22
Speaker 2: setting kind of the baseline for GDP for Q one,
7:27
Speaker 2: because obviously heading into this report and I haven't seen
7:31
Speaker 2: there's no updated number yet, but the Atlanta Fed has
7:34
Speaker 2: their GDP now now cast that they put out and
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Speaker 2: basically gives you a real time estimate of Hey, given
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Speaker 2: the information that we've gotten to this point in the quarter,
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Speaker 2: here's where we think GDP is going to be, and
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Speaker 2: what they have at the moment. The Q one number
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Speaker 2: so far is coming in at negative two point four percent.
7:54
Speaker 2: They do note there was a huge import of gold
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Speaker 2: that happened for technical reasons that has skewed this and
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Speaker 2: so the adjusted forecast that they give is negative point
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Speaker 2: three percent. But this is something that obviously a rebound
8:10
Speaker 2: in retail sales would provide a boost there. So I
8:13
Speaker 2: think overall, when we look at this in the context
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Speaker 2: of the broader economy, the message that I think we're
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Speaker 2: still getting regarding the US economy as hey, the Q
8:23
Speaker 2: one data is going to show a slowdown from what
8:28
Speaker 2: we were.
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Speaker 3: Seeing in twenty twenty four.
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Speaker 2: As far as how we look forward into subsequent quarters two, three,
8:37
Speaker 2: and four of this year. I think we still don't
8:39
Speaker 2: really know exactly how things are going to impact the economy.
8:44
Speaker 2: Because tariff policy has been in place for a very
8:46
Speaker 2: short time now, there obviously is the possibility that those
8:50
Speaker 2: tariffs change over the coming weeks and months, and we
8:54
Speaker 2: don't know what the magnitude and timing and scope of
8:56
Speaker 2: those changes are going to be. So I think to
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Speaker 2: a certain extent, we're flying somewhat blind over the next
9:04
Speaker 2: couple quarters as far as where we think overall economic
9:08
Speaker 2: growth is going to be. Other than to say in
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Speaker 2: the short term, there's there's not really a convincing way
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Speaker 2: that you can point to tariffs being a creative to
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Speaker 2: US growth.
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Speaker 5: I don't think so, but I wouldn't be surprised if
9:20
Speaker 5: GDP exceeded expectations, which are pretty low.
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Speaker 3: Q two could be good if you have like a
9:24
Speaker 3: bunch of retail P one.
9:26
Speaker 5: I'm looking at some other Atlanta Fed's not the only
9:28
Speaker 5: regional FED banks if you know that does a so
9:30
Speaker 5: called now cast without getting into differences in method the New.
9:35
Speaker 3: York fans, no one wants to hear about that.
9:36
Speaker 5: Now, And I'm not the expert so I'd be the wrong,
9:38
Speaker 5: I'd confuse myself and everybody else. But I can generally
9:43
Speaker 5: say that the methods are somewhat different. But I've never
9:46
Speaker 5: seen a divergence of a few percentage points. And what
9:50
Speaker 5: I mean by that is the New York FEDS now
9:51
Speaker 5: cast has Q one GDP tracking, so to speak, at
9:55
Speaker 5: over two and a half percent, so interesting, radically different
9:59
Speaker 5: than the Lana Fed's conclusion. This points to this, This
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Speaker 5: divergence points, I think, to the high degree of uncertainty
10:06
Speaker 5: that you were alluding to. It's gonna be hard for
10:09
Speaker 5: the next several quarters to get a read on the
10:12
Speaker 5: trend in all of these series that we talk about.
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Speaker 2: It's gonna be pretty noisy, and you could very easily
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Speaker 2: have something where the Q two data looks great because
10:20
Speaker 2: there's a bunch of retail buying and people trying to
10:23
Speaker 2: get up, you know, get ahead of you know, future tariffs.
10:26
Speaker 2: There could be something wherein the Q three data is
10:29
Speaker 2: bad because all that buying was front loaded in Q two.
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Speaker 2: Like it's I know that we often love to react,
10:37
Speaker 2: not us, but like just in general, people love to
10:41
Speaker 2: react to every data point in an describe.
10:43
Speaker 3: We kind of giant meaning we all do it.
10:45
Speaker 2: I'm not sure how much meaning you can get from
10:47
Speaker 2: data either good or bad, over the next few months,
10:51
Speaker 2: unless it's like all convincingly in one direction.
10:54
Speaker 5: Yeah, I think that's a fair statement. You know, I
10:56
Speaker 5: have had a lot of uniformity and sentiment stocks pulled back,
11:00
Speaker 5: though they've recovered somewhat all the leading stuff.
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Speaker 2: The soft data is pointing towards bad. We have some
11:07
Speaker 2: sporadic hard data here and there.
11:09
Speaker 5: The stocks are from me the big piece of hard
11:11
Speaker 5: data financial market data. I know it's not real, a
11:13
Speaker 5: real economic data point as researchers for some reason make
11:16
Speaker 5: a distinction, but stocks because of the wealth effect and
11:18
Speaker 5: their effect on psychology to me, or.
11:21
Speaker 2: It's interesting, I've used stocks of soft data personally.
11:27
Speaker 3: Is there no, no, no, no, I.
11:30
Speaker 5: Would put it in a different researchers will put it in
11:31
Speaker 5: a different category. The soft stuff is survey based. Financial
11:34
Speaker 5: market data is like a species of its own. And
11:36
Speaker 5: then there's of course economic data, the GDP, the inflation,
11:40
Speaker 5: and then we can get into other subcategories.
11:42
Speaker 2: It's I almost feel like stocks might maybe there's like
11:44
Speaker 2: a third category you need, financial market because on one hand, yes,
11:50
Speaker 2: like it can drive effects in the broader retail economy,
11:54
Speaker 2: you know, not retail but brother economy. On the other hand,
11:59
Speaker 2: it can also be used as means to express sentiment.
12:01
Speaker 5: It is both. So there's this issue of chicken egg.
12:05
Speaker 5: There are ways of testing for did the chicken or
12:07
Speaker 5: the egg come first? I don't want to want to
12:08
Speaker 5: get into those because they don't give you conclusive results
12:11
Speaker 5: either is. You can probably imagine. One of the great
12:13
Speaker 5: debates and financial economics is which causes which I don't
12:16
Speaker 5: mean causes is in I push you you fall? I
12:19
Speaker 5: mean causes is in proceeds in time and helps to forecast.
12:23
Speaker 5: There's no satisfactory answer there, but I think the weight
12:25
Speaker 5: of the evidence. His stocks are a good leading indicator.
12:27
Speaker 5: We don't really need to know why. As a generalist,
12:30
Speaker 5: I don't need to know why. Just give me something
12:32
Speaker 5: that helps my models get better. So I would put
12:35
Speaker 5: a little more weight on stocks, maybe than most.
12:38
Speaker 3: Let's take a quick break.
12:39
Speaker 2: When we return, we'll talk a little bit about Jay Powell.
12:43
Speaker 2: He's going to be giving a speech this afternoon at
12:46
Speaker 2: the Economic Club of Chicago. Mark and I are not invited,
12:49
Speaker 2: but we'll still talk to you about what he may
12:50
Speaker 2: say during that speech.
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Speaker 2: Mark this afternoon, Jay Powell is gonna get up in
13:52
Speaker 2: front of the Economic Club of Chicago and he'll have
13:55
Speaker 2: prepared remarks at one thirty pm and then a moderated
13:58
Speaker 2: discussion afterwards. What are we expecting to hear from him? So,
14:03
Speaker 2: I guess here's the thing. The chatter to this point
14:07
Speaker 2: has been you know, hey, it's it's early. We're seeing
14:10
Speaker 2: how things are evolving, and YadA, YadA. The point that
14:13
Speaker 2: I'd like to make, and that I've heard some scuttle
14:17
Speaker 2: butt around, is I think it was on it was
14:20
Speaker 2: either Monday or yesterday. I can't remember when, but Christopher
14:24
Speaker 2: Waller a yeh, came out and basically had had a
14:30
Speaker 2: statement where he's a member of the Board of Governors
14:34
Speaker 2: and had a very dovish leaning set of comments on
14:39
Speaker 2: I think it was Monday, and while we are The interesting
14:43
Speaker 2: thing is I think a lot of people have generally
14:45
Speaker 2: viewed him as a proxy for Powell and kind of
14:49
Speaker 2: how Powell is thinking. It's it's one of these things
14:51
Speaker 2: where like every every member of the Federal Reserve, you know,
14:54
Speaker 2: kind of stakes out their territory in terms of, you know,
14:57
Speaker 2: where they are. The guy from Saint Louis Bullard, you
14:59
Speaker 2: A always used to know was going to be the
15:01
Speaker 2: most hawkish position that anyone in the Fed could have.
15:04
Speaker 2: Duttley from Boston used to be pretty dovish.
15:06
Speaker 5: She's on the conditions though, I always but you have
15:08
Speaker 5: like these.
15:10
Speaker 2: These general lanes that they stay in. So the question
15:13
Speaker 2: that people have been asking the last couple of days
15:15
Speaker 2: or so, now, is hey, given that Waller had these
15:18
Speaker 2: very douvish comments earlier this week, do we get something
15:21
Speaker 2: similar from Powell today? And does he start talking, you know,
15:24
Speaker 2: more seriously about the prospect of rate cuts at the
15:26
Speaker 2: upcoming meetings.
15:29
Speaker 5: I don't know. I heard Waller's comments, and I wonder
15:34
Speaker 5: what's what changes to their assumptions. Maybe about the long
15:38
Speaker 5: term so called neutral rate might be driving him. Maybe
15:41
Speaker 5: he thinks it's come down with tariffs. Although you can
15:43
Speaker 5: make an argument that because foreigners will be buying fewer
15:46
Speaker 5: of our treasuries if we're sending fewer dollars abroad. I
15:50
Speaker 5: just made a somewhat technical point there. I'm not saying
15:53
Speaker 5: I this is not my area, but if you ship
15:57
Speaker 5: fewer dollars abroad, I feel like I should now elaborate,
16:00
Speaker 5: even though I'm going to get myself further into the
16:02
Speaker 5: the morass here of international balance of payments. But we're
16:06
Speaker 5: sending fewer dollars abroad, that means fewer dollars will come
16:08
Speaker 5: back and buy treasuries and buy factories, et cetera. So,
16:11
Speaker 5: if anything, I thought textbook model, if I were answering
16:14
Speaker 5: the question on a test which i'd probably get to see,
16:18
Speaker 5: I would say the neutral rate would go up. But
16:22
Speaker 5: Waller's comment suggested to me that he thinks something else
16:25
Speaker 5: is going on. I don't know what that is. He
16:27
Speaker 5: didn't elaborate, so yeah, it may be a preview of
16:29
Speaker 5: what Paul's going to say today. Just keep in mind
16:31
Speaker 5: that inflation underlying inflation. We talked about trends in the
16:34
Speaker 5: last segment. When we say underlying or long term, we
16:38
Speaker 5: kind of mean the trend, and it's always hard to
16:40
Speaker 5: get a good read on that. Because of the noise
16:41
Speaker 5: that you mentioned, Chuck, underlying inflation remains elevated. I don't
16:44
Speaker 5: see how they can justify cutting aggressively unless they're privy
16:47
Speaker 5: to something bad coming down the pike economically that the
16:50
Speaker 5: rest of us aren't.
16:51
Speaker 2: And I want to talk about what Waller said specifically.
16:54
Speaker 2: It's just because a there's a nice little comparison there
16:56
Speaker 2: that I think is lovely, and be just to give
16:58
Speaker 2: some specifics. He says, quote he was talking about, you know,
17:01
Speaker 2: whether he said that he expects the effects of these
17:04
Speaker 2: tariffs could be transitory, and he says I can hear
17:07
Speaker 2: the house already that this must be a mistake given
17:09
Speaker 2: what happened in twenty twenty one in twenty twenty two,
17:12
Speaker 2: but just because it didn't work out once does not
17:14
Speaker 2: mean you should never think that way again.
17:16
Speaker 3: So a couple different ways to view that.
17:18
Speaker 1: I agree with that.
17:19
Speaker 3: The first is, you guys are a big arrested development fans.
17:23
Speaker 4: E'm zena in a while.
17:24
Speaker 3: But yeah, there's the.
17:26
Speaker 2: Scene where I forget even like the context of its
17:29
Speaker 2: some business that pana stand no, no, no, some business
17:32
Speaker 2: they're considering.
17:33
Speaker 3: They're like, has this ever worked for anyone?
17:35
Speaker 2: No, but it could work for us, And like you
17:40
Speaker 2: read this at first and you're like, okay, like you know,
17:42
Speaker 2: let's not go too far here. But there are some
17:45
Speaker 2: key differences in the setup for twenty twenty one and
17:48
Speaker 2: twenty twenty two compared to today. The first is, look,
17:52
Speaker 2: with these tariffs, you do have the potential for some
17:53
Speaker 2: supply chain disruptions, So that's a similarity. Actually, second piece
17:58
Speaker 2: inflation expectations up. Do you talk any survey out there
18:01
Speaker 2: and inflation expectations there are up. So again, two of
18:03
Speaker 2: the three components that we usually talk about in inflation.
18:07
Speaker 2: You know, in the causes of inflation are present, but
18:11
Speaker 2: there's a key difference that I'll point to, and to this,
18:14
Speaker 2: I'm going to ask a question to all of you
18:17
Speaker 2: who are listening right now. Have you received your stimulus
18:21
Speaker 2: check for the month? And the answer is no, because
18:24
Speaker 2: there haven't been any sent out. And this is a
18:26
Speaker 2: key difference from twenty twenty one to twenty twenty two
18:29
Speaker 2: in that in twenty one and twenty two we had
18:31
Speaker 2: a huge amount of demand spurred by quite literally money
18:36
Speaker 2: that was given to people by the federal government. And
18:40
Speaker 2: that is a stark difference from today.
18:43
Speaker 3: Where whether you think that the.
18:45
Speaker 2: Trump administration is going to be able to rope in
18:47
Speaker 2: spending or not spending to this point in the calendar
18:50
Speaker 2: year is basically on part is slightly above last year.
18:53
Speaker 2: There's no meaningful shift that we're seeing in either direction
18:56
Speaker 2: from a federal government perspective, and so from my perspective
19:00
Speaker 2: where I sit, it is tough to see inflation grabbing
19:03
Speaker 2: a foothold if you don't have that demand piece that's
19:06
Speaker 2: that's working.
19:06
Speaker 5: Yeah, I disagree completely good, But we should talk about
19:09
Speaker 5: this in the next because there's not enough time to
19:11
Speaker 5: get into it. Can we talk about this after the
19:12
Speaker 5: break or.
19:13
Speaker 2: Well, we've got seven sec talk about it for seven sections.
19:17
Speaker 5: Disagree on the demand versus the supply components. Some researchers,
19:20
Speaker 5: like Ben Bernanke don't think demand excess demand had anything
19:22
Speaker 5: to do with the COVID inflation.
19:24
Speaker 2: Let's take that break right now, Okay, and when we
19:27
Speaker 2: come back, I know we're going to devote more than
19:30
Speaker 2: seven seconds to this when we return.
19:32
Speaker 3: Along with Wall Street, watch.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
19:45
Speaker 1: TFE show. Breaking business news is always first right here
19:49
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:55
Speaker 1: Watch a complete look and what's moving markets so far today?
19:59
Speaker 1: Right here on the Financial Exchange Radio Network.
20:02
Speaker 4: Markets are negative territories Investors react to the March retail
20:06
Speaker 4: sales report, where retail sales climb one point four percent
20:10
Speaker 4: last month, in line with estimates. Wall Street will also
20:13
Speaker 4: be turning their attention to Fair Chairman Jerome Polla at
20:16
Speaker 4: one thirty this afternoon, where he will deliver prepared remarks
20:20
Speaker 4: on the economy, followed by a moderated discussion at the
20:24
Speaker 4: Economic Club of Chicago. Right now, the Dow is down
20:27
Speaker 4: by half a percent s and P five hundred is
20:30
Speaker 4: down just over one percent lower, and the Nasdaq down
20:34
Speaker 4: nearly two percent lower three hundred and seventeen points, RUSS
20:37
Speaker 4: to two thousand, selling off by over three quarters of
20:40
Speaker 4: a percent. Tenyure Treasureveeled is up by two basis points
20:44
Speaker 4: at four point three four percent, and crude oil up
20:47
Speaker 4: two percent higher so far today, trading sixty two dollars
20:51
Speaker 4: in fifty four cents a barrel. Tech sector pulling back
20:54
Speaker 4: today as a result of news surrounding chip makers in
20:57
Speaker 4: VideA and ASML. Video warned will report about five point
21:01
Speaker 4: five billion dollars in related charges due to the fiscal
21:05
Speaker 4: first during the fiscal first quarter, after the Trump administration
21:09
Speaker 4: barred the company from selling its H twenty chip in China.
21:12
Speaker 4: As For ASML, the company reported weaker than expected orders
21:16
Speaker 4: for its chip making machines in the first quarter and
21:19
Speaker 4: warned that tariff policies we're creating uncertainty for the industry.
21:23
Speaker 4: Both of those stocks are down by six percent. Other
21:26
Speaker 4: chip makers, including AMD and Broadcom, also seeing losses as well. Meanwhile,
21:31
Speaker 4: United Airlines surpassed first quarter expectations, with the airlines swung
21:35
Speaker 4: a profit and posted higher quarterly revenue. The company said
21:38
Speaker 4: it would reduce flights and aircraft in anticipation of lower
21:42
Speaker 4: travel demand in a potentially weaker US economy. United is
21:46
Speaker 4: up by one percent. Heinegen reported better than expected revenue
21:50
Speaker 4: and growth and confirmed its annual guidance despite warning of
21:54
Speaker 4: uncertainties ahead due to tariff policy. Heineg and up five percent.
21:58
Speaker 4: Overseas travelers put to better than expected first quarter earning,
22:02
Speaker 4: sending shares in the insurance company up by four percent.
22:05
Speaker 4: JB Hunt down by seven percent, where the transportation company
22:09
Speaker 4: reported a one percent drop in revenue in operating income
22:13
Speaker 4: year over year, And after today's closing bell, we'll see
22:16
Speaker 4: quarterly earnings from CSX and Alcoa. I'm Tucker Silvan. That's
22:21
Speaker 4: Wall Street watch mark.
22:23
Speaker 2: Just before the break, I made a statement to the
22:27
Speaker 2: effect of, hey, one of the things that is missing
22:30
Speaker 2: in this economy that was present during the inflation that
22:35
Speaker 2: we saw in twenty twenty one and twenty two was
22:38
Speaker 2: a huge surge in demand. I believe your response was
22:43
Speaker 2: something along the lines of how dare you say something
22:47
Speaker 2: like that? You have offended the economic gods, and you
22:50
Speaker 2: shall be struck down by bulsive lightning from Ben Bernanke's eyeballs.
22:54
Speaker 5: Smite and gus. You're right though, well, no, we're not overstimulating.
23:00
Speaker 5: Dear God, let me no, no, no, let me first know
23:01
Speaker 5: I should be a little bit more balanced before.
23:04
Speaker 2: We're gonna have an economics debate. We're gonna have an
23:06
Speaker 2: economics and that's.
23:07
Speaker 5: Not the way researcher's talking Eve, even on the radio.
23:10
Speaker 5: Plus you're my boss, so no, no, you're always very
23:16
Speaker 5: fair in this form. This is a this is a
23:19
Speaker 5: place where we can speak freely. So you're right, there's
23:22
Speaker 5: no big demand shock this time. But there are two
23:25
Speaker 5: components to the demand supply relationship. The other is supply demand.
23:29
Speaker 5: If you think about total demand in the economy, sometimes
23:32
Speaker 5: you hear that ref too, is aggregate demand. Think about
23:35
Speaker 5: total demand not moving, but the ability of the economy
23:40
Speaker 5: to satisfy that demand so called aggregate supply, which is
23:44
Speaker 5: just the counterpart. It is just taking one market like
23:46
Speaker 5: you learned in undergraduate, you know macroeconomics, where you took
23:50
Speaker 5: the market for pizza or something, which is the classic illustration.
23:53
Speaker 5: I guess because everybody can relate to it, just expand
23:56
Speaker 5: that to every good in the economy. Aggregate demand, agriate supply.
23:58
Speaker 5: I suppose nothing happens to agregad demand. They don't lower
24:00
Speaker 5: taxes beyond where they are today. They just continue the
24:03
Speaker 5: tax cuts. Suppose the Fed doesn't overstimulate, which can also
24:07
Speaker 5: push aggregate demand in an unfavorable from an inflation point
24:11
Speaker 5: of view direction. Aggregate supply total supply again just a
24:15
Speaker 5: fancy way of saying. It could contract so due to tariffs,
24:18
Speaker 5: due to snarling supply chains and stuff. So even without
24:22
Speaker 5: reckless fiscal policy like the Biden regime imposed or the
24:26
Speaker 5: Trump regime first Trump regime imposed at the end, And
24:28
Speaker 5: I want to pick on one or the other. And
24:30
Speaker 5: maybe you thought it was a good idea politically, but
24:32
Speaker 5: not a good idea from the point of view of inflation.
24:34
Speaker 5: Even if demand doesn't get goosed by monetary or fiscal policy,
24:39
Speaker 5: supply could still shift in an unfavorable direction. If you're
24:42
Speaker 5: picturing this, which I do, you're probably not. But it
24:44
Speaker 5: moves to the left. That pushes output below potential as
24:48
Speaker 5: you get recession. In other words, that could also push
24:50
Speaker 5: inflation above where it is today. The combination of those
24:53
Speaker 5: two things is known as stagflation. So I'm not saying
24:55
Speaker 5: you're wrong, You're right. The federal government did they jumping
25:00
Speaker 5: said to assume that because we're not gonna have a
25:02
Speaker 5: helicopter drop of money again. Yeah, which is what Trump won,
25:05
Speaker 5: and then Biden did Biden sure recklessly than Trump won.
25:09
Speaker 5: I do put most of the blame there, but there
25:12
Speaker 5: are some researchers. Ben Bernanke is a household name, which
25:14
Speaker 5: is why I keep mentioning it. But there are others
25:15
Speaker 5: who say, no, no, COVID inflation was not about demand.
25:18
Speaker 5: It was totally about supply, and they apply pretty sophisticated
25:22
Speaker 5: statistical techniques to come to that conclusion. It's not just
25:25
Speaker 5: their opinion. I think that's wrong, and so to others,
25:27
Speaker 5: but cares. What I think point is, Chuck. Inflation is
25:30
Speaker 5: not well understood. It's a little bit mysterious. This is
25:34
Speaker 5: both depressing because we've been at this since the Great
25:37
Speaker 5: Inflation of the seventies and we still don't have a
25:38
Speaker 5: good answer as to what causes it, Why does it persist,
25:42
Speaker 5: Why precisely the expectations matter, How do they channel their
25:45
Speaker 5: way into the actual inflation process. These things are not
25:47
Speaker 5: well understood, and just when we think we understand them,
25:50
Speaker 5: relationships change and we're proven wrong. So the best prescription here,
25:55
Speaker 5: not just with respect to inflation, but any economic variable
25:57
Speaker 5: and including the stock market is as always melody.
26:00
Speaker 2: Let's talk a little bit more about what Tucker mentioned
26:03
Speaker 2: during Wall Street Watch, where we've got to sell off
26:06
Speaker 2: happening in the semiconductor space, in particular. You take a
26:11
Speaker 2: look through there in videos down about six percent today,
26:14
Speaker 2: AMD down six percent. Basically, semis are kind of dragging
26:19
Speaker 2: the rest of the market right now, the reason being.
26:23
Speaker 2: Tucker noted that NVIDI announced that they were gonna have
26:25
Speaker 2: a five and a half billion dollar charge related to
26:28
Speaker 2: the fact that they are now not able to sell
26:32
Speaker 2: their previous generation of chips into China ASML who is
26:37
Speaker 2: the manufacturer of the what's called lithography equipment for making semiconductors.
26:43
Speaker 2: So basically they are they're the company that makes the
26:46
Speaker 2: equipment so that other people can make semiconductors. Which isn't
26:50
Speaker 2: it fascinating? I mean, I just want to diverge for
26:53
Speaker 2: one second, and I know that this is how it
26:55
Speaker 2: is in like most industries in terms of you know,
26:58
Speaker 2: not everyone's vertically integrated. But it's wild to me that
27:02
Speaker 2: someone has such precision and scale that they make these machines.
27:06
Speaker 2: But they don't operate them themselves, and I know that's
27:11
Speaker 2: how it is everywhere. It's kind of like how you know,
27:13
Speaker 2: Caterpillar doesn't go out and actually like dig lithium mines.
27:16
Speaker 5: And stuff like that fly the planes, right, But well
27:18
Speaker 5: they used to, oh really?
27:20
Speaker 2: So the interesting thing is that Boeing, United Airlines and
27:23
Speaker 2: United Technologies used to be one company that I and
27:26
Speaker 2: then they split off back in the fifties. I think
27:29
Speaker 2: it was oh okay, but Boeing, United Airlines and United
27:33
Speaker 2: Technologies were all one company originally before they split off.
27:37
Speaker 2: So Boeing did actually used to fly their own planes
27:40
Speaker 2: back in the.
27:41
Speaker 5: Day years six to one example, and it was wrong.
27:44
Speaker 2: And it's probably the only example where I could give
27:46
Speaker 2: you something that was wrong. Also really well though, But anyways,
27:50
Speaker 2: it was probably a dumb comment by me because in
27:52
Speaker 2: thinking about it, it's like, yeah, obviously Caterpillar doesn't operate
27:54
Speaker 2: the mines.
27:54
Speaker 3: But yeah, so you've got ASML.
27:57
Speaker 2: They guided towards a basically a lower than expected number,
28:03
Speaker 2: you know, going forward, and so we're continuing to get
28:05
Speaker 2: data points that are suggesting from an AI and semiconductor perspective,
28:11
Speaker 2: we're kind of not not of the peak of the stocks.
28:14
Speaker 2: But like the peak of the acceleration of capex in
28:18
Speaker 2: that space, there's just not enough money in the world
28:22
Speaker 2: to continue accelerating at eighty percent annual growth rates up
28:27
Speaker 2: as far as spending on data centers and stuff.
28:29
Speaker 5: Like that, particularly if we're telling foreigners take your money,
28:33
Speaker 5: we don't want it. We're not going to buy your exports.
28:35
Speaker 5: I keep coming back to the trade deficit and how
28:37
Speaker 5: this ties into investment, but you really have to I
28:39
Speaker 5: think this is a good teachable moment. It's for me too.
28:42
Speaker 5: By the way, this is not my area, so I'm
28:43
Speaker 5: going back and trying to relearn this stuff. If you
28:46
Speaker 5: tell foreigners we're not going to buy your stuff, that
28:48
Speaker 5: we're not giving them dollars, they can't reinvest in treasuries.
28:51
Speaker 5: I know I said this in the last segment, so sorry.
28:53
Speaker 5: They also can't help our companies make the investments they
28:57
Speaker 5: need in data centers or whatever. This is why this
29:00
Speaker 5: is probably long term not great for interest rates. Well
29:03
Speaker 5: it's great if you want them to go up.
29:05
Speaker 3: Let's take a quick break here.
29:06
Speaker 2: When we come back, we'll talk about the latest in
29:09
Speaker 2: the US and China trade spat. We'll talk about what
29:12
Speaker 2: we saw overnight and where things may go from here.
29:15
Speaker 6: Right after this, Tara Spears continue to grip markets. Get
29:19
Speaker 6: the latest straight from Wall Street right here on the
29:22
Speaker 6: Financial Exchange Radio Network. Miss any of the show, catch
29:26
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29:32
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29:36
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29:38
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29:42
Speaker 6: Radio Network.
29:51
Speaker 2: Overnight, it was I think around four thirty am Eastern time.
29:57
Speaker 2: China indicated that they they would potentially agree to trade talks,
30:03
Speaker 2: but they wanted the Trump administration to show them more respect.
30:09
Speaker 2: They also wanted a designated point person named on those
30:12
Speaker 2: trade talks, and we did see overnight. I can tell
30:17
Speaker 2: you if you look at like how futures traded overnight,
30:19
Speaker 2: Stock futures rallied about one percent during that time. Obviously
30:22
Speaker 2: still open down and still are down, but it was
30:25
Speaker 2: looking like it could have been a worse day before.
30:28
Speaker 2: And to me it suggests that there still is just
30:31
Speaker 2: a ton of optimism in markets that some kind of
30:33
Speaker 2: deal gets done here. But I think a couple things
30:38
Speaker 2: can be true. The first is that the Trump administration
30:43
Speaker 2: I think really wants more than anything else to squeeze
30:47
Speaker 2: China through tariffs. China is clearly the primary target of
30:53
Speaker 2: just about all of this. Everything else I think is
30:56
Speaker 2: kind of noise, not saying it's not meaningful noise, but
30:59
Speaker 2: it's noise.
31:02
Speaker 3: I think it also is.
31:04
Speaker 2: Something where I'm not entirely sure that the that either
31:12
Speaker 2: side wants a like full decoupling at the snap of
31:16
Speaker 2: a fingers, which is basically what these level of tariffs
31:18
Speaker 2: are when you talk about the volume of trade that
31:20
Speaker 2: is just not going to happen between them. And the
31:24
Speaker 2: other piece is okay, you could potentially get some good
31:26
Speaker 2: news where sure, the Trump administration agrees to negotiations and
31:30
Speaker 2: maybe both sides agree to you know, reduced tariffs some
31:33
Speaker 2: you know, to a certain percentage during the during those negotiations.
31:38
Speaker 2: But if you're talking about like the big heavy items
31:42
Speaker 2: that the Trump administration wants, to be completely honest, I'm
31:48
Speaker 2: somewhat convinced that they need to maintain maximum pressure during
31:53
Speaker 2: negotiations in order to try to get those things, just
31:58
Speaker 2: because we've seen before from the Chinese government where okay,
32:03
Speaker 2: they come to agreement X, Y or Z, and then
32:06
Speaker 2: they don't follow through on it, and so you're sitting
32:07
Speaker 2: there like, what the heck did we end up doing here?
32:09
Speaker 2: So I think just trying to put this in the
32:13
Speaker 2: context of broad markets. The market is clearly desperate for
32:17
Speaker 2: some good news on China.
32:19
Speaker 3: I'm just not.
32:20
Speaker 2: Sure that the good news that can be delivered is
32:23
Speaker 2: like good enough to be able to satisfy markets eventually.
32:27
Speaker 3: But we'll see.
32:28
Speaker 2: I have no idea how this is going to play out,
32:31
Speaker 2: no idea.
32:33
Speaker 5: Yesterday I used the term chimerica. I didn't invent it.
32:36
Speaker 5: It was invented by Neil Ferguson. I know you don't
32:38
Speaker 5: love him as a historian, but I'm just fine. I'm
32:43
Speaker 5: giving you the provenance of the term. He coined this, Yeah,
32:47
Speaker 5: twenty twenty five years ago, this hybrid term chimeerica. Because
32:50
Speaker 5: we have been coupled for thirty years, our saving and
32:53
Speaker 5: rate has been going down, and that could be federal government. Say,
32:57
Speaker 5: I'm talking about total savings, which is government plus all
33:00
Speaker 5: of us, so we don't save enough to satisfy investment
33:04
Speaker 5: demand in this country. I know I'm repeating myself from yesterday,
33:07
Speaker 5: So sorry if you heard this. That means we have
33:11
Speaker 5: to import capital to grow our economy at the clip
33:15
Speaker 5: that it has grown historically, which is pretty much the
33:17
Speaker 5: envy of the world with respect with the exception of
33:20
Speaker 5: developing markets. But we're a very fast economy. Given we're
33:24
Speaker 5: very fast growing economy, given our size, China has satisfied
33:28
Speaker 5: that demand. They buy treasuries, they make other investments. The
33:31
Speaker 5: flip side of that is the trade deficit. So I'm
33:35
Speaker 5: trying to filter most of this out. I don't think
33:37
Speaker 5: it matters unless we change the balance of payments more broadly,
33:41
Speaker 5: we need to start saving more that at both the
33:44
Speaker 5: federal level and individual Otherwise, this decoupling it really can't.
33:49
Speaker 5: I mean, we could try to make it happen, but
33:50
Speaker 5: then our trade deficits with other countries India, other potential
33:55
Speaker 5: low cost venues for the trinkets that we buy for China,
34:02
Speaker 5: It'll just find, you know, another source of supply, and
34:05
Speaker 5: then we'll be picking on India in five years or something.
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35:08
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35:17
Speaker 2: Mark I saw something yesterday that I've never seen a
35:22
Speaker 2: company do before. They maybe other companies have, and I
35:26
Speaker 2: just am not familiar with it. United Airlines they had
35:32
Speaker 2: their earnings report after the bell, and what they did
35:37
Speaker 2: is they basically came out and said not Basically, they
35:42
Speaker 2: came out and said, hey, if there is a recession,
35:47
Speaker 2: this is what we expect our earnings to be. If
35:50
Speaker 2: there is no recession, then we reaffirm our prior guidance.
35:54
Speaker 2: Which so I'm not really sure how useful that is, because, like,
36:02
Speaker 2: isn't that kind of like me saying, Hey, if it
36:05
Speaker 2: rains tomorrow, I'm gonna eat ham, but if it doesn't
36:08
Speaker 2: rain tomorrow, it's turkey all day.
36:11
Speaker 5: Well, you're saying, I'm not a meteorologist, so you plug
36:13
Speaker 5: your own belief with respect to the weather tomorrow in
36:16
Speaker 5: and that will tell you what I'm going to do.
36:18
Speaker 5: I sort of liked it as a four million. If
36:20
Speaker 5: you're a forecast, do you give like a prediction interval?
36:22
Speaker 5: You say, well, it could be this or it could
36:23
Speaker 5: be that ninety five percent chance in between. I kind
36:27
Speaker 5: of like this. They're saying, we're not economists, so if
36:30
Speaker 5: there's a recession something over which we have no control,
36:32
Speaker 5: this will be our result. If there's not, this will
36:34
Speaker 5: be our result. You pick the one you think is
36:36
Speaker 5: more likely. Feels like a cop out, but I sort
36:39
Speaker 5: of liked it.
36:40
Speaker 2: I guess it feels like a cop out because why
36:44
Speaker 2: are they doing this now, like at of all the
36:46
Speaker 2: other times when people have been concerned about recession or
36:51
Speaker 2: not really why why now? Like they've never done this before.
36:56
Speaker 2: I've never seen any company do this before. Have you
36:59
Speaker 2: ever seen a company give a conditional earnings guide?
37:03
Speaker 5: No, you discount it. So maybe maybe this is more realistic, humble,
37:09
Speaker 5: and I don't it's less useful unless you have your
37:11
Speaker 5: own prior belief on recession that you can plug in.
37:14
Speaker 3: I don't know.
37:15
Speaker 5: I just kind of liked it. It was it was
37:16
Speaker 5: kind of refreshingly.
37:17
Speaker 3: I would call your guidance.
37:20
Speaker 2: And this is where I would go, is, hey, if
37:22
Speaker 2: you don't know how much you are going to earn,
37:25
Speaker 2: tell us you don't know how much you are going.
37:27
Speaker 5: To I think they did without saying as much.
37:31
Speaker 3: But then why is the guidance actually useful?
37:33
Speaker 5: Like what do you actually guiro here's where this is
37:36
Speaker 5: going to end up?
37:37
Speaker 3: Here, Yeah, here's the funniest possible situation.
37:40
Speaker 2: Is Okay, so they guided like if there is no recession,
37:43
Speaker 2: I forget the exact numbers. It's gonna be like eleven
37:45
Speaker 2: to thirteen dollars of Sharon earnings. If there is, it's
37:48
Speaker 2: gonna be like seven to nine dollars of Sharon earnings.
37:51
Speaker 2: They're gonna end up printing like ten. It's gonna be
37:54
Speaker 2: right in the middle of those ranges where they like
37:55
Speaker 2: didn't give any guidance or something obviously like who the
37:59
Speaker 2: heck knows, but I don't know.
38:03
Speaker 3: What do I do with this?
38:05
Speaker 5: I hear you, I still like it.
38:07
Speaker 2: The piece that is interesting, and this is again something
38:10
Speaker 2: that is very much not priced into markets. They are
38:12
Speaker 2: telling you, hey, if there is a recession, our earnings
38:15
Speaker 2: are going down thirty five to fifty percent.
38:18
Speaker 3: That's a meaningful data point. Quick break here. Hour two
38:20
Speaker 3: coming up in a bit