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Why is September the worst month of the year for markets? · The Financial Exchange Show

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Speaker 2: Good morning, Welcome to the Financial Exchange. It's the Tuesday
1:17
Speaker 2: after a long weekend. Tucker looks especially sleepy this Tuesday.
1:22
Speaker 2: He had a rough wake up at four thirty am
1:24
Speaker 2: or whatever time he has to get here. I'm not
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Speaker 2: entirely sure, Tucker, what time you actually wake up and
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Speaker 2: get here, but no one can suffice to say hours
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Speaker 2: and hours before. I do. Hope everyone had a nice
1:33
Speaker 2: long weekend doing whatever they do with their families. I
1:38
Speaker 2: was celebrating my girl's birthday this weekend, so we had
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Speaker 2: a nice, big party with a bunch of screaming eight
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Speaker 2: year old girls. It was lovely. Uh. We are kicking
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Speaker 2: off September here with a busy schedule. Congress is going
1:51
Speaker 2: back into session after being out for how long five
1:54
Speaker 2: weeks something along those lines. We've got a looming government
1:57
Speaker 2: shut down that from most experts that I listen to,
2:01
Speaker 2: they're they're pricing in like a one in four chance
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Speaker 2: of a shutdown. They need to get a bill passed
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Speaker 2: by September thirtieth in order to keep the government open.
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Speaker 2: We have a jobs report coming up this Friday. We
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Speaker 2: have a FED meeting midway through the month, and then
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Speaker 2: all of that surrounds the late breaking news that we
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Speaker 2: got on Friday afternoon from a federal appeals court, this
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Speaker 2: being the second court to now rule against the Trump
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Speaker 2: administration when it comes to their powers on tariff. So
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Speaker 2: a lot to cover today, but I figured we'd start
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Speaker 2: with You know, this is a business and market show,
2:37
Speaker 2: just start with the topic of dreaded September, right because
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Speaker 2: it is everyone that looks at it knows that it
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Speaker 2: is the worst month historically for stock market performance. Any
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Speaker 2: way you look at it, it is significantly worse than
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Speaker 2: every other month. I have data here that was put
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Speaker 2: together going back to nineteen twenty seven, so it's not
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Speaker 2: the S and P five hundred, it's more of a
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Speaker 2: large cap stock index that pretty closely mirrors the S
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Speaker 2: and P five hundred, and the average monthly return for
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Speaker 2: September going back to that time period this is through
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Speaker 2: twenty twenty four, was negative point nine percent. Every other
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Speaker 2: month of the year is positive, and the lowest positive
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Speaker 2: month that you get from any other month is February
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Speaker 2: at positive four tenths of a percent. So it is
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Speaker 2: it is pretty staggering just how bad September has historically been.
3:27
Speaker 2: But you know, with statistics, there's all sorts of ways
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Speaker 2: to manipulate, and it's definitely true that this is very
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Speaker 2: much defined by a few very bad Septembers that have
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Speaker 2: been out there. Right, we had a negative nine percent,
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Speaker 2: I think, during the Great Recession and many other periods
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Speaker 2: of time where September proved to be pretty bad. But
3:44
Speaker 2: so what I did here is, Okay, yes, average it's
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Speaker 2: pretty bad, but would you bet on something like that?
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Speaker 3: Right?
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Speaker 2: Is this worth betting on? And so I also took
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Speaker 2: a look at just how frequently September's bad and just
4:00
Speaker 2: looked at, okay, give me a ratio, how often is
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Speaker 2: it actually negative? And September is a coin toss. In fact,
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Speaker 2: while the average is pretty bad, it's only a coin
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Speaker 2: toss as to whether or not it'll be positive or negative.
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Speaker 2: And so I think most people would take that bet
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Speaker 2: all day. Right, You're still better off than going to
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Speaker 2: the casino with odds like that. But it is just
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Speaker 2: staggering because once again you go take a look at
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Speaker 2: any other month out there. February again is the second
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Speaker 2: second worst out there, but even there, it's pretty statistically
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Speaker 2: significant to the upside. And so we do head into September.
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Speaker 2: There is a lot on the table. We've got these
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Speaker 2: tariffs being challenged in cord, We've got a looming government shutdown.
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Speaker 2: We're also looking at a stock market today that, by
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Speaker 2: at least one measure, is the most expensive we have
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Speaker 2: ever had. And yet we will see what happens here
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Speaker 2: because only historically half the time do markets actually go
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Speaker 2: down in September. And I don't feel that piece of
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Speaker 2: the piegast.
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Speaker 3: Not compared to months. Do you have?
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Speaker 2: You want me to go one by one here? How
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Speaker 2: do you want to tackle? I mean, the best month
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Speaker 2: historically for performance is December, up more than three quarters
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Speaker 2: of the.
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Speaker 1: Time, got it?
5:11
Speaker 2: Okay, February is up like fifty six percent of the time, So.
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Speaker 3: Anywhere from sixty to seventy five on some of those other.
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Speaker 2: Months, correct? I mean, you know, as bad as September is,
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Speaker 2: December is by far the best, up seventy six and
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Speaker 2: a half percent of the time historically, and very infrequently
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Speaker 2: do markets actually moved down. But again, this this measure
5:34
Speaker 2: doesn't tell you anything about the size of the move.
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Speaker 2: It could be up by barely one tenth of one
5:39
Speaker 2: percent and accounts towards the positive. But that piece. You
5:42
Speaker 2: know that that piece of September being bad is just
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Speaker 2: just like selling May and go away. I've never found
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Speaker 2: it to be terribly helpful information because what this points
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Speaker 2: out to you is, Okay, yeah, if you sold every
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Speaker 2: September going back to one hundred years, which no one's
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Speaker 2: been investing for one hundred years, then you would have
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Speaker 2: missed out on some pretty ugly moments. But if I'm
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Speaker 2: sitting here now on the first trading day of September
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Speaker 2: and trying to decide what do I do with my money,
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Speaker 2: let's a coin toss as to whether I'm not I'm
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Speaker 2: going to earn money this month based on the historical averages.
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Speaker 2: So what do I do with that information? I guess.
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Speaker 2: I guess the overall bed is don't try and fight
6:18
Speaker 2: the market, because the market usually, just like the house market,
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Speaker 2: usually usually returns positive for you over the long term. Sure,
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Speaker 2: So where do you want to start, Paul, Because there
6:28
Speaker 2: is a fair bit to get to. I guess the
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Speaker 2: most significant would be, we do have that job's report
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Speaker 2: coming in on Friday of this week, and so let's
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Speaker 2: start there before we go on to the craziness in
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Speaker 2: the courts and what's going to happen next on trade.
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Speaker 2: We have a jobs report expected for Friday of this week.
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Speaker 2: What I find remarkable is just how stable the labor
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Speaker 2: market has been over the course of the last year.
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Speaker 2: You have basically not moved more than a tenth of
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Speaker 2: a percentage point on the unemployment rate. It's been sitting
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Speaker 2: there right around four point two percent. The biggest news
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Speaker 2: that we have right now when it comes to jobs
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Speaker 2: were the revisions that were made resulting in the firing
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Speaker 2: of the head of the Bureau of Labor Statistics, where
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Speaker 2: you know, it basically was shown during the spring months
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Speaker 2: here that we created very few jobs. The unemployment rate
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Speaker 2: didn't really tick up for a number of other factors
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Speaker 2: that we can talk about, but we created very few
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Speaker 2: jobs over the course of I think it was April,
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Speaker 2: May and June. And so the question becomes, hey, you know,
7:29
Speaker 2: we saw some decent numbers in July, but our company
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Speaker 2: is now feeling stable enough after the you know, admitted
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Speaker 2: craziness of the spring, with tariff uncertainty and all sorts
7:42
Speaker 2: of question marks about rates and where things were going.
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Speaker 2: Are we settling into an equilibrium now where companies do
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Speaker 2: feel comfortable hiring They understand what the new tax package
7:52
Speaker 2: looks like and how quickly they can deduct some expenses
7:55
Speaker 2: when it comes to hiring and research and development, and
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Speaker 2: just saying let's power through with whatever hiring plans we
8:01
Speaker 2: put on you know, put on hold earlier this spring.
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Speaker 3: Yeah, Ja Powell and his recent speech in Jackson Hole.
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Speaker 3: The reason why markets had jumped so enthusiastically, what was
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Speaker 3: that last yeah week and a half ago was mentioning
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Speaker 3: that he they may cut interest rates in the month
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Speaker 3: of September. And the reason that he mentioned that was
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Speaker 3: a weakness in the labor market, a potential weakness in
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Speaker 3: the labor market. And really that's why this report will
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Speaker 3: be so critical is because, like you mentioned, we'd had
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Speaker 3: significant revisions to May, June, and July's numbers were pretty
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Speaker 3: light too in terms of jobs that were created. But
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Speaker 3: really the focus here coming up for Friday is last summer,
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Speaker 3: we were heading into a fall where the unemployment rate
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Speaker 3: was sitting around three and a half percent. We saw
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Speaker 3: it ticking up by more than a half percent, and
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Speaker 3: there was this concern that typically with labor markets that
8:52
Speaker 3: they don't just move in plateau somewhere, they just it
8:56
Speaker 3: kind of becomes a snowball effect and continues to sort
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Speaker 3: of bleed over what happened. Just like we were talking
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Speaker 3: about before on coin tosses, it did plateau the unemployment.
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Speaker 3: It has plateaued at four point two percent or in
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Speaker 3: and around that level for really the last year or so,
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Speaker 3: minimizing the concerns that we had in the fall last year.
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Speaker 3: Where we sit today a similar position in this idea
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Speaker 3: that you hear a lot of sentiment conversation about this
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Speaker 3: idea that new graduates had a lot of difficulty in
9:26
Speaker 3: May and still continue to have a lot of trouble
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Speaker 3: finding new work. You also have the labor supply piece
9:32
Speaker 3: that's being disputed a lot that perhaps some of these
9:35
Speaker 3: crackdowns on immigration is leading to just a lesser population
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Speaker 3: of workers available, and perhaps that is really hiding what
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Speaker 3: is going on under the surface in terms of employment numbers.
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Speaker 3: So any data that we can get here that points
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Speaker 3: to one direction or another weakness or strength coming up
9:52
Speaker 3: on Friday is something that the market's going to be
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Speaker 3: really focused on, because it's really this report, the labor
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Speaker 3: report that we'll get on Friday the fifth, as well
9:59
Speaker 3: as the inflation report that I believe is the tenth
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Speaker 3: or eleventh. That are going to be the two most
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Speaker 3: critical economic pieces of data that we'll get before the
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Speaker 3: Federal Reserve meeting on the sixteenth and seventeen.
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Speaker 2: It's the eleventh, by the way, the inflation report. I
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Speaker 2: guess you know. For expectations here, consensus estimates seventy five
10:18
Speaker 2: thousand jobs created for the month of August, unemployment rate
10:20
Speaker 2: to tick up slightly to four point three percent. If
10:24
Speaker 2: you get anything between I would say zero and one
10:29
Speaker 2: hundred and fifty thousand jobs created, then the Fed is
10:32
Speaker 2: going to continue right on its current trajectory. I don't
10:35
Speaker 2: think any of that stuff would move it from its
10:38
Speaker 2: current path. The interesting question to me is always, okay,
10:40
Speaker 2: how could this surprise? Well, if you get a couple
10:43
Speaker 2: hundred thousand jobs created and that unemployment rate sync to
10:46
Speaker 2: four percent, those could be I mean, obviously, if that happens,
10:50
Speaker 2: that's a great news story about the economy. It means
10:52
Speaker 2: the companies are feeling confidence enough to hire again. It
10:55
Speaker 2: also means that you would have some fierce debate within
10:58
Speaker 2: the FED as to whether or not they should be
10:59
Speaker 2: cutting it's into an environment like that. Let's take a
11:02
Speaker 2: quick break when we come back the breaking news from
11:04
Speaker 2: Friday afternoon surrounding President Trump's attempted tariffs. So that's next
11:08
Speaker 2: here on the Financial Exchange.
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Speaker 2: All right, so big news of the day is in
12:21
Speaker 2: fact the breaking news from Friday when it came to tariffs,
12:24
Speaker 2: and I do feel as though a step back in
12:26
Speaker 2: some context is important with this because it's confusing. There's
12:30
Speaker 2: been a number of court cases surrounding it, and we're
12:33
Speaker 2: talking about a bunch of different tariffs under different rules.
12:36
Speaker 2: So first things first, the tariffs that were ruled to
12:38
Speaker 2: go on here specifically are what's referred to as IEPA
12:44
Speaker 2: I EEPA. That stands for the International Emergency Economic Powers Act.
12:49
Speaker 2: It was of nineteen seventy seven and effectively allows the
12:53
Speaker 2: president to regulate international economic transactions, imports, sanctions, restrictions, etc.
13:01
Speaker 2: Following the declaration of a national emergency in the United States.
13:05
Speaker 2: So that is the act under which the President has
13:08
Speaker 2: been has been imposing. Most tariffs that we've talked about
13:12
Speaker 2: on this program, whether it's Canada, Mexico, China, all of Europe,
13:17
Speaker 2: the big sweeping tariffs country by country were announced and
13:24
Speaker 2: moved on based on this power based on this act
13:27
Speaker 2: from nineteen seventy and the.
13:28
Speaker 3: Two emergencies that have largely been cited are trade imbalance
13:31
Speaker 3: and the fedenyl crisis.
13:32
Speaker 2: Correct, those are the two, and that's been a lot
13:36
Speaker 2: of the tariffs that we've been discussing Separately. The president
13:39
Speaker 2: has been using pretty well established powers that many presidents
13:43
Speaker 2: have used around national defense and other sections in order
13:48
Speaker 2: to Sorry, the watch just started yelling at me problems
13:54
Speaker 2: that we didn't have ten years ago.
13:55
Speaker 3: Thought Tucker was piping some music.
13:58
Speaker 2: Separately, the tariffs on things like steel, aluminum, autos, and
14:03
Speaker 2: auto parts are more national security. Those are pretty well
14:07
Speaker 2: established and a process that the president has used that
14:11
Speaker 2: many other presidents have used in the past and East
14:13
Speaker 2: in twenty eighteen and President Biden did. Many others have
14:17
Speaker 2: used that process. So what has been ruled on on
14:21
Speaker 2: Friday is the second court panel to rule against the administration.
14:25
Speaker 2: The first time they did so was May twenty eighth
14:30
Speaker 2: of this year. The US Court of International Trade. In
14:34
Speaker 2: that case ruled that the tariffs were illegal because the
14:38
Speaker 2: declared emergency lacked a rational connection to the imposed trade measures. Basically,
14:43
Speaker 2: you're saying it's a fenanl crisis, but there's no attachment
14:46
Speaker 2: from that to the tariff rate that you used country
14:48
Speaker 2: by country. This time, a full Federal Court of Appeals
14:52
Speaker 2: heard the case, and they've been hearing it now for
14:56
Speaker 2: the last month or more, and this eleven eleven judge
15:02
Speaker 2: panel ruled seven to four that these tariffs are illegal.
15:05
Speaker 2: They put a deadline here for October fourteenth, which who
15:10
Speaker 2: knows that could be extended to give the White House
15:13
Speaker 2: time to appeal to the US Supreme Court, because that
15:16
Speaker 2: is ultimately where this was always going to land in
15:18
Speaker 2: all likelihood, and where the President and his advisors wanted
15:22
Speaker 2: it to land initially.
15:23
Speaker 3: So the tariffs are going to stay in place least
15:26
Speaker 3: until October fourteenth, worth mentioning.
15:29
Speaker 2: So a lot of context here. First thing quote from
15:32
Speaker 2: President Trump. If a radical left court is allowed to
15:35
Speaker 2: terminate these tariffs, almost all of this investment and much
15:38
Speaker 2: more will be immediately canceled. So let's briefly talk about that.
15:45
Speaker 2: I mean, the makeup of this court is definitely different
15:49
Speaker 2: than the US Supreme Court, and this is not trying
15:52
Speaker 2: to get political at all. You talk about appointments from
15:54
Speaker 2: Republicans versus Democrats on the US Supreme Court, different leaning here,
15:58
Speaker 2: presumably the eleven court panel. The eleven judge panel consisted
16:02
Speaker 2: of five Obama appointees, two Biden appointees, one Clinton appointee,
16:06
Speaker 2: two Bush appointees, and one Reagan appointee. So zero Trump
16:10
Speaker 2: appointees on this eleven judge panel. In addition, I guess
16:15
Speaker 2: what would contradict the political piece of this, though, is
16:18
Speaker 2: that in terms of the seven to four vote breakdown,
16:21
Speaker 2: the four who voted in favor were comprised of two
16:24
Speaker 2: Obama appointees and two Bush appointees. So again, I'm not
16:28
Speaker 2: sure what that really reads in terms of how the
16:30
Speaker 2: US Supreme Court goes on this, but I guess I
16:34
Speaker 2: would say there's been a lot of deference to executive
16:38
Speaker 2: power by the US Supreme Court over the course of
16:40
Speaker 2: the last few years, and so in spite of where
16:44
Speaker 2: this went, I guess I wouldn't be shocked if the
16:46
Speaker 2: Supreme Court upheld the President's goals here or largely upheld
16:51
Speaker 2: them when it comes to tariffs. But let's play there.
16:54
Speaker 2: We kind of know what that looks like, right if
16:57
Speaker 2: they uphold it, Yeah, it's status quo. We know what
16:59
Speaker 2: the the tariffs have been generating in revenue, We know
17:03
Speaker 2: how countries and companies have been reacting. I suppose if
17:07
Speaker 2: the US Supreme Court upholds it, there is probably more
17:10
Speaker 2: likelihood of companies finally raising prices because I will cover
17:13
Speaker 2: it later, but I get the sense that a lot
17:14
Speaker 2: of companies have been hesitant to do so with the
17:17
Speaker 2: looming threat of these lawsuits ongoing. But let's say the
17:21
Speaker 2: US Supreme Court actually goes in the other direction and
17:23
Speaker 2: overturns this. We don't have time to get into all
17:26
Speaker 2: of it, but a lot of things change immediately, and
17:29
Speaker 2: the bond market's kind of reacting to one of those
17:31
Speaker 2: significant changes this morning. I think.
17:33
Speaker 3: Yeah, one of the big issues that you'd have is
17:36
Speaker 3: this idea that you'd have to refund all of the
17:39
Speaker 3: tariffs that were collected over the last what's it been
17:42
Speaker 3: five months or so, over one hundred billion dollars, and
17:45
Speaker 3: that number just keeps rising as the months tick along.
17:48
Speaker 3: So that is extremely headache to even try and figure
17:53
Speaker 3: out how that would unfold. And then you do have
17:56
Speaker 3: from a geopolitical standpoint, it is a bit of egg
18:01
Speaker 3: of egg on face for the United States. I mean,
18:03
Speaker 3: it's it's it's diplomatic foreign embarrassment is mentioned. I think
18:07
Speaker 3: that was luttin ITX quote on it, and there's no
18:09
Speaker 3: question about it. This is it would just be incredibly
18:13
Speaker 3: confusing and a circuitous roundabout to get nowhere if that
18:18
Speaker 3: were the case. From an economic policy perspective.
18:21
Speaker 2: So on the yield side of things, again on the
18:23
Speaker 2: idea that a whole bunch of cash would need to
18:26
Speaker 2: go from the US Treasury back to corporations who have
18:28
Speaker 2: paid tariffs. You do have yields moving up a little
18:31
Speaker 2: bit in early trading. You did have the thirty year treasury,
18:34
Speaker 2: for example, touch four point nine to seven percent. It's
18:37
Speaker 2: come down a little bit, but even the more oftenly
18:40
Speaker 2: quoted ten year treasuries moving up about point zero four
18:45
Speaker 2: percent right now after it's been kind of falling over
18:48
Speaker 2: the course of the last month. You've seen mortgage rates,
18:50
Speaker 2: et cetera come down. That's been one immediate effect of
18:54
Speaker 2: this court ruling is some investors saying, Hey, what exactly
18:58
Speaker 2: is going to happen next when it comes to these tariffs,
19:00
Speaker 2: and what would it mean for companies to suddenly get
19:03
Speaker 2: a huge refund of tariff tariff fees that they have
19:07
Speaker 2: tariff taxes whatever you want to call them, tariffs that
19:09
Speaker 2: they have been paying to the US Treasury over the
19:12
Speaker 2: course of the last five months. So a lot to be
19:15
Speaker 2: worked out here. Will be continuing to cover this story
19:18
Speaker 2: kind of throughout the show because it permeates into just
19:20
Speaker 2: about every corporate decision that's being made right now. But
19:22
Speaker 2: we got to take a quick break. Wall Street Watch's
19:25
Speaker 2: coming up next to.
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20:00
Speaker 4: Well Septembers upon us in markets today are selling off
20:04
Speaker 4: amid more tariff confusion after appeals court struck down the
20:08
Speaker 4: Trump Administration's reciprocal tariff's leet last week. Investors are also
20:12
Speaker 4: awaiting a court ruling on whether Trump's bid to fire
20:16
Speaker 4: FED Governor Lisa Cook is legitimate. On top of all that,
20:19
Speaker 4: we have a jobs report later this week. Right now,
20:23
Speaker 4: the Dow is off by six tenths of one percent,
20:26
Speaker 4: or two hundred and seventy seven points lower, SMP five
20:29
Speaker 4: hundred down over eight tenths of one percent or fifty
20:32
Speaker 4: three points lower, and the Nasdaq down by about nine
20:35
Speaker 4: tenths of one percent or one hundred and ninety one
20:37
Speaker 4: points lower. Russell two thousands down by six tenths of
20:40
Speaker 4: one percent. Tenure Treas reeled up three basis points today
20:45
Speaker 4: at four point two six five percent and crude oil
20:48
Speaker 4: up about one and a half percent higher, trading right
20:51
Speaker 4: at sixty five dollars a barrel. According to The Wall
20:54
Speaker 4: Street Journal, activist investor Elliott Investment Management has built a
20:58
Speaker 4: roughly four billion dollar steak in Pepsi and plans to
21:02
Speaker 4: push the beverage in snacks company to make changes to
21:05
Speaker 4: boost its sagging share price. Pepsi's market value was shrunk
21:09
Speaker 4: to about two hundred billion dollars, more than twenty five
21:12
Speaker 4: percent drop from a peak of two hundred and seventy
21:15
Speaker 4: billion dollars back in May of twenty twenty three. Pepsi
21:18
Speaker 4: shares are up by two percent today. Meanwhile, craft Hins
21:22
Speaker 4: confirmed earlier reports that it would split into two publicly
21:26
Speaker 4: traded companies through tax free spinoff, Berkshire Hathways. Warren Buffett
21:30
Speaker 4: told CNBC this morning that he is disappointed in the
21:33
Speaker 4: craft Hiinds split, as Berkshire was behind the merger back
21:36
Speaker 4: in twenty fifteen. Craft shares are down by five percent. Elsewhere,
21:41
Speaker 4: shares and Signat Jewelers are up nearly one percent after
21:44
Speaker 4: its report. After it reported better than expected second quarter
21:49
Speaker 4: results and also upped its full year earnings guidance Constellation brands,
21:53
Speaker 4: retreating six percent after the Modello and Corona beer Brewer
21:58
Speaker 4: cut its full year guidance, and shares in gold miner
22:02
Speaker 4: Numont climbing one percent after the precious metal hit a
22:07
Speaker 4: fresh record high. I'm Tucker Silvan. That is Wall Street Watch.
22:11
Speaker 2: By the way, Paul, one more thing on the court
22:13
Speaker 2: that ruled against the Trump administration when it came to
22:16
Speaker 2: the teriffs. It's usually a twelve judge panel. Do you
22:21
Speaker 2: know why it was only eleven who ruled on it.
22:23
Speaker 3: Yes, there's a ninety eight year old who's still fighting
22:26
Speaker 3: to be able to be in the mix and has
22:28
Speaker 3: to go over a cognitive assessment before she can get back.
22:31
Speaker 2: On and refuse to participate in the cognitive assessment in
22:34
Speaker 2: her neurological tests. I do. I'm laughing a little bit.
22:37
Speaker 2: It's not funny. There shouldn't probably be a ninety eight
22:40
Speaker 2: year old sitting on a federal corps. The Court of
22:42
Speaker 2: Appeals panel would be personal opinion. You know, I'm sure
22:46
Speaker 2: others have different opinions, but I do like to see
22:49
Speaker 2: when things are actually working properly, Like, okay, yeah, you're
22:53
Speaker 2: refusing to step down, you're refusing to be assessed by this,
22:57
Speaker 2: We're at least not going to allow you to rule
22:59
Speaker 2: on big k like whether or not tariffs can exist.
23:03
Speaker 2: I like that. I like that approach of Okay, you know,
23:05
Speaker 2: we won't make you resign, but you can't do your
23:08
Speaker 2: job either until you actually get your neurological assessment. As
23:11
Speaker 2: a ninety eight year old, that seems very reason.
23:14
Speaker 3: Even Buffett is stepping down at the end of year
23:16
Speaker 3: at ninety five.
23:17
Speaker 2: Right, So you know, I get that there are no
23:21
Speaker 2: terms for these types of judges, but you know, maybe
23:23
Speaker 2: some maybe some important things here, like neurological tests, are
23:27
Speaker 2: proving to play out properly. So I want to stay
23:31
Speaker 2: on the topic of trade for a moment here, because
23:33
Speaker 2: this is not earth shattering. Earth shattering would be the
23:36
Speaker 2: Supreme Court overruling the Trump administration on this. But it
23:39
Speaker 2: does change the name of the game once again a
23:43
Speaker 2: little bit when it comes to tariffs. So I want
23:45
Speaker 2: to think of this both in part of our trade partners,
23:48
Speaker 2: so foreign countries and their negotiations with the Trump administration,
23:51
Speaker 2: as well as from a US corporate perspective. Where do
23:54
Speaker 2: you want to start, Paul.
23:55
Speaker 3: Let's start on the corporate side of things.
23:57
Speaker 2: Yeah, so these companies who are subject to importing, and
24:02
Speaker 2: you know, some are, some aren't. Like Meta is not
24:05
Speaker 2: really affected by this one way or another. And in fact,
24:07
Speaker 2: you could make a pretty good argument that most of
24:10
Speaker 2: the Magnificent seven is not really affected by this at all.
24:15
Speaker 2: Amazon to some degree, but you know, they're really just
24:18
Speaker 2: passing through any of those costs to sellers on their
24:22
Speaker 2: page rather than them being subject to it themselves.
24:24
Speaker 3: Potentially, you can make the argument on Meta and Google
24:26
Speaker 3: they drive most of their revenue from advertising, that perhaps
24:30
Speaker 3: as a result of this cut back on ad budgets.
24:32
Speaker 3: But yeah, that's a you know, it's not direct impact.
24:35
Speaker 3: It's not direct impact.
24:36
Speaker 2: And so but let's take the perspective of you know,
24:39
Speaker 2: grocers and any big company out there, how do they
24:44
Speaker 2: approach all of this? And I think it really divides
24:48
Speaker 2: out between a large company and a small company because
24:50
Speaker 2: if I'm a big company like Walmart right now, I
24:54
Speaker 2: am probably doing everything I can to just manage the
24:58
Speaker 2: cost of these terrorifts, even if it means losing money
25:01
Speaker 2: on certain products for a short period of time. I
25:04
Speaker 2: want to probably hold the line, gain market share, and
25:08
Speaker 2: stand out even more compared to the big lots and
25:13
Speaker 2: those other smaller retailers that can't afford to do that,
25:17
Speaker 2: because you know what, I'm paying all these tariffs, and
25:19
Speaker 2: if I'm Walmart, I at least have to be saying, Okay,
25:23
Speaker 2: maybe a twenty five percent chance all of these get
25:25
Speaker 2: reimbursed to me at some point, and I've got the
25:26
Speaker 2: cash to be able.
25:27
Speaker 1: To do this.
25:27
Speaker 2: Why not?
25:28
Speaker 3: Right right?
25:29
Speaker 2: Like one in four, one in five? What are the
25:31
Speaker 2: odds that happens. I don't know how to price that,
25:33
Speaker 2: but certainly somebody in the executive team there is saying, Okay,
25:37
Speaker 2: we're gonna pay these tariffs, We're not gonna raise prices,
25:39
Speaker 2: and we're gonna cross our fingers and maybe we get
25:40
Speaker 2: them all reimbursed to us later this year.
25:42
Speaker 3: And I think it's a little bit of a balancing
25:44
Speaker 3: act that, yeah, we'll pick up and eat some of
25:46
Speaker 3: the costs on some of these tariffs. But I was
25:48
Speaker 3: talking with someone over the weekend who had worked on
25:51
Speaker 3: the board at Decker's, the shoe brand company, and I
25:55
Speaker 3: was asking, no longer as active, but I was just
25:58
Speaker 3: asking what are they doing from a business perspective, And
26:00
Speaker 3: he was saying that twenty million of their shoes get
26:02
Speaker 3: imported from Vietnam, and I said, well, who's paying for
26:06
Speaker 3: import He's like, we're They're sticking it a lot on
26:08
Speaker 3: the supplier. Right now, the supplier is eating a lot
26:10
Speaker 3: of that tariff costs because of the negotiating power that
26:14
Speaker 3: they have. Hey, it's twenty million shoes of volume, you know,
26:16
Speaker 3: we'll find elsewhere. And I think that to a degree,
26:19
Speaker 3: Walmut and others are doing the same thing. Yeah, maybe
26:21
Speaker 3: they're eating some, but they're also telling the supplier that, hey,
26:24
Speaker 3: we give you so much volume on a yearly basis
26:28
Speaker 3: a way to find a way to make it work.
26:30
Speaker 3: But the point that he made to me, he said,
26:32
Speaker 3: the longer this goes on, though, that's not going to
26:34
Speaker 3: happen the suppliers or Walmart to the same degree. And
26:38
Speaker 3: this is a point that's been made by many people
26:40
Speaker 3: out there. You get six months past this, you can't
26:43
Speaker 3: do that balancing act anymore.
26:45
Speaker 2: So.
26:45
Speaker 3: For the bigger companies, to your point, their leverage and scale,
26:49
Speaker 3: you can lean on that, or you can lean hard
26:51
Speaker 3: on suppliers. The problem is when you're a small to
26:54
Speaker 3: mid sized business. And that's what I worry about with
26:55
Speaker 3: these tariffs in general, is that does just too much
26:58
Speaker 3: of the value accrete to these laws. Large players that
27:00
Speaker 3: the Walmart and Targets of the world have an easier
27:04
Speaker 3: ability to not increase their prices as much because they
27:07
Speaker 3: have bigger muscles to flex in terms of supply chain diversification.
27:11
Speaker 2: And I'm not even talking about tiny companies right Like
27:14
Speaker 2: I think about five below, I think about there was
27:18
Speaker 2: just a really discount off brand retailer right around here
27:21
Speaker 2: that declared bankruptcy a few months ago. I think I
27:23
Speaker 2: got rejected by the judge. I don't remember the name
27:25
Speaker 2: of it at home. Like these other retailers that import
27:29
Speaker 2: everything they sell and do not have the deep pockets
27:32
Speaker 2: of Walmart, probably have little choice but to say, I
27:37
Speaker 2: mean the choices that they do have. Try and go
27:40
Speaker 2: raise money. You borrow a bunch of money and hope
27:43
Speaker 2: that you get your terrorists reimbursed and you can pay
27:45
Speaker 2: back that loan. You can raise prices, you can try
27:49
Speaker 2: and disrupt your supply chain in some meaningful way, but
27:52
Speaker 2: good luck. I mean, so is everybody else right now.
27:55
Speaker 2: And so I think about these other companies, and the
27:58
Speaker 2: net result that I can view is I don't see
28:02
Speaker 2: bankruptcies across the board. But I can see a case
28:04
Speaker 2: where the giant guys Costco Walmart just target to a
28:09
Speaker 2: lesser degree, get stronger, get more market share, and are
28:12
Speaker 2: left in a better operating position, whereas you know, forget
28:15
Speaker 2: about your mom and pop. Like, those guys are no choice.
28:19
Speaker 2: They have to raise prices, and hopefully they have more
28:21
Speaker 2: pricing power than Walmart would to be able to you know,
28:24
Speaker 2: stay in their communities and be those small businesses. I
28:28
Speaker 2: just think of all the like you know, go drive
28:30
Speaker 2: down through downtown need And where we broadcast our show
28:33
Speaker 2: for there's you know, eight or nine of these Nickknack
28:35
Speaker 2: type stores with clothing and collectibles and all sorts of stuff.
28:39
Speaker 2: Maybe not collectibles, but you know what I'm talking about,
28:41
Speaker 2: like gift stores of some sort or another that probably
28:44
Speaker 2: import most of their stuff. You have no choice. You
28:46
Speaker 2: raise prices right away because you're not carrying fifteen billion
28:51
Speaker 2: dollars worth of cash on your balance sheet to go
28:53
Speaker 2: pay the terraffs and then hope that they get reimbursed
28:55
Speaker 2: down the road. Yeah.
28:56
Speaker 3: But like this Wall Street journal piece highlights, you know
28:58
Speaker 3: a company that may copper tubs out of North Carolina.
29:02
Speaker 3: It's just another example of a smaller midside business where
29:05
Speaker 3: they're selling into Home Deep Ow and Lows and they
29:08
Speaker 3: don't have the ability to really there's this tug of
29:12
Speaker 3: war that Home DEEPO and Lows don't really want to
29:16
Speaker 3: increase prices that much. So you leave the smaller company
29:18
Speaker 3: in a very precarious position where their biggest buyers probably
29:22
Speaker 3: Home Deep Ow and Lows, and all of a sudden
29:23
Speaker 3: they're in a very tough margin spot with that.
29:26
Speaker 2: When it comes to other countries and their negotiations with
29:30
Speaker 2: the United States, I think all you hear for the
29:33
Speaker 2: next several months is delayed, delayed, delay.
29:35
Speaker 1: Yeah.
29:35
Speaker 2: They won't say that publicly, obviously, because then you're going
29:39
Speaker 2: to get a whole bunch of backlash from the Trump administration.
29:41
Speaker 2: But if you are the Canadian negotiators or the European
29:45
Speaker 2: negotiators right now, you're not gonna sign some sort of
29:49
Speaker 2: tariff deal that you then have to put through your
29:51
Speaker 2: own Congress to get signed and approved. Remember that most
29:56
Speaker 2: of these other countries are not negotiating these things with
29:59
Speaker 2: the same emergency powers that the Trump administration is, so
30:02
Speaker 2: anything they sign has to go back through their legislature.
30:06
Speaker 2: And so I think we see more of what we
30:09
Speaker 2: saw from India, we see what we've seen from many
30:11
Speaker 2: other countries here where there's not a lot being said.
30:15
Speaker 2: There's occasional outbursts here and there, there's occasional announcements here
30:20
Speaker 2: and there, but generally speaking, a lot of them I
30:23
Speaker 2: think are going to be looking at this and saying, Okay,
30:25
Speaker 2: pay whatever we have to pay for now, deal with
30:28
Speaker 2: whatever backlash we have to deal with, but do not
30:30
Speaker 2: execute an agreement until we know that the administration actually
30:34
Speaker 2: has the power to impose these terrorists over the next
30:36
Speaker 2: few years. Because it's very much in question this morning
30:39
Speaker 2: in a way that it was not so much on
30:41
Speaker 2: Friday morning.
30:43
Speaker 3: Yeah, and I don't think we really know what the
30:45
Speaker 3: timeline is for that. Right, we have to decide whether
30:48
Speaker 3: the Supreme Court will hear the case.
30:50
Speaker 2: Well, whether they hear it as an emergency yep, or
30:52
Speaker 2: could this be on the twenty twenty six docket, right,
30:56
Speaker 2: big unanswered questions, and then what happens with the you know,
31:00
Speaker 2: the imposition and collection of the tariffs in the meantime
31:02
Speaker 2: If they do say no, we're not hearing this until
31:04
Speaker 2: twenty twenty six, huge unanswered questions here, We've got to
31:08
Speaker 2: take a quick break. When we come back, I want
31:09
Speaker 2: to talk more about that upcoming FED meeting. We've got
31:13
Speaker 2: the continued stories being written about the Fed's independence and
31:17
Speaker 2: what it means. That's that's next here on the Financial Exchange.
31:20
Speaker 1: Thanks to us six one, seven, three, six, two thirteen
31:23
Speaker 1: eighty five with your comments and questions about today's show,
31:26
Speaker 1: and let us know what you think about the stories
31:28
Speaker 1: we are covering. This is the Financial Exchange Radio Network,
31:33
Speaker 1: breaking business and financial news first throughout the day, only
31:37
Speaker 1: here on the Financial Exchange Radio Network.
31:48
Speaker 2: So taking a back seat to all of the tariff
31:50
Speaker 2: uncertainty is the uncertainty at the Federal Reserve right now.
31:54
Speaker 2: But a few things have happened over the course of
31:56
Speaker 2: the last few days. One, just to update folks, the
32:00
Speaker 2: President has moved to fire sitting FED Governor Lisa Cook.
32:03
Speaker 2: This is over allegations of mortgage fraud that was allegedly
32:07
Speaker 2: committed in the twenty twenty one twenty twenty two time frame.
32:10
Speaker 2: Cook has now sued to block her removal. There's been
32:13
Speaker 2: an open letter from I think two hundred and fifty
32:16
Speaker 2: professional economists basically writing in favor of Lisa Cook and
32:21
Speaker 2: discouraging the President from taking this action. I've made my
32:26
Speaker 2: opinion on this pretty clear, like, if she actually did this,
32:29
Speaker 2: I do think she should resign. I also think it's
32:32
Speaker 2: a pretty open question as to whether or not the
32:34
Speaker 2: president has the right to remove her over something like this.
32:37
Speaker 2: I think those are two different things. Like, you commit
32:39
Speaker 2: mortgage fraud and your job, at least in part is
32:41
Speaker 2: to oversee banks, you shouldn't be there, and you probably
32:45
Speaker 2: wouldn't have passed through Senate confirmation had they known about
32:49
Speaker 2: this stuff at the time. But a separate question is
32:52
Speaker 2: can the president remove somebody for something like this if
32:56
Speaker 2: it ends up being if the allegations end up even
32:59
Speaker 2: being true. I think that piece is all open question
33:01
Speaker 2: to me.
33:02
Speaker 3: And the crux of it is her declaring she had
33:05
Speaker 3: two primary residences.
33:07
Speaker 2: To get cheaper mortgage rates, which is so dumb for
33:10
Speaker 2: anybody to do. Don't do that, and definitely don't do
33:13
Speaker 2: that if you are on the cusp of a Senate
33:15
Speaker 2: confirmation hearing. I don't know if she was appointed at
33:18
Speaker 2: the time, et cetera, et cetera. The bigger question to me, though, is,
33:22
Speaker 2: let's assume that the president's successful and he can remove
33:25
Speaker 2: her for this cause it would seem to me to
33:29
Speaker 2: be a pretty easy line then to say, well, why
33:32
Speaker 2: can't I fire Powell for his misconduct when it comes
33:35
Speaker 2: to overseeing this building project or his failure to prevent
33:39
Speaker 2: nine percent inflation in twenty twenty two. I know that
33:43
Speaker 2: this is a crime that she's being accused of and
33:46
Speaker 2: the other stuff is not. But that's the concern by
33:50
Speaker 2: legal experts is okay, Well, where is that line and
33:53
Speaker 2: will it be definitively drawn by the courts if President
33:56
Speaker 2: Trump is successful in removing Cook, will they really fine, like, yeah,
34:00
Speaker 2: this is cause and this is not cause, And my
34:03
Speaker 2: guess would be no generalick quartz, don't do that. They
34:06
Speaker 2: generally say, yeah, this time it was, and we'll let
34:08
Speaker 2: you know next time. And that would leave a fair
34:10
Speaker 2: bit of uncertainty out there when it comes to what's
34:13
Speaker 2: next for the Federal Reserve and it's voting members.
34:19
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35:26
Speaker 2: Paul, we were just talking about the FED, It's independence,
35:28
Speaker 2: the president's ability to remove sitting governors of the FED.
35:32
Speaker 2: I want to talk about why we think it matters.
35:35
Speaker 2: Right for most people listening, I have to imagine you're
35:38
Speaker 2: listening right now and saying, so what, Yeah, I wasn't
35:43
Speaker 2: affected when he removed the Commerce secretary. Why do I
35:46
Speaker 2: care if he's able to remove a sitting FED governor.
35:50
Speaker 2: So let's spend a couple minutes on that, because it
35:53
Speaker 2: is important. The FED is different, And what I will
35:57
Speaker 2: just briefly say is that every president, Republican or Democrat,
36:03
Speaker 2: if they actually are pinned down and asked, would want
36:07
Speaker 2: lower rates. Yes, just plain and simple. You want lower
36:12
Speaker 2: interest rates if you are the sitting president, because it
36:15
Speaker 2: makes it more likely that stocks could rally, It makes
36:19
Speaker 2: it easier for business to take place, It makes it
36:21
Speaker 2: easier for people to purchase homes with cheaper mortgage rates.
36:25
Speaker 2: You want lower interest rates even if inflation is, you know,
36:29
Speaker 2: getting out of control, because you just don't know where
36:33
Speaker 2: it's going to go next. And the one thing you
36:35
Speaker 2: know is that if interst rates come down, historically, a
36:37
Speaker 2: lot of things have done pretty well in terms of
36:38
Speaker 2: asset price.
36:39
Speaker 3: Lower barring costs, more equals more consumption. More consumption equals
36:43
Speaker 3: more economic growth, all positives for anyone in office.
36:45
Speaker 2: So we've pretty much established that any president would want
36:48
Speaker 2: lower interest rates. The problem is that's not always appropriate.
36:52
Speaker 2: And the reason that the FED is successful, or at
36:55
Speaker 2: least has been in modern history at combating inflation with
36:59
Speaker 2: some pretty big you know, caveats twenty twenty two being
37:01
Speaker 2: one of them, the nineteen seventies being another. Is that
37:05
Speaker 2: they have this threat of we don't care who the
37:08
Speaker 2: president is, we don't care when the elections are going
37:11
Speaker 2: to be. We are independent from all of that, and
37:14
Speaker 2: if we need to, we will send this economy into
37:17
Speaker 2: such a disastrous recession that we won't have to worry
37:20
Speaker 2: about inflation anymore. Right, That's the threat, that's the underpinning
37:23
Speaker 2: threat of the FED is if inflation gets out of control,
37:27
Speaker 2: then we're gonna basically make a bunch of people unemployed,
37:30
Speaker 2: put a bunch of businesses out of business in order
37:33
Speaker 2: to control that inflation environment. And the mere threat of
37:37
Speaker 2: them being able to do so is usually enough to
37:41
Speaker 2: control inflation.
37:42
Speaker 3: Right. Important to note, like you said, two main responsibilities
37:46
Speaker 3: the FED controlling and dictating monetary policy keep inflation low
37:51
Speaker 3: and keeping unemploymental though. That's what their job is, and
37:54
Speaker 3: to your point, sometimes they have to be the one
37:58
Speaker 3: that takes away the punch bowl party and be the
38:01
Speaker 3: bearer of bad news or take steps to really squeak in.
38:05
Speaker 2: Without that independence, you remove some of that safety net
38:10
Speaker 2: of somebody willing to take away the punch bowl, and
38:12
Speaker 2: the concern would be run away inflation and all sorts
38:15
Speaker 2: of other big issues for the economy. Quick break, but
38:18
Speaker 2: a lot more to cover in the second hour. Will
38:20
Speaker 2: be right back