Latest / The Financial Exchange Show / Boeing union goes on strike. Could this be the end for the aerospace giant?

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Boeing union goes on strike. Could this be the end for the aerospace giant? · The Financial Exchange Show

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Corporation Face is the Financial Exchange with Mike Armstrong and
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Mark Fandetti.
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Speaker 2: Good morning, Happy Friday, and welcome back to the Financial Exchange.
1:17
I know we need rain around here in New England,
1:19
but this unseasonable heat is just make me quite happy.
1:24
So I'm having a great time with all the heat
1:26
that we're seeing out there. Next week we've got a
1:28
Federal Reserve meeting. Jerome Powell will be taking the stage
1:32
once again and addressing the nation about his thoughts on
1:35
interest rates. We'll be discussing that. But the big news
1:37
out this morning, other than consumer sentiment, which we will
1:39
get to, is out of the Pacific Northwest with Boeing
1:43
employees rejecting a deal from executives and voting in the
1:50
ninety plus percent range to reject the deal and go
1:53
on strike. So continued great start for Kelly Ortberg and
1:59
new management over at Boeing as they try and navigate
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the what is it now six year disaster of Boeing
2:05
and its and its manufacturing process. So what was on
2:10
the table for employees at the Machinist union who build
2:14
the Boeing seven thirty seven, seven seventy seven and seventy
2:17
seven seven sixty seven jets. They were offered a twenty
2:20
five percent wage seven in their mind, I know, sorry
2:23
about that. It's one of the seven thousand and seven
2:26
really big.
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Speaker 3: If you haven't seen what it is.
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Speaker 2: Massive, it's like they're Gigantic ten seven basically Zeppelin ten
2:32
seven seventy seven strapped together, basically amazing. But the the
2:38
deal that was rejected would have offered pay increases. This
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is the first new contract since two thousand and eight
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that had been agreed upon between management and the union groups.
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Base pay rates would have increased eleven percent this year,
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bring the minimum hourly rate for workers to between twenty
2:56
and thirty seven dollars based on their position. It called
2:58
for raises of four percent next year, four percent in
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twenty twenty six, and six percent in twenty twenty seven. But,
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like I said, that deal was rejected by the union.
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I don't know where this brings the median pay, the
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average pay. But the point that I think a lot
3:14
of these machinists are making here is look for starting pay.
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At this stage. You can I mean this was actually
3:22
specifically quoted. I can go, you know, flip burgers at
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a Burger joint and make as much money as I
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am as a starting pay as a machinist, and we don't. Well,
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we resoundingly reject that with cost going up here in
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the Pacific Northwest and really across the country. But they're
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in particular So strike has begun first one since Owait
3:43
as far as I can tell, and continued bad news
3:46
for Boeing.
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Speaker 4: Yeah, I guess I assume it'll get resolved quickly because
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America can't afford to not have Boeing up in writing
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for lots of different reasons.
3:58
Speaker 2: Few companies that I can think of that their production
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halting would have this significant hit to GDP eventually.
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Speaker 4: Yeah, so it does raise from my angle not being.
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Speaker 3: Immersed in the particular.
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Speaker 2: Labor negotiations between and the.
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Speaker 4: Current politics at IAM, the International Association Machinists, their union
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and stuff like that, those increases that you mentioned are
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well above the current rate and the expected rate. If
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things go well of inflation, those will put upward pressure
4:32
all else EQL on priceures. It's obviously not a big
4:35
enough group to impact the general price level, but it's
4:38
indicative of a more aggressive posture on the part of labor.
4:42
So there are potential inflationary implications. Our next few articles,
4:45
and I assume Tucker Silver organized them this way have
4:48
the same general thread running through them, which is increased
4:52
power on the part of labor, which I associated immediately
4:55
with upward inflation pressure. All lse EQL that's a big caveat.
4:59
And the second concern with respect to inflation in the
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short term, because that's ultimately what we're concerned with, sure
5:07
students of capital markets and as practitioners, is our potential
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supply chain disruptions.
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Speaker 2: When I first read this story, I initially was thinking,
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you know, Boeing might actually have the upper hand here
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because they are in such disastrous shape right now that
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you know, they can actually go back to their union
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and say, look, I know it's not a recession, but
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you know, we've had a lot of screw ups over
5:30
the last few years, and so no, we can't afford
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these raises. We can't afford to go you know stuff,
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the four to one k is fuller, and we can't
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afford these raises to continue these manufacturing processes. But as
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I went further down that path of thinking, for Boeing,
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what's the alternative under previous negotiations, the underlying threat to
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employees was always, well, we'll move this to South Carolina
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and there we don't have unionized labor, and we can
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do it for cheaper, and we'll just go move it.
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I don't know that that threat is real right now.
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I don't know that any regulator right now would approve
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Boeing saying, yeah, we're moving manufacturing to a new plant
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with new employees that aren't you don't have the same
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experience that our machinist union does right now because of
6:17
all of the quality control issues that they have been facing.
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Speaker 4: So I can do that in the short term anyway,
6:21
and production can't be halted for I was going to
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say indefinitely, I'll just say an appreciably long period of time.
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Speaker 3: For national security.
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Speaker 4: Reasons, right, they make not just the jets that you
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ticked off earlier, the passenger jets, but military vehicles, missiles,
6:38
air Force one, satellite spacecraft.
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Speaker 2: Poorly functioning ones that can't bring our astronauts back home.
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Speaker 4: But nevertheless, the less they do make it, we got
6:47
all our eggs in the bowing basket. So if nothing else,
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for national security reasons, I think this has to be
6:53
And I haven't seen a person who's in the know,
6:55
which I am not make this point, so it could
6:57
be hair brained, but for national security reasons, Loan, one
7:00
would think we need to get this resolved.
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Speaker 2: Yeah. So, like I said, union leaders said about ninety
7:05
four percent of their members did reject this deal. Last
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time that they had a union negotiation was sixteen years
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ago in O eight, when they last agreed upon a contract.
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And yeah, to your point, Mark, I do think that
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likely you have this resolve. But the eight negotiations did
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lead to a fifty seven day strike and at that
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point in time, it was estimated that Boeing lost one
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hundred million bucks a day. So yeah, I don't think
7:31
that Boeing occupies a I don't think that Boeing necessarily
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occupies a more strategically defense imperative national security position than
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they did in O eight and they went on strike
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for nearly two months back then.
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Speaker 4: Way, we got a ground war going on in Europe
7:46
right now in which we're involved by proxy. For all
7:50
intents and purposes, we're a participant in that war. I
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know you don't like to hear this. It makes me
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uncomfortable too, but that's the reality. A strike by the
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heart of our military industrial uh complex.
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Speaker 3: Yeah, I was looking for.
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Speaker 4: A different you know. Yeah, right, fine, it seems like
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a really inopportune time to strike. I'm not blaming the
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I am here.
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Speaker 2: Of course. Yeah, I mean inopportune time to strike, But
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you know, frankly inopportune time to just have years upon
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years of quality control issues and disastrous management to Boeing.
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Never a great time for it to happen. Yeah, Like
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I argue, we would have been making the same argument
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when we were at war in Iraq or in Afghanistan.
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So I guess that that point might be slightly moved.
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But you know, it's been a violent century. Yeah, yeah,
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So you know, I don't know that there's an opportune
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time for Boeing to have these quality control problems and
8:42
you know, frequent delays and everything that they do. But yeah,
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I would agree with you. It seems like a heightened
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concerned time when we are battling a you know, proxy
8:51
war with Russia, a arguable cold war with China, and
8:55
other potential problems on the national security front. So nonetheless,
9:00
strike starts now, and the deal that we had touted
9:04
earlier this week is potentially getting the job done. Apparently
9:07
not even close based on the vote of those union members.
9:10
So I know we have listeners out in the Pacific Northwest.
9:13
I'm sure some you know family members of Boeing employees.
9:17
So feel free to text in the show if you're
9:19
if you're hearing anything over there six seven three six
9:21
two thirteen eighty five, if you have any any thoughts
9:24
on the on the strike out there in Washington, American
9:29
Airlines flight attendants did ratify a new contract with immediate
9:32
raises that are topping twenty percent, so avoiding a strike
9:35
here at American Airlines, flight attendants pay will now be
9:40
starting at twenty one dollars an hour. Actually no, sorry,
9:44
that was previously starting pay was starting at twenty one
9:46
bucks an hour at average twenty eight dollars an hour.
9:49
I just thought that was good context to have for
9:52
you know, what these people actually do make, and it's
9:54
it's you know, I don't think anybody is surprised, but
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a flight attendant is not exactly a high paying powerhouse.
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Speaker 3: There are the pilots.
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Speaker 4: The old joke used to be from the regional flights
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twenty twenty and twenty twenty years old, twenty hours of
10:08
training and twenty thousand dollars a year.
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Speaker 2: Well, on the pilot's side, yeah, it's a little bit out,
10:13
I'm sure, but you know, on the pilot's side, that's
10:15
still the case for the regional carriers. But then, I mean,
10:18
at least my understanding has been once you put in
10:20
your time there, most pilots that I know, who you
10:25
know have are are working for one of the majors,
10:28
are pulling in at least a.
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Speaker 4: Couple of Yeah, I think the economics have changed.
10:31
Speaker 2: Yeah, they've shifted out of out of shortage necessity quite
10:34
subscritch the last few years. But no, you're right, I
10:37
mean the regional carriers when you are, you know, getting
10:40
your hours on a small plane, You're right, it does
10:42
not pay much of anything at all. But the contract
10:45
deal had faced a strike that from those flight attendants,
10:49
which would have brought that business again to a grinding
10:51
halt here and I guess just the interesting part to
10:56
me about all of this is that we're seeing a
10:59
lot of strikes at a time when it's pretty abundantly
11:03
clear to you and I at least that the labor
11:05
market is weakening and employees likely don't have the same
11:09
bargaining power that they did over the last two years,
11:13
so the timing of all this is interesting to me. Clearly,
11:16
wages are going up in some of these areas. Bank
11:17
of America is another one that announced wage increases either
11:21
this week or last. But I'll be interested to see
11:23
where these goes, because, as we've talked about, with that
11:25
unemployment rate on the climb recently and the number of
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job openings declining, you wonder just who has the upper
11:33
hand in these negotiations going forward. Let's take a quick break.
11:36
When we come back, I do want to touch on
11:39
one more labor story, specifically in regard to Amazon and
11:42
their pay for drivers. That's next on the Financial Exchange.
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Speaker 2: Amazon announced that they're going to be investing about two
12:54
billion dollars to boost average driver pay to nearly twenty
12:58
two dollars an hour across the country. That will be
13:01
an average of twenty two dollars per hour across the nation.
13:05
That's a seven percent increase from last year. An important
13:08
distinction when we talk about Amazon deliveries, and I think
13:11
most are probably aware of this, but I don't know,
13:13
And it's good to remind most packaged delivery drivers for
13:19
Amazon are not Amazon employees. Just an important distinction here.
13:24
So when Amazon's driving the trucks, That's what I was
13:27
wondering is is if you drive an Amazon branded truck,
13:31
does that mean that you are an Amazon employee? And
13:33
I'm unclear about the answer to that. I mean, I
13:36
think it's pretty obvious when somebody shows up in an
13:38
unmarked white van that they're probably not an Amazon employee
13:41
and they're a contractor. But when you're driving one of
13:44
those electric Amazon delivery trucks, are you in fact an
13:47
employee of Amazon or not? I actually, I actually don't know,
13:50
because Amazon has invested a lot of money in also
13:53
financing purchases of delivery trucks for their delivery partners. But
13:58
they've been delivering the majority of their packages with small
14:04
businesses since about twenty eighteen. That's that's when the majority
14:08
of them started being delivered by these third party small businesses.
14:12
And effectively, you can contract with Amazon to deliver packages,
14:16
and you know, Amazon has the nice benefit of not
14:19
dealing with as many unionization threats from there or benefits
14:24
or you know, potentially avoiding lawsuits as well by not
14:27
having actual employees doing the work for them. We'll see
14:31
how long that holds up. NLRB, the National Labor Relations Board, recently,
14:37
you know, began to start asking some questions there, just
14:41
like the Uber and Lift relationship, I think is the
14:43
answer here is, okay, Amazon, you require a certain number
14:47
of deliveries, you require a minimum base pay, which they do.
14:51
According to all this, you must pay these drivers a
14:53
certain minimum amount. You know, are you just avoiding employer
14:57
law and taxation on this or do you actually have
15:01
a situation here that that can be an employee I
15:05
guess a contractor relationship rather than employer or employee. But nonetheless,
15:09
they will be boosting that pay across the country. It's
15:11
going to range now from nineteen dollars and fifty cents
15:14
an hour to apparently twenty five to twenty five an hour.
15:18
But like I said, I don't know how that works
15:19
because they can't control the top end of that. You
15:24
know that compares, by the way, just to get an
15:27
idea of the cost structure of some of these other companies, UPS,
15:31
for example, signed a contract with the Teamsters union that
15:34
maintained the highest paid delivery drivers in the country, with
15:38
the average top rate at forty nine dollars an hour.
15:42
So cost comparison here you can understand why UPS has
15:46
such a tough time keeping pace with some of the
15:49
other delivery options that are out there. Mark at ten
15:51
am this morning, we got another reading on sentiment. Now,
15:55
sentiment generally speaking in the surveys that we've seen has
15:58
been on an uptick over the last several months, and
16:01
not coincidentally, has been coming up since Joe Biden dropped
16:06
out of the presidential race. In particular, in some readings
16:08
that I have seen, What did we find out today
16:10
on the consumer sentiment side of things?
16:13
Speaker 4: Sure, this survey was conducted by the University of Michigan.
16:15
There are a bunch out there.
16:17
Speaker 2: But Michigan, I mean Michigan is one of the longest
16:19
standing sentiment surveys that we have.
16:20
Speaker 3: I think the seventies.
16:22
Speaker 2: I think it's been out there since the fifties or sixty.
16:25
Speaker 4: Might be thinking just their inflation, which when I pull
16:28
it it it dates back to the seventies. But you
16:31
know that could just speA because I don't have a
16:32
subscription to their paid service. But in this case, might
16:35
to answer your question, rose Centnamon, did and forget about
16:40
the number?
16:41
Speaker 2: Yeah?
16:41
Speaker 4: Or these relative comparisons just focus on what it's done
16:44
over the short term. Comparisons that reach back a few
16:47
years are problematic because of the way this is calculated,
16:50
which I don't profess to be an expert in, but
16:52
the numbers aren't really interpretable. So you just have to
16:54
kind of look at the sucker and ask is it
16:56
going up? Has it been going up for a while.
16:58
Just look at the try to extract just visually simple
17:01
trends in this series. I think that's the most helpful
17:04
way to think about this. So it's at its highest point,
17:08
just take that for what it's worth. Since May twenty
17:12
twenty four. You know that's they phrase the sentence so dramatically,
17:15
but it was only a few months ago.
17:16
Speaker 2: Yep.
17:17
Speaker 3: Anyway, gain was led.
17:19
Speaker 4: I'm just reading here from their press release buying improvement
17:21
and buying conditions for durables that is stuff that's meant
17:23
to last more than a few years, think refrigerators and
17:25
appliances and stuff like that, and driven by more favorable prices.
17:29
So they say, I guess they elicited that in their
17:32
survey as perceived by consumers.
17:35
Speaker 2: Yeah, the inflation expectation.
17:36
Speaker 4: Yeah, I wanted to get to that because that, to
17:38
me is where the meat is and year ahead looking
17:40
good two point seven percent, which is the lowest go ahead.
17:44
Speaker 2: And sorry, that means when they pulled consumers, that was
17:47
the average expectation for the next year of inflation.
17:49
Speaker 3: Yeah, and it's a little weasily.
17:51
Speaker 4: The way they asked the question. They don't use the
17:52
word inflation. They just think, on average, how much more
17:55
do you think stuff will cost a year from now
17:57
than it does today? And people's answer median was two
18:01
point seven percent the five year. Look the the sixty
18:05
month version of that question. Okay, how much do you
18:08
think they'll cost on avera? How much you think they'll
18:10
go up on average a year over the next five years?
18:13
And I could see your squint.
18:16
Speaker 3: I agree.
18:16
Speaker 4: I wouldn't know how to answer that, I wunder if
18:18
I didn't have a sort of framework in mind, which
18:22
I do because it's what I do. But your age
18:25
how much on average for the next thing? You're asking
18:26
me how much more expensive've going to be in five years?
18:29
Or you're asking me how much on average are going
18:31
to go up over every year for the next five years.
18:33
I would know how to answer that, But people do,
18:35
God bless them, provide an answer and it's three point
18:38
one percent. So one way of interpreting today's results. Today's
18:43
survey results are that over the short term, people think
18:46
the rate of increase, which is what inflation is in prices,
18:50
will slow a little bit over the next twelve months,
18:52
but they think on average, it's going to be a
18:54
little higher over the next sixty months than they do
18:57
over the next twelve. If that's confusing, your perfectly normal
19:01
for feeling that way, because it does get a little convoluted. Yeah,
19:03
slight improvement make short term.
19:05
Speaker 2: I just think about the average person doesn't even think
19:08
about price increases and percentage terms, right Like, if I'm
19:11
thinking about it, it's like, Okay, how much do I think
19:13
my grocery basket is going to be more or less
19:16
over the next twelve months? And I would have to
19:18
kind of do out the math if I do know.
19:20
Speaker 3: This wired term the under suggestion, by the way, but
19:24
that's the way.
19:24
Speaker 2: It's fifty four percent of surveyed adults saying that they're
19:28
anticipating rate cuts in the coming year, So that does
19:31
line up. That's the highest rating since nineteen eighty. Wall
19:33
Street Watch is next.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
19:48
on the Financial Exchange Radio Network. Time now for Wall
19:54
Street Watch a complete look at what's moving markets so
19:57
far today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: Markets are in positive Territory to wrap up an inflation
20:04
filled week with a big FED meeting on deck next Wednesday.
20:09
At the moment, the Dow is up by nearly two
20:11
thirds of a percent, or two hundred and forty four points.
20:14
SMP five hundred is up over a third of a
20:16
percent or eighteen points, in the Nasdaq up by about
20:19
a quarter percent or forty six points. RUSTED two thousand
20:23
surgeon to surging today, up nearly two percent or forty points.
20:27
Ten year Treasure Shield is down by one basis point
20:31
a three point sixty six percent, and crude oil up
20:34
nearly two percent higher, trading just above seventy dollars a barrel.
20:38
As we discussed previously, Boeing's biggest labor union went on
20:42
strike at midnight, halting production of its best selling jets,
20:46
marking yet another blow to the struggling company. Boeing stock
20:50
is down by two percent at the moment. Meanwhile, shares
20:53
an Adobe down by nine percent after the software company
20:56
forecasted lower than expected revenue for the current and quarter.
21:00
For the previous quarter, Adobe did post higher profit and revenue,
21:04
boosted by demand for AI enabled products. Elsewhere. Oracle provided
21:09
an optimistic long term Outlook, where the software provider lifted
21:13
its fiscal twenty twenty six revenue forecast and said it
21:17
expects annual revenue to climb to at least one hundred
21:20
and four billion dollars in fiscal twenty twenty nine. This
21:23
comes after the company posted better than expected earnings this
21:27
past Monday that stock up by two percent after yesterday's plunge.
21:32
My Dirner shares down another four percent today after the
21:34
biotech company seemingly failed to reassure investors with its cost
21:39
cutting plan, and shares in Restoration Hardware jumping by twenty
21:43
two percent after the furniture retailer said demand picked up
21:47
last quarter, lifting revenues and adjusted earnings above street expectations.
21:53
I'm Tucker Silva, and that's Wall Street watch Mark.
21:55
Speaker 2: We have a Federal Reserve meeting that's going to be
21:57
kicking off in five days, which gets us really, yeah,
22:05
what are they doing kicking off in five days here?
22:09
And the only real question is about how much they
22:13
cut rates? And I want to take a slightly different
22:16
approach on this one. I think you and I are
22:18
in general agreement that the Fed was pretty slow to
22:23
start the process off. On the other side, of this
22:25
in terms of raising interest rates. On the pretty clear
22:29
they made a choice, right, So, but but you and
22:32
I would both agree that, hey, they were wrong to
22:35
move so slowly and they should have moved faster with
22:37
hindsight in place.
22:38
Speaker 4: Yeah, they would say they weren't because inflation eventually abated.
22:42
There was a big role for special factors COVID supply shocks,
22:45
of course, COVID demand shocks. They would say they were right,
22:48
it was transitory. I might point out that if you
22:51
look at the results politically, how upset people are, how
22:55
that's manifesting itself in our choices of candidates. Generally, people
22:59
are ask yourself, are you pleased with the way prices
23:03
have unfolded.
23:03
Speaker 3: Over the past four years.
23:05
Speaker 4: If the answers no, then on its face, the FED
23:07
maybe didn't do a good job. I can't tell you
23:11
what the alternative history would have been, perhaps high unemployment.
23:14
Speaker 2: That's the fun part about economics is you cannot run
23:18
like history. I don't know, Yeah you can't, but it's
23:21
not physics. You can't go and run a few different
23:23
experiments and say, well, what if we have not a.
23:25
Speaker 4: Macro micro They do that all your time, but not
23:28
a Macro, No, you can't so actually have oh, since
23:31
it's a Friday and you had me on. There are
23:33
some things like natural experiments when countries that are otherwise
23:37
very similar.
23:38
Speaker 2: When Turkeystitute cuts interest rates in the face of high inflation,
23:41
you can when you.
23:42
Speaker 4: Ask you institutions. Sorry, this are real tangent, but when
23:44
you have to institutions matter. If you say no, just
23:47
look at North and South Korea, same culture, same religion,
23:49
same geography, very different wealth levels. So yes, institutions matter.
23:54
That economists will call a natural experiment and a beautiful
23:57
example of how you can actually uh draw conclusions.
24:01
Speaker 2: So I guess I want to ask the other side
24:05
of that question right now, And you might not be
24:06
the perfect person to ask, because I think you and
24:08
I might have different viewpoints on the direction of where
24:11
interest rates should be at this stage. I think you're
24:13
generally favor of higher than where I am. But if
24:17
if the argument can be made pretty successfully that the
24:20
FED was late to the party in terms of hiking
24:23
rates and arguably should have gone a lot faster on
24:25
the way up, does the same viewpoint potentially apply on
24:30
the other side of that on the way down? Right?
24:35
Speaker 4: Should they could be too slow on the release.
24:37
Speaker 2: The argument here is, hey, should we be doing twenty five.
24:42
Speaker 3: After the fact?
24:42
Speaker 4: But sure, and Mike, to be clear, I'm not just
24:44
genetically predisposed to higher interest rates. I have a preference
24:48
for low inflation close to zero as possible. That's just
24:54
that's my political ideology. If you like that's my bias.
24:57
There are lots of monetary economists which I am not,
25:00
who think four or five percent inflation is just fine.
25:03
That's that's more beneficial to efficient operating of the labor market.
25:08
So some of it just comes down to preference. But
25:10
I think you can divide people into two camps, highly
25:13
inflation averse and highly recession averse.
25:17
Speaker 3: That's where right and distinctions come from.
25:21
Speaker 2: I think you know what we're going to hear from
25:22
the Federal Reserve. Just so everyone's clear on this, there
25:25
is no one talking about a rate cut of more
25:27
than fifty bases points at next week's meeting. Jerme Powell
25:30
is very likely, based on the odds that we are
25:33
seeing out there, to go with a quarter percent rate cut.
25:36
There's an off chance that they end up cutting by
25:38
fifty basis points, but doesn't seem terribly likely. But I
25:41
am interested in that thought process. We had an article
25:45
earlier this week from you know, he's a chief economist
25:48
at some investment bank, I don't remember which, but he
25:50
was making that point that, look, most Federal Reserve Board
25:54
members seem to believe right now that interest rate policy
25:58
is restrictive, and it's restrictive by depending on your viewpoint,
26:02
you know, one to two percentage points. And the argument
26:04
that he laid out was, why would you take six
26:07
months to cut rates to that point? Why not just
26:09
do it all in one fell swoop.
26:11
Speaker 4: Because they're not sure if the economy has slowed sufficiently
26:16
to reduce upward pressure pressure on inflation.
26:18
Speaker 3: Right, yeah, short answer.
26:20
Speaker 2: Yeah, I'm playing Devil's advocate because at the time I
26:24
looked at that and I said, that would be a
26:26
tremendously bad idea because we aren't certain that we are
26:29
actually restrictive, we are not certain that inflation is dead,
26:33
and cutting interest rates by a full percentage point at
26:36
once could stimulate the economy to the point of overheating again,
26:39
and that would be very problematic. But I just found
26:43
the thought exercise a little bit interesting to say, you know,
26:46
and in both directions. Hey, in twenty twenty two, when
26:49
things were clearly heading in the wrong direction inflation wise.
26:53
We took a year more to get a rates into
26:55
the right place, and maybe they should have just been
26:57
a lot faster.
26:58
Speaker 3: Look, I'm not saying they shouldn't. What do I know.
27:00
Speaker 4: I'm saying only that their GDP forecasts, their forecasts of
27:04
economic growth, come with big errors. They could be way off.
27:10
They could end up cutting when the economy doesn't need
27:12
a big cut. We could just have hit a slow
27:14
patch and have resumed above trend growth. If you look
27:18
at GDP now and measures like capacity utilization and industrial production,
27:23
they suggest reasonably strong By that I mean above trend
27:27
above potential growth. But who we might be in recession
27:30
in six months. Maybe the right thing to do next
27:32
week is to cut by a full percentage point one
27:34
hundred so called basis points. I really don't know. I'm
27:37
saying only that nobody does. And the Fed's job is
27:40
to make these decisions in the face of all this uncertainty,
27:44
this fog of war.
27:45
Speaker 6: If you like fog of data more annually and I
27:48
think where I eventually land on all that is, you know,
27:52
it's easy to sit here on the other side of
27:54
the desk and criticize the FED and say you need
27:56
to be bolder, you need to.
27:57
Speaker 2: Take more swift action. You should have raised rates by
27:59
a full percent points back in twenty twenty one in
28:01
the face of higher inflation, and now you should cut
28:04
rates by a full percentage point. I think that when
28:06
you take a step back and put yourself into their
28:09
shoes of being literally responsible for the direction of unemployment
28:13
and inflation in this economy, you can understand why they.
28:18
Speaker 4: Yeah, but percent inflation at that time, and they were
28:22
sitting at zero percent or point two five percent FED funds.
28:25
And again, look at how upset people are, look at
28:27
how our politics has become increasingly populist left and right,
28:31
that our institutions have been shaken to the core, both
28:35
left and by politicians.
28:37
Speaker 2: Left and right.
28:37
Speaker 4: I would say the preservation of our institutions should be paramount,
28:40
and that requires price stability. We're in this very highly uncertain,
28:45
uncomfortably uncertain political environment in part because the FED made
28:48
a decision to not inflict pain on the economy. They
28:51
thought it was the right decision. I respect that, but
28:53
in retrospect, some of our basic institutions are in peril. Now,
28:57
and I'm not picking on Maga. I'm not picking on
28:59
Trump or Harris here. They both have equally flaky economic
29:02
ideas in my view. But the point is we're exploring
29:07
the fringe economic ideas have come to the center somehow,
29:10
and I blame the FED partly for that. I would
29:13
have preferred slightly higher unemployment three years ago in exchange
29:16
for more normal, frankly political choices left and right.
29:20
Speaker 2: Let's take a quick break when we come back. There
29:23
is one more tremendously disappointing Federal Reserve story to cover
29:27
when it comes to one of the Governor's Raphael Bostik,
29:30
that I want to get to. We're going to cover
29:32
that next here on The Financial Exchange.
29:35
Speaker 1: Miss any of the show. The Financial Exchange Show podcast
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30:13
Speaker 2: So I mentioned one more Federal Reserve story that does
30:16
have to be brought up. Atlanta Federal Reserve President Raphael
30:20
Bostik admitted earlier this year and handed in some paperwork
30:25
to show his actual trading history within his investment accounts,
30:30
which had been improperly reported over a course of I
30:34
don't know how long hundreds of trades one hundred and
30:39
fifty transactions had settled on dates when they weren't allowed
30:42
to trade because of restrictions around sales or purchases before
30:45
and after FED policy. And look, Raphael Bostik, I don't know.
30:53
My opinion and interviews that I've heard from him were
30:56
that he brought a you know, a diverse viewpoint into
31:01
the Federal Reserve, genuinely seemed to care about the American worker,
31:06
and you know, spent a lot of time really conveying
31:08
FED policy and stuff like this just kind of ruins
31:13
all of that and really further hurts the credibility of
31:18
the Federal Reserve, who has already had to be dealing
31:21
with who are the the Boston, the Dallas FED president
31:25
that had to step down two years ago over the
31:28
exact same thing. And so when you know, when the
31:33
American public has little to no confidence in American institutions,
31:39
it's disappointing to see one that I think, over the
31:43
last few years had largely sidestepped a lot of the
31:45
accusations of corruption and inefficiency and political bias, like the
31:51
Federal Reserve. I genuinely think had you know, if you
31:53
go take a look at most polling of the opinion
31:56
of Federal Reserve, it's generally been, you know, better than Congress,
32:01
better in the Senate, even better than the Supreme Court.
32:04
And this type of thing ruins that. And it goes
32:06
back to anyone's familiar with comedian, and it ruins. It
32:10
doesn't ruin it, it does.
32:12
Speaker 4: That he knew that these trades were taking place. He
32:14
should have notified his advisor.
32:16
Speaker 2: Right, it's not clear that he knew at least, but
32:18
at least to my reading, but that's not a fact.
32:21
Of course. Anyone in that position, regardless of whether or
32:24
not they did know, very obviously should have known. And
32:28
that's the disappointing smart guy individual, Stanford PhD, powerful individual,
32:34
and if he didn't know, should have known. And that
32:37
really disappoints And it makes me think of not that
32:41
we should be taking our conspiracy theory advice from a
32:44
comedian like Bill Burr. But you know, he's got this
32:46
long rant about the Federal Reserve, and this plays right
32:49
into it, and plays right into the tarnish reputation.
32:52
Speaker 3: I like Bill Burr, I haven't heard that.
32:54
Speaker 2: Oh he's got a whole long conspiracy really okay. Interesting.
32:57
His funny take on conspiracy theories is he had one
33:00
about the Federal Reserve. But then because he has one
33:03
about the Federal Reserve, everyone assumes that he's conspiracy theorist
33:05
about everything. He's like, no, I think we landed on
33:07
the moon. I just don't think that the Federal Reserve
33:09
does good thing. It's it's funny when he does it.
33:12
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34:20
Speaker 2: You know, Tucker, every time I've tried screaming into the
34:24
mic and lobbing F bombs on the radio, You've come
34:26
down to me pretty hard. Well, yeah, we don't want
34:28
pass surprise that I can't compete with build. Yeah, I
34:31
can't compute it.
34:31
Speaker 4: So my question when stuff like this comes up and
34:34
there's no evidence.
34:35
Speaker 2: That stuff like we're talking about Albostic and the violation
34:39
of Federal Reserve trade policy.
34:41
Speaker 4: Yeah, he traded when you shouldn't. He didn't do it personally.
34:44
Apparently he's blaming his financial addvisor and those of you
34:47
who have one, and hopefully you all do, know that
34:49
they'll execute trades on your behalf. They don't necessarily tell
34:51
you what they're doing. They'll do what they think is best,
34:53
giving your goals, et cetera. That maybe what happened here
34:55
so it could be perfectly innocent. But if you were
34:58
at the pinnacle of power or as he is in
35:01
his profession, don't you err on the side of extreme
35:06
caution and rule out even the perception, even the scent
35:11
of conflict of interest? Why to powerful people? My more
35:15
general question is why do powerful people put them? And
35:18
it doesn't happen a lot, thank god, But in a
35:20
case like this, I always ask, why does a smart,
35:22
powerful guy need this hassle? He's he may have destroyed
35:25
his career. If there's more to this story, why why
35:28
take the risk?
35:29
Speaker 2: My take, by the way, honestly is that I don't
35:31
think it should be tolerated. I think she should step down.
35:34
It would just be my tall west.
35:35
Speaker 4: He's innocent until proven guilty absolutely, and investigation it turns
35:40
out that he.
35:40
Speaker 3: Didn't follow the procedure.
35:41
Speaker 4: By the way, even if he didn't know the trades
35:42
were taking place, if he didn't follow the procedures, he's
35:44
just like if I didn't hear an armstrong advisory group, Mirke,
35:46
you'd have to fire me.
35:47
Speaker 2: Yeah.
35:48
Speaker 4: Uh so, we all those of us who work in
35:50
financial services kind of get this. There is a final
35:52
there's a fine line, but if you cross it, it's binary, right.
35:55
Speaker 2: And I guess my take the reason that I'm so
35:58
frustrated about this in general is because my takeaway generally
36:01
would be that if you are in a position like
36:03
a Federal Reserve president, if you are in a position
36:05
like head of the sec or in Congress or a
36:09
Congress staffer at all, quite frankly, my viewpoint would be,
36:12
you can't trade individual securities. You cannot do general trading
36:16
or even sector trading at all, would be my takeaway.
36:19
And that's why this is extremely frustrating. So I think
36:22
the policies that govern it are just silly. Same goes
36:24
for judges, same goes for a number of different positions.
36:27
Speaker 4: Don't these guys know they regulate financial services? They know,
36:30
you don't get three strikes in financial services, you get
36:33
one in your out.
36:34
Speaker 2: Yeah, right, Like, if this had happened at any firm
36:38
that is registered with a financial regulator, that individual would
36:43
probably never work in financial services again.
36:45
Speaker 4: Yeah, career ruining move, right. They probably have to hold
36:49
themselves to the same standards.
36:50
Speaker 2: Would I would think so they have far more responsibility
36:53
on that front, And so I would think and hope
36:56
that that would be the case. But only time will tell,
36:59
and there will be an investstigation, and that's the right thing,
37:01
that's what should happen. But tremendously disappointing because, like I said,
37:05
you know, in my listening to Raphae Albostik and seeing
37:09
the interviews, it just seemed to genuinely bring a positive
37:16
and different view to the Federal Reserve and was also
37:18
really good at explaining what it is that they do
37:21
and why they were doing it. Quick mention here of
37:26
new policy from the White House that is looking like
37:29
it's going to go into place to address companies like
37:32
Shin and Temu. A new rule limiting deminimous packages. So
37:38
previously you could avoid terriffs by shipping small items that
37:42
have smaller values across borders and not face these tariffs.
37:46
So if you sold, for instance, Mike Armstrong a jacket
37:49
last winter from shin, I didn't have to pay a
37:51
tariff on it because they didn't ship three thousand jackets
37:54
and a shipping container, which is silly, and they are
37:58
closing that loophole, apparently under the Biden administration, to address
38:02
that specifically, as these companies have started shipping a whole
38:07
lot more items across borders. So a lot more to
38:09
cover in the second hour, including some interesting pieces on
38:14
China changes for the retirement age and their economy. We'll
38:17
covering that and a lot more in the second hour.
38:19
Stay tuned.