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Federal Reserve Draws a Line on Inflation as Oil Risks Ease · The Financial Exchange Show

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  Speaker 1: Financial Exchange with Chuck Zada and Mike Armstrong.
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  Speaker 2: It's Chuck, Mike and Tucker with you, and gotta tell
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  Speaker 2: you we got a uh, we got a full show today.
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  Speaker 2: So we're gonna dispense with the pleasantries and get right
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  Speaker 2: into it. Starting with yesterday the United States and Iran
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  Speaker 2: inking the memorandum of understanding to enter into a sixty
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  Speaker 2: day negotiating period on basically a number of outstanding issues
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  Speaker 2: that still need to be addressed. I think that ultimately, again,
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  Speaker 2: like if you've seen the memorandum of understanding, great, if
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  Speaker 2: you haven't, that's fine as well. I think ultimately what
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  Speaker 2: matters is, hey, what is going to what matters to
• 1:54
  Speaker 2: our show, at least in the you know, economic context,
• 1:57
  Speaker 2: what's gonna happen to the straight offoe moves and what
• 1:59
  Speaker 2: happened to oil production and transit through it. That's what
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  Speaker 2: we've been focused on the entire time. Here is what
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  Speaker 2: we are seeing overnight, A handful of Saudi Arabian tankers
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  Speaker 2: have left the Straight and moved into the Gulf of
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  Speaker 2: Oman after not doing so during you know, the entirety
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  Speaker 2: of the last you know, three and a half, almost
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  Speaker 2: four months. We are also seeing some tankers from outside
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  Speaker 2: the Straight of Hoo moves signaling that they want to enter,
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  Speaker 2: so you get, you know, the ability to fill those
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  Speaker 2: new tankers coming in beyond that, if you're for other
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  Speaker 2: positive news Kuwait, just two weeks ago on June third,
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  Speaker 2: the Kuwait Petroleum Company, a managing director there said, yeah,
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  Speaker 2: it's gonna take us about sixty eight weeks to restore
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  Speaker 2: seventy percent of capacity and probably another month beyond that
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  Speaker 2: to get back up to full speed. So you do
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  Speaker 2: the math and you say, okay, it's gonna be three months.
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  Speaker 2: Today the Kuwait CEO Kuwait Petroleum Company CEO says, yep,
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  Speaker 2: we think that we can get back to seventy percent
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  Speaker 2: capacity a week from now. So obviously that would be
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  Speaker 2: fantastic news. And the obvious implication is, hey, if Kuwait can,
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  Speaker 2: do you think other countries in the Gulf can as well.
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  Speaker 2: And if they can, the big thing is this. If
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  Speaker 2: they can get back to full product, not full production,
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  Speaker 2: but seventy percent of production by July first rather than
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  Speaker 2: by you know, August fifteenth, that's an extra three hundred
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  Speaker 2: and fifty million barrels of supply that you know, otherwise
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  Speaker 2: would not have made it to the market. That that
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  Speaker 2: does a ton to address the potential concerns that are
• 3:41
  Speaker 2: out there, because, as the President said yesterday, and Tucker's
• 3:44
  Speaker 2: got some audio of this, So if you could Caca cacaf.
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  Speaker 3: If we keep bombing, those ships won't be going. And
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  Speaker 3: you're talking about five hundred and six hundred, seven hundred
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  Speaker 3: million dollars a day. It's a lot of money. That's
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  Speaker 3: why the world is okay, it's liquid, it's fine. Also,
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  Speaker 3: we run out of reserves in about four weeks. You know,
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  Speaker 3: there are reserves all over the world, and we would
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  Speaker 3: really run out and there'll be a time when you
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  Speaker 3: wouldn't be able to get it, and you want to
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  Speaker 3: see bedlam.
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  Speaker 2: So look, the President yesterday said what we've been saying
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  Speaker 2: on our show for the better part of the last
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  Speaker 2: two to three months. You get to mid July to
• 4:21
  Speaker 2: early August, and you are up against tank bottoms as
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  Speaker 2: far as oil reserves. This is like we weren't making
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  Speaker 2: this up or anything like this is you know, the
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  Speaker 2: President said it yesterday. And again I think that when
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  Speaker 2: you look at this in the context of, Okay, why
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  Speaker 2: is the deal happening now, it's because this is the
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  Speaker 2: time where you had to cone effectively move otherwise you
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  Speaker 2: run into problems. Now, if Kuwait and other countries in
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  Speaker 2: the Middle East can ramp up their production as they're
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  Speaker 2: now saying, it takes those worst case scenarios off the table,
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  Speaker 2: which would be fantastic, Like then you don't have to
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  Speaker 2: worry about, you know, the potential gas getting to you know,
• 5:01
  Speaker 2: five six bucks a gallon and stuff like that. Uh,
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  Speaker 2: and so that would be great the potential risks that
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  Speaker 2: are out there. Look, anytime that you're talking about the
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  Speaker 2: Middle East, it's a bunch of unreliable actors who don't
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  Speaker 2: like each other very much. And you know, you got
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  Speaker 2: to see how things move when the rubber meets the road.
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  Speaker 2: But at this point, based on the early signs that
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  Speaker 2: we are seeing in the first you know, call it
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  Speaker 2: twenty four hours since the memorandum has been signed, maybe
• 5:30
  Speaker 2: for the second time, but it's it's unclear if it
• 5:33
  Speaker 2: actually was signed the first time or if this is
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  Speaker 2: the second.
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  Speaker 4: We don't really know.
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  Speaker 2: But the first twenty four hours here it does seem
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  Speaker 2: like we are seeing positive signs, which does a ton
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  Speaker 2: to mitigate those worst case scenarios that were very much
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  Speaker 2: on the table, as the President indicated yesterday.
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  Speaker 5: Yeah, so I don't think any of this indicates us
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  Speaker 5: what will occur over the next sixty days. But if
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  Speaker 5: you have an ability to move oil, even temporarily out
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  Speaker 5: of the straight at horror moves to just resupply the
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  Speaker 5: globe with oil. Heck, even temporarily, it kicks the worst
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  Speaker 5: case scenarios down the road a little bit.
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  Speaker 4: It does.
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  Speaker 2: So we'll see how the next sixty days actually play out.
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  Speaker 2: I'm hopeful that they go as smoothly as possible and
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  Speaker 2: that there is no further economic disruption as a result
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  Speaker 2: of this. But you like, these things can take different turns,
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  Speaker 2: and hopefully we don't go down those, you know, alternative
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  Speaker 2: paths where things worsen from here.
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  Speaker 5: The other piece of this that we will be talking
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  Speaker 5: about is Iranian oil too, right, you just talked about
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  Speaker 5: Quadi oil, but typically Iranian oil for the last i
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  Speaker 5: don't know how long, has only been sold on the
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  Speaker 5: black market, effectively to these independent Chinese refiners that you
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  Speaker 5: know didn't mind, you know, skirting US sanctions. And as
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  Speaker 5: part of this, at least initial understanding of the deal,
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  Speaker 5: Ironie and oil may be able to be sold on
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  Speaker 5: you know, not may will be We'll be able to
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  Speaker 5: be sold on public markets without sanction, without having to
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  Speaker 5: take a you know deal from some shadowy Chinese refiner,
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  Speaker 5: and that is a new Again, the supply was making
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  Speaker 5: its way into the markets anyway, but this is a
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  Speaker 5: what is around like five percent of the world's oil
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  Speaker 5: supply effectively estimated, I think for Yeah, that's not an
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  Speaker 5: insignificant portion if it does long term make it into markets.
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  Speaker 4: So this is politics aside.
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  Speaker 5: However you feel about that, whether that's good or bad,
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  Speaker 5: that is a new set of supply that you know,
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  Speaker 5: hits the publicly available oil market.
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  Speaker 2: Yeah, there still are a ton of unanswered questions as
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  Speaker 2: it relates to you know, what a longer term deal.
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  Speaker 4: Actually looks like.
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  Speaker 2: And you know, just from a geopolitical perspective, you certainly
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  Speaker 2: have questions about Okay, so you know, Iran potential as
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  Speaker 2: you know, wider access to capital markets despite still not
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  Speaker 2: really being you know, the still still doing many of
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  Speaker 2: the things that they've been sanctioned for previously. So you
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  Speaker 2: do have some questions as to how this ends up
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  Speaker 2: playing out regionally and globally as far as you know,
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  Speaker 2: how you know, different alignments may shift as a result
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  Speaker 2: of this, and whether that can hold, but again first
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  Speaker 2: twenty four hours as it relates to oil prices and
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  Speaker 2: oil flow, some positive encouraging signs, and we'll take it
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  Speaker 2: day by day and week by week over you know,
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  Speaker 2: the course of the summer, to see if that continues
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  Speaker 2: or if we run into any speed bumps.
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  Speaker 4: Let's take a quick break here.
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  Speaker 2: And when we return, let's get right to the next
• 8:46
  Speaker 2: big piece of news, which was Kevin Walsh had his
• 8:50
  Speaker 2: first FED meeting as Cherry yesterday and we will discuss
• 8:55
  Speaker 2: takeaways from that.
• 8:57
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  Speaker 4: All right.
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  Speaker 2: Yesterday at two pm, the Federal Reserve released its interest
• 9:39
  Speaker 2: rate decision, and no surprise, they didn't change the Federal
• 9:44
  Speaker 2: funds rate on any way, shape or form. But this
• 9:47
  Speaker 2: was Kevin Warriss's first turn as the chair of the
• 9:53
  Speaker 2: Federal Reserve Open Market Committee, taking over for Jay Powell.
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  Speaker 2: Who still sits on the committee by the way as
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  Speaker 2: one of the governors.
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  Speaker 4: And here's the deal. This was.
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  Speaker 2: It was a really interesting meeting actually, just with all
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  Speaker 2: the different takeaways that you have from it. So first one,
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  Speaker 2: just I'm gonna kind of go in the order in
• 10:13
  Speaker 2: which everything happened. FED statement comes out. FED statement is
• 10:18
  Speaker 2: a lot shorter than the previous ones. You know, the
• 10:21
  Speaker 2: previous ones used to be. You know, they were ranging
• 10:24
  Speaker 2: into like the five six paragraph range. This is like
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  Speaker 2: two and a half pretty quick paragraphs.
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  Speaker 4: Just Papa BA done. This gets it.
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  Speaker 2: One of the things that Warsh has talked about, which is, hey,
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  Speaker 2: I want to do less in the way of forward
• 10:39
  Speaker 2: guidance telling you what we're thinking about, you know, what's
• 10:42
  Speaker 2: going to happen, and I want the market to do
• 10:46
  Speaker 2: the work for you know itself. I don't want us
• 10:48
  Speaker 2: to have to spoon feed you this. We're just going
• 10:51
  Speaker 2: to go about doing our jobs, which, by the way,
• 10:54
  Speaker 2: led to.
• 10:54
  Speaker 5: Some funny interactions between him and the press, who you know,
• 10:58
  Speaker 5: like to ask questions about yeah, we'll get there.
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  Speaker 4: The second place. The second thing.
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  Speaker 2: Then, this was also one of the fore FED meetings
• 11:07
  Speaker 2: a year where we get the summary of economic projections
• 11:09
  Speaker 2: commonly referred to as the dot pot, and the dot
• 11:14
  Speaker 2: plot is basically the Feds.
• 11:18
  Speaker 4: It's it's the Feds.
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  Speaker 2: Each member puts, you know, a dot in terms of, Hey,
• 11:23
  Speaker 2: where do you think GDP is going to be, unemployment, inflation,
• 11:27
  Speaker 2: the Fed funds rate this year, the next two years
• 11:30
  Speaker 2: in long run. And so what we did see is
• 11:34
  Speaker 2: that from that dot pot, the Fed expects inflation to
• 11:38
  Speaker 2: be higher this year than they previously guided, core inflation
• 11:40
  Speaker 2: to be higher as well, GDP a touch lower, not
• 11:44
  Speaker 2: too much, we'll get to you know why that matters
• 11:46
  Speaker 2: in just a little bit. And the unemployment rate they
• 11:48
  Speaker 2: expect to be a little bit lower as well. So
• 11:51
  Speaker 2: basically what the Fed is signaling here is, yeah, we
• 11:55
  Speaker 2: expect there to be more inflation, but unemployment's going to
• 11:59
  Speaker 2: go down and g real GDP it's not going to
• 12:02
  Speaker 2: be impacted to negatively. The reason being nominal GDP is
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  Speaker 2: growing faster than previously. So what the takeaway then was
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  Speaker 2: from the Fed funds rate projections that they gave, Hey,
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  Speaker 2: they priced in, Yeah, we're gonna have to hike interest
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  Speaker 2: rates before the end of the year, and we're going
• 12:21
  Speaker 2: to have to continue to keep rates a little bit
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  Speaker 2: higher than we previously thought. In twenty seven and twenty eight.
• 12:27
  Speaker 2: The market interpreted this and said, okay, like we have
• 12:29
  Speaker 2: to you know, reprice what's going on in the bond world,
• 12:32
  Speaker 2: and that's why you saw a bond sell off take
• 12:34
  Speaker 2: place yesterday. Worsh then came out and gave his press
• 12:39
  Speaker 2: conference at two thirty. By the way, Tucker Japan to
• 12:41
  Speaker 2: catch the color of his tie, that would be blue,
• 12:44
  Speaker 2: navy blue, which means that Paul had red. I believe
• 12:49
  Speaker 2: in the pool some stupid guess and I had gold
• 12:51
  Speaker 2: and Tucker had no tie.
• 12:53
  Speaker 6: I thought we were going to see cash keV Tucker.
• 12:56
  Speaker 2: Tucker had no tie, but sleeves and jacket.
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  Speaker 6: Got it summer, you know.
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  Speaker 2: So a FED meeting, that's right, listen he forward guidance gone,
• 13:07
  Speaker 2: ty gone could be like an interesting, you know, little
• 13:10
  Speaker 2: juxtaposition there. So worst comes out. And again I think
• 13:16
  Speaker 2: that when we when we talk about you know, the
• 13:18
  Speaker 2: key takeaways here, uh number one uh very firmly saying, hey,
• 13:24
  Speaker 2: we need to maintain price stability.
• 13:26
  Speaker 4: Yep, like that was his key focus.
• 13:28
  Speaker 2: I don't think he really mentioned unemployment very much at all.
• 13:31
  Speaker 5: Only early time I heard was when summarizing the sept
• 13:35
  Speaker 5: when he gave out this the the dot plot on
• 13:40
  Speaker 5: where members believe unemployment will be a year out, which
• 13:43
  Speaker 5: is exactly where it is now.
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  Speaker 2: He then came out and he said, there's no reason
• 13:46
  Speaker 2: to revisit the two percent inflation target.
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  Speaker 4: Great.
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  Speaker 1: Like that.
• 13:50
  Speaker 2: Again, this is exactly what you want to hear in
• 13:54
  Speaker 2: this first meeting. It's exactly what I said he should
• 13:57
  Speaker 2: say in this first meeting, which is, hey, we've got
• 13:59
  Speaker 2: to focus on price stability and we're not going to
• 14:01
  Speaker 2: touch the two percent inflation target.
• 14:03
  Speaker 4: It's great.
• 14:05
  Speaker 2: So I think those are the two point points that
• 14:08
  Speaker 2: I found strongest from him.
• 14:09
  Speaker 4: I gotta be honest, I.
• 14:10
  Speaker 5: Don't know that I interpreted his comments on the two
• 14:13
  Speaker 5: percent inflation target the same way you did.
• 14:15
  Speaker 4: So he was asked that question about the two percent inflation.
• 14:18
  Speaker 2: Target, It's direct quote was I see no reason to
• 14:20
  Speaker 2: visit the two percent inflation target.
• 14:22
  Speaker 4: He did say that.
• 14:23
  Speaker 5: He also said on the two percent inflation objective, that
• 14:27
  Speaker 5: is the Federal reserves long held objective of two percent,
• 14:30
  Speaker 5: You've heard me say that I tend to focus on
• 14:31
  Speaker 5: the left of the decimal point, well to the left
• 14:34
  Speaker 5: of the decimal pot, well the two is left of
• 14:36
  Speaker 5: the decimal point for now zero is to the right.
• 14:39
  Speaker 5: I see no reason until we have re established our
• 14:41
  Speaker 5: commitment and ability to deliver on the two percent.
• 14:45
  Speaker 4: To revisit that.
• 14:46
  Speaker 5: So I agree that he said we're not going to
• 14:49
  Speaker 5: but he did leave the door open very much so
• 14:51
  Speaker 5: to revisit in the future, which I found in line
• 14:54
  Speaker 5: with everything else that he said, which is we're leaving
• 14:57
  Speaker 5: the door open to change anything and everything. I interpreted
• 15:00
  Speaker 5: that differently, I guess, is my point.
• 15:02
  Speaker 2: So other things he said that that I liked. He said, Look,
• 15:05
  Speaker 2: we're getting rid of forward guidance, like we're not going
• 15:08
  Speaker 2: to tell you, like you know, exactly how we're going
• 15:10
  Speaker 2: to behave like we're not going to tell you exactly
• 15:13
  Speaker 2: what to expect. We're going to do away with that,
• 15:17
  Speaker 2: and that's not something that we want to do. We've
• 15:19
  Speaker 2: talked on the show. Look, I don't need eleven fed
• 15:22
  Speaker 2: speakers in.
• 15:23
  Speaker 4: A given week.
• 15:24
  Speaker 2: I don't need John Williams expounding upon like this and
• 15:29
  Speaker 2: that I don't need Neil Kashkari telling me everything about
• 15:33
  Speaker 2: it like it's it's fine, we don't.
• 15:35
  Speaker 5: Need that, agreed, But do you think that that's going
• 15:39
  Speaker 5: to prevent the FED governors from still giving those speeches
• 15:42
  Speaker 5: he's doing.
• 15:43
  Speaker 2: But like the Federal Open Market Committee can absolutely decide
• 15:47
  Speaker 2: when their members speak, like they certainly can. The reason
• 15:50
  Speaker 2: that we have so many FED speakers now is because
• 15:53
  Speaker 2: they send them out in order to communicate.
• 15:57
  Speaker 4: The place where I.
• 15:59
  Speaker 2: Think this but potentially runs into a little bit of
• 16:02
  Speaker 2: trouble is there is a balance between not giving forward
• 16:08
  Speaker 2: guidance and not understanding what the fed's reaction function is.
• 16:14
  Speaker 2: And when I say the word reaction function, it sounds
• 16:16
  Speaker 2: all complicated. It's basically saying, hey, do you understand how
• 16:20
  Speaker 2: they are going to react in different situations? And this
• 16:23
  Speaker 2: is the part that I think is just going to
• 16:25
  Speaker 2: take us some time and is also going to be
• 16:28
  Speaker 2: kind of the prove it period for Worsh. Quite honestly,
• 16:32
  Speaker 2: if Worsh is saying, stop listening to what I'm saying
• 16:35
  Speaker 2: and start looking at what I'm doing, then they're going
• 16:38
  Speaker 2: to have to prove that they can execute competently.
• 16:41
  Speaker 5: And here's my my further problem with that. So he's saying,
• 16:46
  Speaker 5: stop paying attention to what we're saying. At the same time,
• 16:49
  Speaker 5: he laid out a pretty long laundry list of items
• 16:53
  Speaker 5: that they want to change, the they want to explore
• 16:56
  Speaker 5: changing the way in which they do things. This is
• 16:58
  Speaker 5: when we got into the well I'm doing a task
• 17:00
  Speaker 5: force on this and that exactly, and so the I
• 17:03
  Speaker 5: think there leaves the potential for misinterpretation if you are
• 17:07
  Speaker 5: simultaneously telling the public, we're not going to tell you anything.
• 17:11
  Speaker 5: I know I'm exaggerating, and at the same time telling
• 17:14
  Speaker 5: the general public we're going to form a bunch of
• 17:17
  Speaker 5: committees to potentially change how we do things, including the
• 17:20
  Speaker 5: communication style. I at the same time that inflation has
• 17:25
  Speaker 5: been the number one issue on voters' minds for the
• 17:28
  Speaker 5: last five years. I think you have the potential for
• 17:32
  Speaker 5: some mismatched expectations. It's not set in stone, but I
• 17:36
  Speaker 5: think there's a potential for confusion here.
• 17:37
  Speaker 2: Which I don't think is necessarily bad. But here here's
• 17:41
  Speaker 2: what I do think your expectation has to be for
• 17:45
  Speaker 2: the foreseeable future, call it next six to twelve months.
• 17:48
  Speaker 2: I think you need to expect more volatility in rates
• 17:51
  Speaker 2: markets than you did previously because they're going to have
• 17:55
  Speaker 2: to figure this stuff out more on their own and
• 17:58
  Speaker 2: sort through what the new FED framework actually looks like
• 18:03
  Speaker 2: without Warsh directly telling them. I think that can end
• 18:07
  Speaker 2: either well or badly, depending how the Worsh FED actually
• 18:11
  Speaker 2: ends up conducting monetary policy. And so this is here's
• 18:15
  Speaker 2: the big thing. Worsh is very clearly saying, I am
• 18:20
  Speaker 2: and look there's.
• 18:22
  Speaker 4: A quote that he had.
• 18:23
  Speaker 2: Financial market prices are probably the most important source of
• 18:26
  Speaker 2: information to guide central bankers. But when they are just
• 18:29
  Speaker 2: reflecting back what we said, then we're blind to what's
• 18:32
  Speaker 2: actually happening. And this gets it, you know, Worsh's central
• 18:36
  Speaker 2: belief in my opinion, which is, hey, the markets will
• 18:40
  Speaker 2: tell us what we need to do, but we need
• 18:42
  Speaker 2: to let them operate as markets.
• 18:45
  Speaker 4: Which, by the way, would be a huge.
• 18:46
  Speaker 2: Departure from how the FED has operated for the last
• 18:49
  Speaker 2: twenty years, and by the way, a huge departure from
• 18:55
  Speaker 2: how the Trump administration has handled financial markets for the
• 18:58
  Speaker 2: last year and a half as well. It's been more
• 19:00
  Speaker 2: of a handholding process there. So I think we need
• 19:04
  Speaker 2: to see how this plays out. It can play out
• 19:08
  Speaker 2: very well over the next year if the FED can
• 19:11
  Speaker 2: actually go and execute competent policy in the face of
• 19:14
  Speaker 2: whatever it is they see. If the market judges, hey,
• 19:18
  Speaker 2: your policy is not reflecting what we believe to be appropriate.
• 19:23
  Speaker 2: Then it can end quite poorly, and the market can
• 19:25
  Speaker 2: end up forcing their hand in a direction that they
• 19:27
  Speaker 2: otherwise wouldn't.
• 19:28
  Speaker 4: Have needed to go in. Take a quick break.
• 19:31
  Speaker 2: We'll wrap this discussion up, and we've got Wall Street
• 19:34
  Speaker 2: Watch when we return.
• 19:39
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:42
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:47
  Speaker 1: on the Financial Exchange Radio Network. Time now full Wall
• 19:52
  Speaker 1: Street Watch tracking the stocks, the dato, and the headlines
• 19:55
  Speaker 1: driving markets so far today right here on the Financial
• 19:58
  Speaker 1: Exchange Radio Network.
• 20:00
  Speaker 7: Markets well into the green after President Trump signed the
• 20:03
  Speaker 7: interim peace deal between the US and Iran, sending oil
• 20:06
  Speaker 7: prices lower, investors also reacting to the first FED meeting
• 20:11
  Speaker 7: under new chairman Kevin Walsh. Right now, the Dow is
• 20:14
  Speaker 7: up over four tenths of a percent, SMB five hundred
• 20:17
  Speaker 7: up over eight tenths of a percent. NASDAK now up
• 20:21
  Speaker 7: one point one percent or two hundred and eighty seven
• 20:24
  Speaker 7: points higher. RUSS two thousands is up about three quarters
• 20:28
  Speaker 7: of a percent. Tenure Treasur Reel down three basis points
• 20:31
  Speaker 7: at four point four to three percent, and Oiled down
• 20:35
  Speaker 7: over three and a half percent lower trading right around
• 20:38
  Speaker 7: seventy three dollars a barrel. Apple CEO Tim Cook told
• 20:43
  Speaker 7: the Wall Street Journal the tech giant plans to raise
• 20:45
  Speaker 7: prices on its products to offset the surgeon costs of
• 20:49
  Speaker 7: memory in storage chips. However, Cook declined to offer details
• 20:52
  Speaker 7: on the timing or scale of the planned increases, nor
• 20:56
  Speaker 7: which products would be affected. Apple's next major product launch
• 21:00
  Speaker 7: is likely in September, when it releases its iPhone eighteen lineup.
• 21:04
  Speaker 6: Apple up by one percent.
• 21:07
  Speaker 7: Speaking of Apple, Intel shares are jumping six percent after
• 21:10
  Speaker 7: President Trump said the chip maker agreed to a deal
• 21:13
  Speaker 7: with Apple to design and build chips in the US. Meanwhile,
• 21:17
  Speaker 7: SpaceX shares are following another six percent today after tapping
• 21:20
  Speaker 7: the brakes on its IPO rally yesterday, where it dropped
• 21:24
  Speaker 7: five percent. In gun maker Smith and Wesson rallying over
• 21:28
  Speaker 7: nineteen percent after the company posted a twenty seven percent
• 21:31
  Speaker 7: jump in revenue in the previous quarter.
• 21:35
  Speaker 6: I'm Tucker Silva, and that is Wall Street Watch.
• 21:38
  Speaker 2: Mike, anything else that we want to clean up. As
• 21:41
  Speaker 2: it relates to the Fed, yesterday.
• 21:45
  Speaker 4: Expectations for a rate hike are up.
• 21:48
  Speaker 5: They've moved up across the federal Reserve voting members as
• 21:51
  Speaker 5: well as you know, those who follow markets. That is
• 21:56
  Speaker 5: a departure from where we were at the beginning of
• 21:59
  Speaker 5: this year's departure from where we were even a week ago.
• 22:01
  Speaker 5: The odds of a RAI hike at the next meeting
• 22:03
  Speaker 5: are now thirty percent compared to under ten percent two
• 22:06
  Speaker 5: days ago. So I think that's the main takeaway here.
• 22:09
  Speaker 5: As we talked about, you know, structurally, a lot of
• 22:11
  Speaker 5: execution risk, and you know, the leadership change at the
• 22:15
  Speaker 5: Federal Reserve seems to be pushing for more change at
• 22:20
  Speaker 5: the FED than we have seen since the Bernanky days.
• 22:23
  Speaker 5: I think I'm some I think I'm comfortable summarizing it
• 22:26
  Speaker 5: that way that you know, Bernanki changed the FED permanently
• 22:30
  Speaker 5: in terms of its willingness to take action because of
• 22:33
  Speaker 5: the place they were put in during the financial crisis.
• 22:36
  Speaker 5: I haven't seen much in the way of substantial change
• 22:38
  Speaker 5: there since then. And now you are getting a strong
• 22:42
  Speaker 5: push for substantial change or at least an openness to
• 22:46
  Speaker 5: change in terms of how the FED does things.
• 22:48
  Speaker 4: And that could go well, it could go poorly. It
• 22:50
  Speaker 4: kind of depends on execution.
• 22:51
  Speaker 2: Yeah, we don't know how they're going to do like Yep.
• 22:54
  Speaker 2: Change can go one of three ways. You could It
• 22:58
  Speaker 2: could go very badly.
• 22:59
  Speaker 4: You know.
• 22:59
  Speaker 2: You could say, okay, like we set up to do
• 23:02
  Speaker 2: X and we did not. In fact, we made the
• 23:03
  Speaker 2: situation worse.
• 23:04
  Speaker 4: Yep.
• 23:05
  Speaker 2: You could have it be no change at all. Yep,
• 23:08
  Speaker 2: we set out to do X. We did that, but
• 23:09
  Speaker 2: it didn't actually affect the job that we did. Okay,
• 23:12
  Speaker 2: we gave it a good try. It didn't help or hurt. Fine,
• 23:16
  Speaker 2: or your third option is yep, we set out to
• 23:17
  Speaker 2: do X, and we did exactly that, and now it
• 23:19
  Speaker 2: works better.
• 23:20
  Speaker 5: What's interesting to me is, you know, historically, big change
• 23:24
  Speaker 5: the FED has come during times of crisis. Two thousand
• 23:26
  Speaker 5: and eight, the FED dramatically expands its responsibility. Vulker in
• 23:32
  Speaker 5: late seventies, early eighties, you know, hikes interest rates to
• 23:35
  Speaker 5: levels that we've never seen before. Why because he was
• 23:38
  Speaker 5: trying to stamp out some of the worst decade of
• 23:40
  Speaker 5: inflation that we've ever seen, and to a lesser extent,
• 23:43
  Speaker 5: Powell dramatically, you know, reshaped what the FED was willing
• 23:47
  Speaker 5: to do during COVID were again they're not turning on
• 23:51
  Speaker 5: a dime here and not making decisions under pressure, but
• 23:55
  Speaker 5: we are talking about some massive changes that the new
• 23:58
  Speaker 5: leadership wants to make to the FED. Doesn't seem to
• 24:00
  Speaker 5: be coming at a time of economic crisis.
• 24:05
  Speaker 2: Not coming at a time of economic crisis. But here's
• 24:09
  Speaker 2: what I will say is if you take a look
• 24:12
  Speaker 2: at the chart of let's look at core PCE inflation,
• 24:17
  Speaker 2: because that's that's what the FED looks at, is the.
• 24:20
  Speaker 4: Core PCE price index.
• 24:22
  Speaker 2: And you pull this chart up and you look at
• 24:26
  Speaker 2: it over the long term, and obviously you went through
• 24:29
  Speaker 2: you know, the inflation of thank you, Mark.
• 24:32
  Speaker 4: I don't know why he just chimed in every time
• 24:35
  Speaker 4: he charted up. Okay ooh.
• 24:40
  Speaker 2: In any case, like we've talked about how the nineteen
• 24:41
  Speaker 2: nineties were a perfectly good decade for the economy despite
• 24:46
  Speaker 2: not averaging two percent inflation. But the interesting thing is
• 24:49
  Speaker 2: if you look at core PCE, core PCE actually spent
• 24:53
  Speaker 2: the entirety from April of ninety seven through two thousand
• 24:58
  Speaker 2: through January two under two percent core PCE and that
• 25:04
  Speaker 2: was again, like objectively probably one of the best like
• 25:07
  Speaker 2: two maybe three economies of our lifetime, agreed. You then
• 25:11
  Speaker 2: take a look at the two thousands and core PCE
• 25:17
  Speaker 2: generally stayed under two percent for most of the first
• 25:20
  Speaker 2: half of the two thousands, not saying it was a
• 25:22
  Speaker 2: good economy, but it stayed under there, and then it
• 25:24
  Speaker 2: you know, went up above in the latter part of
• 25:26
  Speaker 2: the decade. For the twenty tens, core pc was below
• 25:30
  Speaker 2: two percent for the entire time, which is why the
• 25:32
  Speaker 2: Fed adopted this, uh, you know approach to okay, we
• 25:36
  Speaker 2: need to target an average of two percent because they
• 25:37
  Speaker 2: thought inflation actually had been too low in the twenty tens.
• 25:41
  Speaker 2: Isn't that kind of a quaint idea? Now Here's the
• 25:44
  Speaker 2: problem that we have today is inflation specifically, core PCE
• 25:50
  Speaker 2: has not been below two percent since March of twenty
• 25:53
  Speaker 2: twenty one, not once, right, not once, So we're talking
• 25:57
  Speaker 2: five and a quarter years now that it's been above.
• 26:00
  Speaker 2: And the other problem that we're seeing core PCE bottomed
• 26:04
  Speaker 2: in April of twenty five at two point sixty one percent,
• 26:08
  Speaker 2: and it's been ratcheting up ever since. Okay, it's a
• 26:11
  Speaker 2: three point twenty nine right now. And the big reason
• 26:14
  Speaker 2: why core matters, Remember it strips.
• 26:16
  Speaker 4: Out food and fuel.
• 26:17
  Speaker 2: The idea is that, hey, those things can go up
• 26:19
  Speaker 2: and down see the last three months, but core gives
• 26:23
  Speaker 2: you a better sense of the underlying inflation that tends
• 26:26
  Speaker 2: to be more predictive of where inflation is going to
• 26:29
  Speaker 2: be in the future. And we talked about this last year,
• 26:32
  Speaker 2: when you know, headline inflation data was showing, you know,
• 26:36
  Speaker 2: things were better, it was Hey, headline PCE is down,
• 26:39
  Speaker 2: you know, right around like two and a quarter percent,
• 26:42
  Speaker 2: But that was because oil prices were falling. And we said,
• 26:44
  Speaker 2: if they, you know, rise, like, you've got a problem
• 26:47
  Speaker 2: then because of where core is. And so here's the
• 26:51
  Speaker 2: issue that the warsh FED is is dealing with core PCE.
• 26:56
  Speaker 2: It's it's not like the war in Iran started and
• 27:00
  Speaker 2: piece of E started moving up. No, Core Piece of
• 27:02
  Speaker 2: East started moving up in April of last year and
• 27:06
  Speaker 2: has moved in an uninterrupted fashion on an upward trend. Like, yes,
• 27:10
  Speaker 2: there were like a couple months where you know, it
• 27:12
  Speaker 2: tapered off a little, but like you can look at
• 27:14
  Speaker 2: the chart and you can see the trend line, it's unmistakable.
• 27:18
  Speaker 2: It's moving up and to the right, which is not
• 27:20
  Speaker 2: how you want inflation to move. And so the question
• 27:26
  Speaker 2: that this this FED is now faced with is hey,
• 27:30
  Speaker 2: based on the data that we have out there, which
• 27:33
  Speaker 2: is like, look at the totality of the US economy.
• 27:36
  Speaker 2: The labor market still slow, like we're still not seeing
• 27:40
  Speaker 2: a ton of turnover, but balanced, but balanced and actually improving.
• 27:45
  Speaker 2: The housing market still slow, but again you talk about
• 27:49
  Speaker 2: the places that drive it Florida, Georgia, Texas, like the
• 27:53
  Speaker 2: southern part of the country. Those markets are recovering and accelerating. Now.
• 27:57
  Speaker 4: Yeah, and so long as we're talking about the FED.
• 28:00
  Speaker 5: New FED chair believes that the policy currently is modestly
• 28:03
  Speaker 5: restrictive in the housing market.
• 28:05
  Speaker 2: Yes, it's kind of tough for me to look at
• 28:08
  Speaker 2: in like core inflation at three and a third percent
• 28:12
  Speaker 2: and the labor market and housing market improving and say, yeah,
• 28:18
  Speaker 2: inflation is going to be like just fine later this year.
• 28:22
  Speaker 2: It's true, like it's not going to show up in
• 28:24
  Speaker 2: headline because that food, yeah, I'm sorry, that fuel you know,
• 28:27
  Speaker 2: jump is going to you know, reverse itself at least
• 28:30
  Speaker 2: if this this move and oil price is holds. But
• 28:33
  Speaker 2: that just means people have more money to spend on
• 28:35
  Speaker 2: the other stuff, which is again like in core, and
• 28:39
  Speaker 2: that means that you're going to see more pricing pressure there,
• 28:42
  Speaker 2: especially because then we get to our next piece, which
• 28:46
  Speaker 2: is about Apple.
• 28:49
  Speaker 4: This is a Wall Street Journal exclusive.
• 28:51
  Speaker 2: I don't know why it's well, I guess Tim Cook
• 28:54
  Speaker 2: said this directly to the Wall Street Journal. That's why
• 28:56
  Speaker 2: it's an exclusive quote. Unfortunately, price increases are avoidable. We're
• 29:00
  Speaker 2: doing our best to midicate the huge increases that are
• 29:02
  Speaker 2: being passed to us, and we've been trying to shield
• 29:04
  Speaker 2: our customers from the increases. But the situation has become unsustainable.
• 29:09
  Speaker 2: So Tim Cook taking one for the team, because remember
• 29:12
  Speaker 2: Cook's on his way out, he's retiring. I still don't
• 29:15
  Speaker 2: know what the name of the new John turnis. That's
• 29:17
  Speaker 2: his name, So he's taking one for John Turnis, so
• 29:21
  Speaker 2: turnus doesn't have to be the bearer of bad news
• 29:23
  Speaker 2: on this. But the same problem that is pushing up
• 29:26
  Speaker 2: memory chip prices for you know, AI companies and everyone
• 29:30
  Speaker 2: else in the computer space. Apple's not immune to it
• 29:33
  Speaker 2: just because they're Apple. They still are dealing with having
• 29:36
  Speaker 2: to outcompete other people for the orders for chips as well.
• 29:40
  Speaker 2: And so Apple, you know, you look at some of
• 29:43
  Speaker 2: the projections here. The Wall Street Journal did a projection
• 29:47
  Speaker 2: on this. In order for Apple to maintain profit margins,
• 29:49
  Speaker 2: they probably got to raise iPhone prices by somewhere around
• 29:52
  Speaker 2: seventeen to eighteen percent.
• 29:54
  Speaker 5: Two hundred and seventy dollars additional cost to the iPhone
• 29:57
  Speaker 5: pro model would maintain their margins, according to tech Insights.
• 30:01
  Speaker 2: So again, this is inflation that is very much not
• 30:05
  Speaker 2: food and fuel related, and it's not measured yet. It's
• 30:09
  Speaker 2: in fact related to the very thing that's causing growth
• 30:12
  Speaker 2: in the US. And so this is the piece that
• 30:15
  Speaker 2: we talk about when we talk about the dangers of
• 30:17
  Speaker 2: running an economy too hot, is if you produce too
• 30:20
  Speaker 2: much demand for the level of supply that's out there,
• 30:25
  Speaker 2: you can run.
• 30:26
  Speaker 4: Into this kind of stuff.
• 30:27
  Speaker 5: I'll I'll also point out that a key area of
• 30:30
  Speaker 5: disinflation for the last three decades has come from stuff
• 30:35
  Speaker 5: like the iPhone. Yes, it's come from television's computers, products
• 30:38
  Speaker 5: that have gotten better at doing what they do while
• 30:42
  Speaker 5: also becoming cheaper. If that reverses itself, you know, a
• 30:48
  Speaker 5: year ago, I thought it would have reversed itself due
• 30:50
  Speaker 5: to tariffs. Now we're talking about reversing itself from something
• 30:53
  Speaker 5: else entirely, but in either organic demand. But yeah, if
• 30:56
  Speaker 5: it reverses itself, you really have to see some from
• 31:00
  Speaker 5: somewhere else in the basket of goods, and I don't
• 31:03
  Speaker 5: I plainly just don't see where you get that.
• 31:05
  Speaker 2: So this is gonna be the interesting mix that we
• 31:07
  Speaker 2: need to sort through in the second half of the year,
• 31:10
  Speaker 2: and markets are gonna be watching, Hey, what does this
• 31:13
  Speaker 2: FED do and are they actually going to respond the
• 31:17
  Speaker 2: way that Warsh indicated, because here's where the credibility of
• 31:21
  Speaker 2: the Fed's going to be put to the test. Worsh
• 31:24
  Speaker 2: in no uncertain terms yesterday said we will deliver price stability.
• 31:32
  Speaker 2: Like his quote was simple, This committee will deliver price stability.
• 31:37
  Speaker 2: I put it in bold in my notes because well
• 31:40
  Speaker 2: it's like he said it like four times in the
• 31:43
  Speaker 2: first five minutes. So the question is going to be
• 31:47
  Speaker 2: if you are faced with core PCE inflation rising to
• 31:54
  Speaker 2: basically in line with the FED funds rate, FED funds is,
• 31:57
  Speaker 2: you know, three and a half to three and a
• 31:58
  Speaker 2: quarter percent right now. All you need is another point
• 32:01
  Speaker 2: two percent on core PCE and you're there. If you're
• 32:04
  Speaker 2: faced with that and you still say no, we're not
• 32:08
  Speaker 2: gonna do anything.
• 32:09
  Speaker 4: You lose all credibility.
• 32:10
  Speaker 2: Then you've got a credibility problem because you told us
• 32:12
  Speaker 2: to judge you by your actions, not your words, and
• 32:15
  Speaker 2: so you lose the credibility problem. If you don't see
• 32:18
  Speaker 2: core PCE move up and said it moves down, they're
• 32:21
  Speaker 2: not gonna be faced with that. And if it moves
• 32:23
  Speaker 2: up and they decide to raise rates, then they have credibility.
• 32:27
  Speaker 2: But this is gonna be what we watch over the
• 32:29
  Speaker 2: next six to twelve months, and we'll see how good
• 32:31
  Speaker 2: of a job the worst fed actually does. It could
• 32:33
  Speaker 2: be good, it could be bad, it could be anywhere
• 32:35
  Speaker 2: in between. Keep an open mind on these things. We
• 32:38
  Speaker 2: say this all the time. Consider all of the possibilities
• 32:41
  Speaker 2: and then you won't be surprised by what happens, and
• 32:45
  Speaker 2: you can adapt your view as you get more information.
• 32:48
  Speaker 2: Let's take a quick break. When we return, Let's see
• 32:52
  Speaker 2: we talked about Apple. Let's talk about Intel because they
• 32:56
  Speaker 2: have some Apple.
• 32:57
  Speaker 4: News as well.
• 32:58
  Speaker 2: Maybe and we'll discuss that now.
• 33:01
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• 33:04
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• 33:07
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• 33:10
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• 33:17
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• 33:21
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• 34:04
  Speaker 2: Let's see Bloomberg piece here. Intel sores after Trump says
• 34:07
  Speaker 2: it struck Apple Chip deal. So uh interesting in that
• 34:15
  Speaker 2: we're now getting deals announced by the president rather than
• 34:18
  Speaker 2: by the.
• 34:18
  Speaker 4: Companies one of the largest shareholders.
• 34:20
  Speaker 2: Which again this is if if you are trying to
• 34:23
  Speaker 2: build a competitor Intel, you can't like you have like
• 34:31
  Speaker 2: the the executive branch is saying no, like this is
• 34:34
  Speaker 2: the horse that we're running with. And look, I've said
• 34:39
  Speaker 2: for a while, I want Intel to be able to
• 34:41
  Speaker 2: be a viable competitor in the field. Uh, certainly being
• 34:46
  Speaker 2: able to you know, expand additional partnerships and then deliver
• 34:49
  Speaker 2: on those partnerships. Is fantastic if they're able to do so.
• 34:53
  Speaker 2: But one of the problems that we have in a
• 34:56
  Speaker 2: number of industries is that you already have kind of
• 34:58
  Speaker 2: this idea of you know, these national champion companies where
• 35:01
  Speaker 2: they're not owned by the US government, but they've become
• 35:03
  Speaker 2: so consolidated in their field that you don't really have
• 35:06
  Speaker 2: any viable competition anyways. This is just moving further in
• 35:10
  Speaker 2: that fashion here, and I don't know that it's great
• 35:15
  Speaker 2: for you know, long term sustainability or Hey, what happens
• 35:20
  Speaker 2: if Intel can't deliver on their promises is they haven't
• 35:23
  Speaker 2: been able to for the last you know, decade or so.
• 35:26
  Speaker 2: Now you've put all this money into a company that
• 35:28
  Speaker 2: hasn't been able to deliver, and there all are no
• 35:32
  Speaker 2: alternatives because no one wants to fight against the company
• 35:35
  Speaker 2: backed by the US government.
• 35:37
  Speaker 5: Yeah, I don't know, I believe as of the announcements,
• 35:41
  Speaker 5: neither Intel nor Apple confirmed the deal. I don't know
• 35:43
  Speaker 5: if they have since then, so you know, still some
• 35:46
  Speaker 5: open questions there. But I mean, broadly speaking, what I'll
• 35:48
  Speaker 5: say is that when the when the state decides who
• 35:51
  Speaker 5: the winners and losers are, we all lose. Like, that's
• 35:56
  Speaker 5: not how you want this to work. And to your points,
• 36:00
  Speaker 5: we see it with all sorts of companies globally, Like
• 36:03
  Speaker 5: you can look at communists Russia for examples of this.
• 36:07
  Speaker 4: You can look at companies like Boeing.
• 36:09
  Speaker 5: Does anybody look at Boeing over the course the path
• 36:12
  Speaker 5: that they have taken over the last thirty years and say,
• 36:15
  Speaker 5: what a beaming success, what a success story of American industry. No,
• 36:21
  Speaker 5: they were the best at what they did in the
• 36:22
  Speaker 5: world thirty years ago and then failed to innovate, played
• 36:28
  Speaker 5: by corruption, and led to some of the worst disasters
• 36:31
  Speaker 5: what we've seen in flight history over the course of
• 36:35
  Speaker 5: the last decade.
• 36:36
  Speaker 4: Like, I.
• 36:38
  Speaker 5: Am vastly uncomfortable with the idea that the US federal
• 36:42
  Speaker 5: government is now in the business of picking winners and losers.
• 36:45
  Speaker 2: And look, those of you listening might say, hey, it's fine,
• 36:50
  Speaker 2: like I trust the president to make these deals. That's okay,
• 36:53
  Speaker 2: But the president's not always going to be the president.
• 36:56
  Speaker 2: So I say the same thing that I always say,
• 36:58
  Speaker 2: Imagine the least qualified politician that you can think of,
• 37:03
  Speaker 2: and now imagine them sitting in the White House four years,
• 37:07
  Speaker 2: eight years, twelve years. However, many years out from now,
• 37:11
  Speaker 2: imagine that person in the White House. Do you want
• 37:14
  Speaker 2: them to have the power to, you know, facilitate deals
• 37:19
  Speaker 2: where the US government is taking ownership and starting to
• 37:23
  Speaker 2: direct how companies operate.
• 37:25
  Speaker 5: Because, by the way, they now have that right, Congress
• 37:28
  Speaker 5: didn't authorize this money.
• 37:29
  Speaker 2: So that's that's how I always look at it, is like,
• 37:32
  Speaker 2: think about the least qualified person in any position, and
• 37:35
  Speaker 2: then you build that position based around the controls that
• 37:37
  Speaker 2: you would want to impose on them from doing things.
• 37:41
  Speaker 4: Am I wrong about that?
• 37:41
  Speaker 5: By the way, did Congress authorize the spending on Intel shares?
• 37:45
  Speaker 4: I don't know. I don't know offhand.
• 37:48
  Speaker 2: So in any case, this is where we are on this.
• 37:51
  Speaker 2: We'll see where I would imagine that.
• 37:54
  Speaker 5: So they reallocated money that was set aside as grants
• 37:58
  Speaker 5: under the Chips Act to take an pretty stake in Intel.
• 38:03
  Speaker 4: So so there you go, there you go.
• 38:04
  Speaker 2: So in any case, we'll see I'm I'm not sure,
• 38:08
  Speaker 2: but again we'll see what kind of you know, deal
• 38:10
  Speaker 2: actually comes to fruition between Apple and Intel. Here and
• 38:13
  Speaker 2: let's take a quick break and when we return we
• 38:16
  Speaker 2: got our two coming up