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Why is Wall Street a fan of Trump's pick for Treasury Secretary · The Financial Exchange Show

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  Speaker 2: Chuck, MIKEA. H. Tucker with you.
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  Speaker 3: We got a short week this week, so we'll get
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  Speaker 3: right to it. Because Thanksgivings. On Thursday, Friday afternoon, a
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  Speaker 3: little after five pm, we had a new Treasury secretary
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  Speaker 3: nominated by the incoming Trump administration. And so Scott Bessant
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  Speaker 3: is going to be the new Treasury Secretary.
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  Speaker 2: Barring something strange stuff happening.
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  Speaker 3: This should be a pretty big nothing burger as far
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  Speaker 3: as a confirmation. It should proceed quickly and pretty enthusiastically
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  Speaker 3: from my perspective, simply because Besst is someone who is
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  Speaker 3: eminently qualified for the position, might be the overall most
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  Speaker 3: talented person in the position in probably a couple of decades,
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  Speaker 3: quite honestly, and I think also now gives us a
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  Speaker 3: clearer roadmap for what to expect as far as the
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  Speaker 3: Trump administration's approach to managing the nation's finances going forward.
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  Speaker 2: Yeah, markets jumping on the news, and so let's dive in.
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  Speaker 2: Why would markets be excited about this pick other than
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  Speaker 2: the fact that he is a Wall Street native.
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  Speaker 3: If you will well, let's let's talk about who you
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  Speaker 3: know Scott bessont Is, because I think there's actually exactly
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  Speaker 3: a household name. No, I'm guessing that ninety percent of Americans,
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  Speaker 3: not ninety I'm guessing ninety nine point nine to nine
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  Speaker 3: percent of Americans have never heard of him or had
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  Speaker 3: never heard of him before last Friday. Even as of today.
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  Speaker 3: I bet somewhere around ninety percent of Americans haven't because
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  Speaker 3: how many Americans really pay attention to who the Treasury
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  Speaker 3: Secretary is? Not like, not that many. But here's the deal.
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  Speaker 3: So best born and raised in South Carolina and basically
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  Speaker 3: decided in college after.
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  Speaker 2: He went to Yale.
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  Speaker 3: So he's a Yale which makes me a little bit
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  Speaker 3: pretty supposed, you know, to not like him, but he's
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  Speaker 3: but he's a really smart dude, so it's fine.
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  Speaker 2: But he wanted to.
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  Speaker 3: Be the editor in chief of the whatever the Yale
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  Speaker 3: paper was and basically didn't get it, and as a result,
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  Speaker 3: decided to get into investing instead. I think he just
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  Speaker 3: needed a job and that's where he went. So he
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  Speaker 3: ended up working for some really.
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  Speaker 2: Really smart people.
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  Speaker 3: Jim Channos, who ran a big short selling fund in
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  Speaker 3: the nineties, George Soros, who's the CIO at Soros when
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  Speaker 3: they broke the Bank of England and basically made a
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  Speaker 3: billion dollars overnight.
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  Speaker 2: First job was at Brown Brothers Harriman household name.
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  Speaker 3: Like, the guy has made like been really involved in
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  Speaker 3: a number of different areas, been in particular, knows foreign
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  Speaker 3: exchange really well and just understands the overall global macro picture.
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  Speaker 1: Well.
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  Speaker 3: Like, that's that's the big thing that I think I
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  Speaker 3: take away from him. And in terms of you know,
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  Speaker 3: what does this pick mean? I think just reading some
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  Speaker 3: different quotes here from Besson, I think helps to inform
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  Speaker 3: how I'm personally thinking about what he wants to do
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  Speaker 3: and how that potentially dovetails with his role in the
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  Speaker 3: second Trump administration. A couple quotes I'm just gonna quote
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  Speaker 3: from him, Why did I come out from behind my desk?
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  Speaker 1: Now?
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  Speaker 3: If you twenty twenty four as our last chance to
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  Speaker 3: grow our way out of this problem. These are all
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  Speaker 3: separate quotes, but I'm just gonna put them together. I
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  Speaker 3: feel strongly that we're in the midst of a great realignment,
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  Speaker 3: a Breton Woods type realignment in global policy and global trade,
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  Speaker 3: and I'd like to be part of it, part of it.
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  Speaker 3: If you remember, Bretton Woods was the system for FX
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  Speaker 3: management after World War Two until it broke down in
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  Speaker 3: the early nineteen seventies. If you go to by the way,
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  Speaker 3: the Mount Washington resort up at Breton Woods, they actually
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  Speaker 3: have a room there called the Gold Room, which is
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  Speaker 3: where that was hashed out. I've been there and I'm
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  Speaker 3: the only person who's ever taken pictures of the plaques
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  Speaker 3: in that room, because it's a lot of people like, oh,
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  Speaker 3: like we got to Breton was to ski. I'm like, no,
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  Speaker 3: I want to see where the negotiated monetary policy and FX.
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  Speaker 2: That was. Like when I was taking pictures of the
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  Speaker 2: Atlanta Federal Reserve building, I think I was in Yeah,
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  Speaker 2: everyone else little company.
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  Speaker 3: Everyone was like, oh, like Millennium Park, the Olympics were here,
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  Speaker 3: Like no, this is where the FED is.
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  Speaker 1: Ye.
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  Speaker 3: Other quotes from him, anyone with an economics degree will
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  Speaker 3: tell you that our trade deficit also comes from our
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  Speaker 3: budget deficit, and our currency can file these way. And
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  Speaker 3: finally kind of the piece there is his stalls. Another
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  Speaker 3: differentiated view that we have. This is from his hedge
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  Speaker 3: fund key Square from about a year ago. Another differentiated
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  Speaker 3: view that we have is that Trump will pursue where
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  Speaker 3: a week dollar policy rather than implementing tariffs. Tariffs are
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  Speaker 3: inflationary and would strengthen the dollar hardly a good starting
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  Speaker 3: point for a US industrial renaissance. Weakening the dollar early
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  Speaker 3: in his second administration would make US manufacturing competitive. A
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  Speaker 3: week dollar and plentiful cheap energy could power boom the
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  Speaker 3: current Wall Street consensus for a strong dollar based on
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  Speaker 3: the tariffs, we disagree with that a strong dollar should
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  Speaker 3: emerge by the end of his term if the US
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  Speaker 3: reshoring effort is successful. And this is I think encapsulating
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  Speaker 3: everything here, which is not discounting tariffs entirely. But if
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  Speaker 3: you look at the first year of the first Trump presidency,
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  Speaker 3: one of the big things that we saw was a
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  Speaker 3: weeker dollar actually, and a weeker dollar if you think
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  Speaker 3: about how it potentially helps US manufacturing, it's through a
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  Speaker 3: very simple idea, which is, hey, if it becomes cheaper
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  Speaker 3: for other people to buy US manufactured goods, they will
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  Speaker 3: do so. They may do that even if you're not
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  Speaker 3: incentivizing them with the stick of tariffs, which you may
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  Speaker 3: end up with both. So where I end up with
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  Speaker 3: on all of this is Beston is going to try
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  Speaker 3: to manage foreign exchange from Treasury in order to try
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  Speaker 3: to give US manufacturing and US production an advantage.
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  Speaker 2: It also appears to me that he sets up as
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  Speaker 2: a direct contradiction, if you will, to Robert Lightthheiser and
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  Speaker 2: trade policy that you've seen from I know you met him.
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  Speaker 3: No, no, because Bestn't also hang on, let me pull
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  Speaker 3: up this piece here, give me one second, just because
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  Speaker 3: I saw it over the weekend and I need to
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  Speaker 3: pull it up because there's another informative quote on that
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  Speaker 3: side of things, and.
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  Speaker 2: I know, Tucker, thank you. I'm working on it.
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  Speaker 3: Man, you're really aggressive today, like you didn't even give
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  Speaker 3: me a chance to work on it.
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  Speaker 2: Here, let's see. You can summarize the quote if you'd
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  Speaker 2: like to chock.
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  Speaker 3: No, I need to give the exact quote because it
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  Speaker 3: matters where the heck is here we go. It's actually
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  Speaker 3: from ten days ago. It's Scott best It's an opinion
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  Speaker 3: piece from him on Fox News. So I think this
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  Speaker 3: is also something where the venue matters, because this is
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  Speaker 3: Bestn't trying to send a message to Trump and Trump
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  Speaker 3: supporters because publishing it on Fox News. Yes, the headline,
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  Speaker 3: let's talk tariffs. It's time to revitalize Alexander Hamilton's favorite tool.
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  Speaker 3: I'm just gonna read the starting point. For months, economic
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  Speaker 3: commentators parrot to the Harris campaign's misleading talk talking point
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  Speaker 3: the tariffs are a sales tax. Like much of economists
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  Speaker 3: conventional wisdom, this view is fundamentally incorrect. The truth is
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  Speaker 3: that tariffs have a long and storied history as both
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  Speaker 3: a revenue raising tool and a way of protecting strategically
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  Speaker 3: important US industries. President elect Donald Trump has added a
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  Speaker 3: third leg to the stool, tariff's as a negotiating tool
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  Speaker 3: with our trading partners. It goes on to basically say, hey,
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  Speaker 3: these aren't something that we should entirely shy away from,
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  Speaker 3: and they do have a place.
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  Speaker 2: But I mean, correct me if I'm wrong. Robert Leitthheiser's
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  Speaker 2: view on tariff's sounds a little bit different than that
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  Speaker 2: to me, because I don't think he views them as
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  Speaker 2: a tool to get people to the negotiating table.
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  Speaker 3: To you, well, so I've listened to the Lightheuser's entire
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  Speaker 3: book on tape. Yep, that's how I Reading books is
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  Speaker 3: hard when you have two kids under the age of five.
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  Speaker 3: So instead you just listen to long words and they
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  Speaker 3: don't really know what you're listening to, and they.
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  Speaker 2: Get to do their thing.
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  Speaker 3: But I think you're going to see kind of a
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  Speaker 3: hybrid of these two policies, which is I would be
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  Speaker 3: absolutely shocked at this point, this point if the Trump
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  Speaker 3: administration did not pursue some kind of wide ranging tariff
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  Speaker 3: implementation early on in his first term. I would also
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  Speaker 3: be shocked if it was a blanket. Hey, we're gonna
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  Speaker 3: just ratchet these upright away and call it a day.
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  Speaker 3: I think the place that we're heading is okay. On China,
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  Speaker 3: we are going to raise tariffs by five percent every
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  Speaker 3: month for the first year, and that gets us to
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  Speaker 3: sixty percent there, which that sixty percent number has been floated, yep,
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  Speaker 3: by the Trump campaign. On everyone else, we're going to
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  Speaker 3: raise tariffs by two percent each month and that gets
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  Speaker 3: us to twenty four to twenty five percent by the
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  Speaker 3: end of year one. And I'm not saying this is
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  Speaker 3: good or bad. I'm just saying that this is where
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  Speaker 3: I think this is going. And I do think that
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  Speaker 3: this has some potential negative consequences for the US in
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  Speaker 3: the short and like a lot of the things that
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  Speaker 3: Besant is talking about. But my belief based on everything
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  Speaker 3: that I've spent hours upon hours reading about the people
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  Speaker 3: that are involved, specifically Lightheiser and Bessent, they believe that
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  Speaker 3: even if you have to suffer some pain in the
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  Speaker 3: short term for twelve, sixteen, eighteen, twenty four months, it
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  Speaker 3: is worth it to build the longer term platform for
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  Speaker 3: US growth that can happen in the second half of
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  Speaker 3: a Trump term. By and large, they they view themselves
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  Speaker 3: as the trade and fiscal equivalent of what Paul Vulker
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  Speaker 3: was from monetary policy in the nineteen eighties. Paul Vulker,
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  Speaker 3: when he was you know, running the FED back in
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  Speaker 3: the early nineteen eighties, people freaking hated him, and they
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  Speaker 3: hated him because he caused a He caused a deeper,
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  Speaker 3: enormous recession in order to be like, no, I need
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  Speaker 3: to do this and we'll deal with it. And I
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  Speaker 3: think Bessent and Lightheiser view themselves in a similar light
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  Speaker 3: in that, hey, we've got to deal with We've got
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  Speaker 3: to take some pain in order to rectify what's happened
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  Speaker 3: in the last forty years. And I think they're gonna
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  Speaker 3: go pretty heavy in this direction. The two questions on this.
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  Speaker 3: The first one, first one is the most important one.
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  Speaker 3: Are they right? We're gonna have to see because how
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  Speaker 3: this plays out like this could take a lot of
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  Speaker 3: different frameworks, a lot of different paths. The second one, Hey,
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  Speaker 3: even if they are right, can they see it through
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  Speaker 3: to its full conclusion? Can you stand it if it
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  Speaker 3: causes pain? Because here's the question that's gonna come up.
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  Speaker 3: Let's say markets, Let's say the stock market's down twenty
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  Speaker 3: five percent. President Trump come in one day and say, guys,
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  Speaker 3: what the heck are we doing here?
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  Speaker 2: Can't do this anymore? Pull the plug.
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  Speaker 3: These are things that you have to try to figure out.
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  Speaker 3: And so this is gonna be really interesting to watch.
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  Speaker 3: I don't know how this is going to play out,
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  Speaker 3: but to borrow a line from from Besson, who you know,
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  Speaker 3: back in twenty thirteen, Shinzo Abbe, who was the Prime
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  Speaker 3: Minister of Japan, consulted him on, you know, like their
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  Speaker 3: plans to move forward with Abi Namis, and Bessen basically said, look,
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  Speaker 3: I don't know what this is going to do, but
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  Speaker 3: it's gonna be the market ride of a lifetime. This
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  Speaker 3: is kind of the US equivalent of that, Like, hey,
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  Speaker 3: We'll see how it plays out, but it's.
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  Speaker 2: Not going to be boring. I agree there, it is
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  Speaker 2: not going to be boring.
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  Speaker 3: Mike, any other thoughts on the incoming Again, I know
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  Speaker 3: he hasn't been confirmed yet, but who was likely going
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  Speaker 3: to be the Treasury secretary?
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  Speaker 2: Scott bessem No. I think to your point, he is
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  Speaker 2: going to be a very easy pass through the Senate.
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  Speaker 2: You previously has supported Democrats and their campaigns for the
• 13:55
  Speaker 2: White House. He is close to Wall Street, and again
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  Speaker 2: I think most importantly, seems quite qualified to do the job. Yeah,
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  Speaker 2: it's so seems like an easy pass. He'll be the
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  Speaker 2: first openly gay Treasury secretary. If that matters to anyone
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  Speaker 2: trying to confirm him, I don't know that it does
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  Speaker 2: or doesn't. But just a few things I think make
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  Speaker 2: this a very easy pass through the Senate.
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  Speaker 3: And I would say, like, I'm just going through like
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  Speaker 3: previous you know, US Treasury secretaries.
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  Speaker 2: I mean, quite honestly.
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  Speaker 3: You probably have to go back to the nineteen nineties
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  Speaker 3: to find someone with this level of talent coming into
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  Speaker 3: the role. Honestly, in my opinion, and again it doesn't
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  Speaker 3: mean that he's going to end up doing a great job.
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  Speaker 3: Or not, who knows. He's like the job that he
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  Speaker 3: does is going to be the job that he does.
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  Speaker 2: But I think the interesting thing is he does not
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  Speaker 2: see his job as promoting the statu quo. No, he
• 15:02
  Speaker 2: sees himself as a change agent and wants and sees
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  Speaker 2: the Trump administration as an agent of big potential change
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  Speaker 2: and wants to be there because he sees I'm guessing
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  Speaker 2: both danger and opportunity.
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  Speaker 3: And I think he might actually have the chops to
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  Speaker 3: be able to do what's going to be a very
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  Speaker 3: challenging job. And so I think that's kind of interesting
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  Speaker 3: to me when you look at this year.
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  Speaker 2: So we've established that on one side of the economic
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  Speaker 2: policy front, there will be a quick and early push
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  Speaker 2: from our perspective to implement tariffs, and we don't know
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  Speaker 2: exactly what those will look like, but that is going
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  Speaker 2: to be an early goal of the incoming Trump administration.
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  Speaker 2: It also would seem like tax reform is going to
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  Speaker 2: be one of the very first things that is looked
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  Speaker 2: at from a Republican led Congress. Would you agree on
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  Speaker 2: that front? No, No, you think it gets kicked kicked
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  Speaker 2: down down the road. Well, let's talk.
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  Speaker 3: So tax reform versus tax cuts. Let's talk about that, Okay.
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  Speaker 3: I don't think there is any big tax cut coming
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  Speaker 3: early in the Trump administration.
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  Speaker 2: That's interesting because if you don't get it early, I'm
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  Speaker 2: not sure you get it at all.
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  Speaker 3: The reason why I don't think that you get it
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  Speaker 3: is because I don't think you're going to be able
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  Speaker 3: to find enough that you can cut on the spending
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  Speaker 3: side to make the dollars add up. Again, I'm looking
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  Speaker 3: at this from the perspective of Besant, Lightheiser, and Trump,
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  Speaker 3: all of whom have said, Look, the annual deficit is
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  Speaker 3: too big, and I'm going to believe them when they
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  Speaker 3: say that you're running six and a half to seven
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  Speaker 3: percent deficits right now on an annual basis, and the
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  Speaker 3: goal of Besent is to get it to three. So
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  Speaker 3: when you look at the numbers and where you can
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  Speaker 3: actually get rid of, you know, large enough amounts of
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  Speaker 3: money to implement a further tax cut, I don't think
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  Speaker 3: it's there right now. I think the path has to
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  Speaker 3: be cut spending first. Figure out where the revenue is
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  Speaker 3: going to come from on the other side, be it
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  Speaker 3: whether it's tariffs, something else, like. Figure out where you're
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  Speaker 3: gonna get your your other revenue from and then I
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  Speaker 3: think your your actual tax cut is coming in year two.
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  Speaker 2: Do you view the expiring first Trump tax cuts as
• 17:27
  Speaker 2: that same category?
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  Speaker 3: If those are extended, that's not a tax cut, right
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  Speaker 3: like that? That's so, yes, maybe you get that early on,
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  Speaker 3: but you're not going to get a large personal income
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  Speaker 3: tax cut, the reason being it doesn't help the fiscal
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  Speaker 3: situation and you can't cut enough in order to make
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  Speaker 3: the numbers work if you're adding a meaningful tax cut
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  Speaker 3: on top of the cat cut from Trump one point zero.
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  Speaker 2: So we then enter twenty twenty five with a need
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  Speaker 2: to get that done pretty quickly because the if the
• 18:01
  Speaker 2: Congress doesn't do anything, then those tax cuts would expire
• 18:06
  Speaker 2: beginning twenty twenty six. So, my guests, would you at
• 18:09
  Speaker 2: least have that addressed in twenty twenty five. The interesting
• 18:12
  Speaker 2: things that shake up there would be there's you know,
• 18:14
  Speaker 2: a very slim control of the House and a number
• 18:18
  Speaker 2: of Republicans who have said, hey, unless we see some
• 18:21
  Speaker 2: action on say salt, which would you know matter for
• 18:24
  Speaker 2: those in New England the state and local tax cuts
• 18:27
  Speaker 2: for instance, then they won't vote for it. So I
• 18:29
  Speaker 2: don't think it's a very easy thing to pass. But
• 18:33
  Speaker 2: I would agree that at the very least, I think
• 18:35
  Speaker 2: the twenty twenty six cuts get locked into place early on. Yeah,
• 18:39
  Speaker 2: the other stuff.
• 18:39
  Speaker 3: Look, here's the challenge anytime you're dealing with the budget process.
• 18:42
  Speaker 3: There are a couple. The first is that with this
• 18:45
  Speaker 3: incoming administration, you get really tight majority. Specifically in the House,
• 18:49
  Speaker 3: you have a really tight majority. Yeah, you're gonna have
• 18:52
  Speaker 3: at most two to three defections that you can have
• 18:54
  Speaker 3: on that side of things. In the Senate you have
• 18:57
  Speaker 3: more room, but only if you're using reconciliation in order
• 19:00
  Speaker 3: to pass a bill, which look, if you're combining this
• 19:03
  Speaker 3: all into one bill, you know, spending, tax and you
• 19:06
  Speaker 3: know all those items, you basically get one bill because
• 19:09
  Speaker 3: you can do one of those reconciliation bills for each
• 19:12
  Speaker 3: of those items. You can have a max of three
• 19:14
  Speaker 3: in any given year, so ultimately you can't have many defections.
• 19:19
  Speaker 3: And remember, when it comes to the budget process, the
• 19:21
  Speaker 3: reason that the US budget is bloated like it is
• 19:23
  Speaker 3: is because as much as everyone likes to campaign against waste,
• 19:27
  Speaker 3: they love bringing money back to their districts because it
• 19:29
  Speaker 3: brings jobs and money back to their districts, so you're
• 19:32
  Speaker 3: fighting against that quick break. Wall Street Watch is next.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:53
  Speaker 1: Street Watch. A complete look at what's moving market so
• 19:56
  Speaker 1: far today right here on the Financial Exchange Radio.
• 20:00
  Speaker 4: Network Market Center. The holiday shortened trading week in positive
• 20:04
  Speaker 4: territory as Wall Street reacts to President elect Trump's selection
• 20:08
  Speaker 4: of Scott Besson as his Treasury secretary. Traders also readying
• 20:13
  Speaker 4: for a fresh look at inflation on Wednesday morning. Right now,
• 20:17
  Speaker 4: the Dow is up by one percent, or four hundred
• 20:19
  Speaker 4: and forty three points. S and P five hundred is
• 20:22
  Speaker 4: up by twenty five points, and the Nasdaq is up
• 20:25
  Speaker 4: by over a third of a percent, or seventy one points.
• 20:27
  Speaker 4: Russell two thousand is rallying nearly two percent higher. Ten
• 20:32
  Speaker 4: year treasure yield is off by eleven basis points at
• 20:35
  Speaker 4: four point two nine percent, and crude oil is down
• 20:38
  Speaker 4: over two percent lower today, trading at sixty nine dollars
• 20:41
  Speaker 4: in sixty five cents a barrel. Macy's down by over
• 20:44
  Speaker 4: three percent after the retailer said it was delaying its
• 20:48
  Speaker 4: quarterly earnings after finding that an employee had hidden up
• 20:51
  Speaker 4: to one hundred and fifty four million dollars in expenses
• 20:55
  Speaker 4: over several years. Chuck and Michael have more on that
• 20:58
  Speaker 4: story in the next Sticking with retail, where Abercromine fits
• 21:03
  Speaker 4: shares up by four percent ahead of its third quarter
• 21:06
  Speaker 4: earnings due out tomorrow. Ahead of the opening bell, Abercromie
• 21:10
  Speaker 4: stock is up more than fifteen percent this month. Meanwhile,
• 21:15
  Speaker 4: shares in Bath and Bodyworks jumping by seventeen percent after
• 21:19
  Speaker 4: its third quarter results beat expectations. Elsewhere, bitcoin development company
• 21:24
  Speaker 4: micro Strategy continues to garner attention given the recent jump
• 21:28
  Speaker 4: in bitcoin. Bernstein has now more than doubled its price
• 21:31
  Speaker 4: target of the stock to six hundred dollars from two
• 21:34
  Speaker 4: hundred and ninety dollars, suggesting more than forty percent upside
• 21:38
  Speaker 4: from Friday's Clothes. So far this year, micro Strategy stock
• 21:41
  Speaker 4: has surged about five hundred and sixty eight percent. Today,
• 21:45
  Speaker 4: that stock is off by three quarters of a percent.
• 21:48
  Speaker 4: Morgan Stanley upgraded Robinhood stock to overweight from equal weight,
• 21:52
  Speaker 4: where the firm said Robinhood's revenue growth could be stronger
• 21:56
  Speaker 4: post election due to more active trading of stocks in
• 21:59
  Speaker 4: crypto deregulation. That stock is up by five percent, and
• 22:03
  Speaker 4: after today's closing, Bell Zoom Video will unveil their third
• 22:08
  Speaker 4: quarter results. I'm Tucker Silvan, that's Wall Street Watch, Mike.
• 22:12
  Speaker 3: We want to touch any more on potential fiscal possibilities
• 22:16
  Speaker 3: for the upcoming Congress.
• 22:17
  Speaker 2: I don't think so. I think the key takeaway that
• 22:21
  Speaker 2: I have though, is big promises that were made on
• 22:24
  Speaker 2: the campaign trails, such as eliminating taxes on Social security,
• 22:27
  Speaker 2: such as limiting taxes on tips or on overtime, would
• 22:34
  Speaker 2: be tremendously difficult to pass unless you're going to completely
• 22:39
  Speaker 2: revamp how reconciliation works, for example, and that seems pretty unlikely.
• 22:44
  Speaker 3: Well, social Security you can't touch in reconciliation, so that's
• 22:47
  Speaker 3: the first remember, So reconciliation, here's the deal. Budget reconciliation
• 22:51
  Speaker 3: is a process by which the House and the Senate
• 22:54
  Speaker 3: effectively get together and they can pass bills without needing
• 22:57
  Speaker 3: sixty seats approval. In the Senate, you're allowed for three
• 23:01
  Speaker 3: bills per year for reconciliation, one on spending, one on revenue,
• 23:06
  Speaker 3: and one on the debt limit. So you can have
• 23:07
  Speaker 3: those three bills that you pass. Oftentimes, when reconciliation's actually done,
• 23:12
  Speaker 3: they basically combine multiple aspects of that into one bill,
• 23:15
  Speaker 3: so you rarely actually see three separate ones. You just
• 23:18
  Speaker 3: see them, you know, kind of coalesced into a single
• 23:21
  Speaker 3: bill that might cover two or three of those items.
• 23:24
  Speaker 3: There is also something though, called the Bird rule, named
• 23:27
  Speaker 3: after something. I forget the guy's first name. It might
• 23:33
  Speaker 3: have been big actually got it. But basically the Bird
• 23:38
  Speaker 3: rule is the reason why the Trump tax cuts are
• 23:41
  Speaker 3: sunsetting after the next year, which is a it prohibits
• 23:45
  Speaker 3: you from increasing the deficit from more than a ten
• 23:48
  Speaker 3: year period using reconciliation, and b it also prohibits you
• 23:53
  Speaker 3: from making any changes to Social Security using reconciliation. So
• 23:57
  Speaker 3: quite honestly, you can't pass something on social Security without
• 24:02
  Speaker 3: a sixty seat vote, you know, majority in the Senate.
• 24:07
  Speaker 3: So as far as like what you can do, yeah,
• 24:09
  Speaker 3: there are other things. If you wanted to get together
• 24:12
  Speaker 3: and say, yeah, it's part of our reconciliation package, we're
• 24:14
  Speaker 3: going to pass no tax on tips, sure, like, you
• 24:17
  Speaker 3: could absolutely do that. The stuff no tax on Social
• 24:20
  Speaker 3: Security you couldn't touch because you're not allowed to touch
• 24:24
  Speaker 3: social Security through budget reconciliation. Now this also gets at
• 24:29
  Speaker 3: the point reconciliation. Uh, this is a process. Just to
• 24:35
  Speaker 3: again outline kind of where it comes from. This was
• 24:37
  Speaker 3: actually created by the Congressional Budget Act of nineteen seventy four.
• 24:41
  Speaker 3: First time was ever used was nineteen eighty. So this
• 24:43
  Speaker 3: is a relatively new not invention because it wasn't invented,
• 24:47
  Speaker 3: relatively new procedure, new way of doing things correct and
• 24:51
  Speaker 3: so it's been used, you know, a couple dozen times over.
• 24:55
  Speaker 3: You know that that process. But the rules that are
• 24:59
  Speaker 3: outlined there, some of them are actually legislated into being.
• 25:04
  Speaker 3: So it's not just something where, you know, with certain
• 25:07
  Speaker 3: things you can be like, oh well, the Senate can
• 25:08
  Speaker 3: change the rules to do that.
• 25:10
  Speaker 2: This is something that was legislated into many unique sixty
• 25:14
  Speaker 2: votes to change it.
• 25:15
  Speaker 3: Which means that in order to change like some of
• 25:17
  Speaker 3: these key tenets of reconciliation, you have to have them legislated.
• 25:22
  Speaker 3: So the bird rule, as an example, is legislated into existence.
• 25:26
  Speaker 3: It's not a norm like the filibuster or something like that.
• 25:30
  Speaker 3: It is quite literally legislated into existence as a law,
• 25:37
  Speaker 3: not a rule that's just made for the body.
• 25:39
  Speaker 2: Right, which makes some of these things there were promise
• 25:42
  Speaker 2: on the campaign trail, pretty tough to do.
• 25:44
  Speaker 3: So now that we've concluded, you know, how a bill
• 25:47
  Speaker 3: becomes a law, we can get back to, you know,
• 25:49
  Speaker 3: all the other pieces. But I this stuff matters because
• 25:52
  Speaker 3: it ultimately affects what is going to be able to
• 25:55
  Speaker 3: be passed in the timeline for those those things to
• 25:57
  Speaker 3: be passed.
• 25:58
  Speaker 2: Kind of like a kidney stone.
• 26:00
  Speaker 3: Right, Congress is the kidney and the bill they're trying
• 26:05
  Speaker 3: to pass stones. It's very it's a very painful process
• 26:09
  Speaker 3: that often takes longer than you think, but eventually you
• 26:12
  Speaker 3: get that thing out there and then you just gotta,
• 26:14
  Speaker 3: you know.
• 26:14
  Speaker 2: See how you do after that. Got it? So there's that.
• 26:19
  Speaker 2: Should we talk about deficits? Yeah, what about them? They're
• 26:22
  Speaker 2: high grow they are. So here here's the deal.
• 26:26
  Speaker 3: The US government traditionally, if you look at you know,
• 26:29
  Speaker 3: kind of average annual deficits typically ran anywhere between like
• 26:33
  Speaker 3: a two and four percent budget deficits budget deficit in
• 26:37
  Speaker 3: normal years. That was the case pretty much, you know,
• 26:40
  Speaker 3: through the two thousands.
• 26:42
  Speaker 2: During the Biden administration again took over in early twenty
• 26:47
  Speaker 2: twenty one when they were significantly higher. But where do
• 26:49
  Speaker 2: you think we averaged six seven percent over the last
• 26:51
  Speaker 2: couple of years.
• 26:52
  Speaker 3: The last two years I think are the ones that matter,
• 26:53
  Speaker 3: because the first two were all COVID response stuff where look,
• 26:56
  Speaker 3: regardless if it didn't matter, is just it was kind
• 26:59
  Speaker 3: of one time things. I mean, the last year of
• 27:01
  Speaker 3: the Trump presidency, the budget deficit was like fifteen percent
• 27:04
  Speaker 3: of GDP. The first year of the Biden presidency it
• 27:06
  Speaker 3: was eleven in change, and then you've been you know,
• 27:09
  Speaker 3: six to seven percent the last couple of years and
• 27:12
  Speaker 3: now getting worse. Like, the trajectory is not great.
• 27:15
  Speaker 2: First Trump administration, during those pre COVID years, you were
• 27:18
  Speaker 2: running what three and a half to four and a half.
• 27:20
  Speaker 3: Correct, And so the question is going to be, okay, like,
• 27:25
  Speaker 3: what do we see from a deficit perspective, how do you, you know,
• 27:28
  Speaker 3: kind of fix things to get them a little bit
• 27:29
  Speaker 3: more sustainable on an annual basis? And hey, is the
• 27:34
  Speaker 3: market actually starting to exert any force on interest rates
• 27:38
  Speaker 3: because it's concerned about how big the deficit actually is?
• 27:43
  Speaker 2: Right? I think maybe you question to answer it's a
• 27:47
  Speaker 2: very difficult question to answer. I don't think you can have,
• 27:50
  Speaker 2: say the Wall Street Journal, for instance, put together this
• 27:52
  Speaker 2: chart that's maybe attempting to answer whether markets have responded
• 27:57
  Speaker 2: how markets have responded to deficits in the past, and
• 27:59
  Speaker 2: I think my answer is that they haven't. There's no
• 28:02
  Speaker 2: correlation between an increasing deficit and how stock markets have
• 28:07
  Speaker 2: performed on a year to year or even slightly longer
• 28:10
  Speaker 2: term basis. I can't really draw out any trend there,
• 28:13
  Speaker 2: can you.
• 28:14
  Speaker 3: No, No, you can't, because there is nothing there.
• 28:18
  Speaker 2: Right.
• 28:19
  Speaker 3: The question is going to be how do you get
• 28:20
  Speaker 3: back to sustainable levels of annual deficits, which ultimately impacts
• 28:25
  Speaker 3: you know, kind of the broader amount of death that's outstanding.
• 28:28
  Speaker 3: I'll also ask and do lawmakers think that you need to?
• 28:34
  Speaker 2: Like I do? I think, But when it's historically when
• 28:40
  Speaker 2: lawmakers have been asked what's more important getting your priorities
• 28:44
  Speaker 2: passed or worrying about deficits, the answer has been unanimous
• 28:48
  Speaker 2: in favor of getting my priorities.
• 28:49
  Speaker 3: This is a recent thing, though, and I do want
• 28:52
  Speaker 3: to point this out. This is something that is kind
• 28:57
  Speaker 3: of since the early twenty ten first Barack Obama administration.
• 29:05
  Speaker 3: You had again the worst economic calamity that we, you know,
• 29:08
  Speaker 3: have seen in one hundred years. Yeah, and I still
• 29:12
  Speaker 3: remember sitting here in twenty ten and twenty eleven, and
• 29:15
  Speaker 3: the buzzword that was out there then was austerity. It
• 29:17
  Speaker 3: was all about, like, hey, we need to be like
• 29:19
  Speaker 3: tight with the budget. So Tea Party Republicans came about.
• 29:22
  Speaker 3: During that you had the sequester of budget funds passed,
• 29:26
  Speaker 3: I think is part of the compromise with John Bayner
• 29:28
  Speaker 3: in either twenty eleven or twenty twelve, I can't remember
• 29:30
  Speaker 3: the year, but like this was still a thing then,
• 29:33
  Speaker 3: which was, hey, like we we'd like to help the economy,
• 29:36
  Speaker 3: but we gotta be realistic about deficits. Ever since, like
• 29:41
  Speaker 3: twenty fourteen, twenty fifteen, neither party has talked really credibly
• 29:45
  Speaker 3: about deficits. The second Obama administration saw them expand pretty consistently.
• 29:51
  Speaker 3: The Trump administration, even before the COVID crisis hit, saw
• 29:55
  Speaker 3: them expand pretty consistently, and the Biden administration saw them
• 30:00
  Speaker 3: expand pretty consistently.
• 30:01
  Speaker 2: Even after COVID wrap up.
• 30:03
  Speaker 3: Correctly, Again, no one's talking about like COVID funds like
• 30:05
  Speaker 3: at this point, and you still are going to run
• 30:07
  Speaker 3: a six to seven percent budget deficit this year. You
• 30:10
  Speaker 3: can trast this with post Reagan tax cuts.
• 30:13
  Speaker 2: In nineteen eighty one.
• 30:15
  Speaker 3: Hey, the Reagan administration realized, Oops, we went a little
• 30:19
  Speaker 3: bit too far with this. They passed measures to shore
• 30:22
  Speaker 3: up the revenue side of things and to reduce spending.
• 30:24
  Speaker 3: Later in their term, the Bush administration had to raise taxes.
• 30:28
  Speaker 3: The Clinton administration had to cut services and raise taxes.
• 30:32
  Speaker 2: Right, my big question is simply, what is it that
• 30:36
  Speaker 2: changes people's perspective on this? Because I don't see anything
• 30:39
  Speaker 2: in the right. I'll tell you this wasn't a campaign
• 30:42
  Speaker 2: about deficits. Let's be clear about that.
• 30:44
  Speaker 3: No, what is going to ultimately change people's perspective on
• 30:48
  Speaker 3: this is panic. Yeah, when the market finally panics because
• 30:53
  Speaker 3: of the deficit, then politicians are going to get serious
• 30:56
  Speaker 3: and say, yep, we've got to do something.
• 30:58
  Speaker 2: And do you have any evidence that that's going to
• 31:00
  Speaker 2: curR in twenty twenty five or anytime during the Trump president.
• 31:02
  Speaker 3: No, I don't know.
• 31:03
  Speaker 2: I have no idea. Yeah, I got no clue. Let's
• 31:05
  Speaker 2: take a quick break here.
• 31:06
  Speaker 3: When we come back, let's talk a little bit about inflation.
• 31:10
  Speaker 3: We've got almost a whole hour of the show without
• 31:13
  Speaker 3: mentioning it once, and so it's time to, you know,
• 31:17
  Speaker 3: bring that bad boy back into our conversation today right after.
• 31:21
  Speaker 1: This Financial Exchange Show podcast drops every day on Apple, Spotify,
• 31:26
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• 31:29
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• 31:34
  Speaker 1: breaking business and financial news first throughout the day only
• 31:39
  Speaker 1: here on the Financial Exchange Radio Network.
• 31:47
  Speaker 2: Inflation Go. We're gonna get another reading this Wednesday. The
• 31:53
  Speaker 2: Fed's preferred measure of inflation is out at a thirty Yeah, yes,
• 31:57
  Speaker 2: eight thirty am, the PCE per Consumption Expenditures Index. That's
• 32:02
  Speaker 2: not really the most interesting thing about inflation. Quite honestly,
• 32:05
  Speaker 2: we are pretty it's pretty obvious what's going to happen there.
• 32:09
  Speaker 2: You're going to have year over year inflation coming in
• 32:11
  Speaker 2: in the two and a half to three percent range,
• 32:13
  Speaker 2: a little bit hotter than that if you strip out
• 32:15
  Speaker 2: the benefits from lower oil prices month o a month
• 32:19
  Speaker 2: somewhere in the point two to point three percent range.
• 32:21
  Speaker 2: We already got CPI. It's not going to be shocking,
• 32:24
  Speaker 2: would be my guess. Because we see prices, we know
• 32:27
  Speaker 2: that they're not shocking right now. The question is, how
• 32:31
  Speaker 2: is the Fed's framework for inflation continuing to develop and
• 32:35
  Speaker 2: what does that all mean for interest rates as we
• 32:38
  Speaker 2: head into twenty twenty five, and normally I would say
• 32:42
  Speaker 2: this shouldn't be much of a question, but the Fed's
• 32:45
  Speaker 2: been a little bit wishy washy in terms of their
• 32:47
  Speaker 2: long term perspective on all of this, and seems very
• 32:51
  Speaker 2: very willing to just take a wait and see approach
• 32:53
  Speaker 2: for now I think.
• 32:56
  Speaker 3: But here's what bothers me is they're not talking. They
• 33:00
  Speaker 3: want to take a take a wait and see approach.
• 33:03
  Speaker 3: And what I mean by that is earlier this year
• 33:07
  Speaker 3: in Q one, we saw higher inflation numbers. Yeah, they
• 33:12
  Speaker 3: were coming in former and Jay Powell came out multiple
• 33:15
  Speaker 3: times and was like, yeah, we think this is just
• 33:17
  Speaker 3: gonna pass. We're not really worried about this. We'll we'll
• 33:21
  Speaker 3: look through this.
• 33:21
  Speaker 2: Right. It's not what he's saying right now. That's my
• 33:24
  Speaker 2: point is we're seeing very similar data right now, yes,
• 33:28
  Speaker 2: and we're not seeing the same message.
• 33:29
  Speaker 3: Sorry, maybe I misinterpreted what you were saying.
• 33:31
  Speaker 2: No, No, you're fine. I think it comes down to
• 33:33
  Speaker 2: an inconsistency of messaging. And maybe it's simply because he
• 33:37
  Speaker 2: has evidence that he thinks last time it was just
• 33:40
  Speaker 2: something to look through, and this time he thinks it's
• 33:42
  Speaker 2: something more long term in nature. But he's not really
• 33:46
  Speaker 2: expressing that.
• 33:47
  Speaker 3: No, it's it's much more. I mean his speech was
• 33:50
  Speaker 3: it last Friday or maybe no, two fridays ago. I
• 33:52
  Speaker 3: think it was was, you know, borderline hawkish in nature,
• 33:56
  Speaker 3: and like it's kind of weird coming from Jay. And
• 33:59
  Speaker 3: this is what Mark Fandetti and I were talking about
• 34:02
  Speaker 3: last week, which is, hey, man, like pick one or
• 34:06
  Speaker 3: the other. But you can't say you're data dependent and
• 34:09
  Speaker 3: then just say we're ignoring the data when it suits
• 34:12
  Speaker 3: your need.
• 34:13
  Speaker 2: And what need is it's suiting right, Like nobody.
• 34:16
  Speaker 3: We can't just continue freaking out about every data point forever, right,
• 34:20
  Speaker 3: it's exhausting.
• 34:23
  Speaker 2: We just got to move on from that.
• 34:25
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• 35:24
  Speaker 4: com headline.
• 35:25
  Speaker 3: The New York Times, Connecticut a couple charged in one
• 35:27
  Speaker 3: million dollar theft of Lululemon goods. That's right, they stole
• 35:30
  Speaker 3: three pairs of pants from Lululemon and now for a
• 35:34
  Speaker 3: long time no so. In fact, the couple were charged
• 35:40
  Speaker 3: with a felonycount of organized retail theft after basically having
• 35:44
  Speaker 3: done this for the better part of the last year
• 35:47
  Speaker 3: or so it sounds like, and they originally started by
• 35:50
  Speaker 3: stealing from stores in Minnesota and then ended up hitting
• 35:55
  Speaker 3: stores in Connecticut, Colorado, New York, and Utah. So I
• 35:57
  Speaker 3: guess it was just wherever they were going, they were
• 35:59
  Speaker 3: stealing Lululemon stuff.
• 36:01
  Speaker 2: And got a spread the scam out. You know, it's like, well,
• 36:03
  Speaker 2: any good scam, you can't do it at the same place.
• 36:05
  Speaker 3: Twice they were arrested at a hotel room in Bloomington, Michigan,
• 36:08
  Speaker 3: where they found investigators found a dozen suitcases with fifty
• 36:11
  Speaker 3: thousand dollars worth of Lululemon attire, so they hadn't unloaded
• 36:15
  Speaker 3: the latest stuff.
• 36:16
  Speaker 2: I guess.
• 36:17
  Speaker 3: But pretty much what they were doing was they would
• 36:20
  Speaker 3: go in, the husband would go in and buy an
• 36:24
  Speaker 3: item or two, and then they would using some kind
• 36:27
  Speaker 3: of tool, remove one of the security tags from another
• 36:30
  Speaker 3: item in the store and attach it to the item
• 36:32
  Speaker 3: that he already bought to intentionally set off the alarm,
• 36:35
  Speaker 3: correct being like, oh no, I already bought this with
• 36:37
  Speaker 3: the other stuff that was now in their bag, free
• 36:40
  Speaker 3: and clear, and so they would do this quite.
• 36:44
  Speaker 2: A bit exact. So basically they would set off the
• 36:46
  Speaker 2: alarm and then somebody else would walk out with a
• 36:47
  Speaker 2: bunch of still actually stolen goods at about the same time,
• 36:51
  Speaker 2: and that people would just assume, well, the alarm's going
• 36:53
  Speaker 2: off because of this guy and not whatever. Correct just happened, correct.
• 36:56
  Speaker 3: And so someone else would go with some other stolen goods,
• 36:59
  Speaker 3: and so YadA YadA. This was you know, this, this
• 37:01
  Speaker 3: whole thing a million bucks. And again it's you know,
• 37:06
  Speaker 3: a million dollars in Lulu Lemon like, listen, I know
• 37:08
  Speaker 3: their T shirts are like seventy dollars or whatever. A
• 37:10
  Speaker 3: lot of stuff to steal a million dollars. And again
• 37:14
  Speaker 3: it sounds like they were just gallivanting around the country, hitting.
• 37:17
  Speaker 2: New stores, stealing stuff. Yeah, this is this is not
• 37:21
  Speaker 2: as entertaining as the bear fraud of twenty twenty four
• 37:24
  Speaker 2: bear fraud. Yeah, oh yeah, insurance fraud. But nonetheless glad
• 37:30
  Speaker 2: that they got caught doing it. And again, the consistency
• 37:33
  Speaker 2: with this is you always eventually get caught.
• 37:36
  Speaker 3: Yes, there is no free leggings, there are no to
• 37:45
  Speaker 3: jail you go, yeah, so yeah this Listen, I don't
• 37:50
  Speaker 3: think you can wear these in jail. I think they
• 37:52
  Speaker 3: kind of give you the clothes once you're there.
• 37:54
  Speaker 2: Oh, it's probably a long time. You stole a million
• 37:56
  Speaker 2: dollars worth of stuff.
• 37:58
  Speaker 3: It's probably not you know, three months, it's probably gonna.
• 38:02
  Speaker 2: Be a while, so I hope it was worth it.
• 38:06
  Speaker 2: Let's take a quick break here.
• 38:07
  Speaker 3: We got hour two coming up in a little bit
• 38:09
  Speaker 3: on the Financial Exchange