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Is stagflation a possibliity? · The Financial Exchange Show

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Speaker 1: and Paul Lane.
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Speaker 2: Good morning, Happy Friday.
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Speaker 3: It's Mike Paul Tucker with you here on Let's see
1:15
Speaker 3: an inflation Friday, a continued tariff uncertainty day. And we
1:20
Speaker 3: talked yesterday about how I think I described equity markets
1:23
Speaker 3: as confused. I think I said they're open and confused,
1:28
Speaker 3: and that's kind of how things went all day. We
1:32
Speaker 3: started off yesterday assuming that terriffs were going into place
1:35
Speaker 3: now in Mexico and Canada in April. By the time
1:39
Speaker 3: the show aired, we were thinking actually Tuesday of next week.
1:44
Speaker 2: We still think that's that case.
1:46
Speaker 3: Early on, markets weren't really sinking on this news, which
1:50
Speaker 3: I described as a bit confusing. In fact, at one
1:53
Speaker 3: point I remember pulling up Ford in General Motor stock
1:55
Speaker 3: up and they were up like a percentage point as
1:58
Speaker 3: two of the companies that would be most dramatically affected
2:01
Speaker 3: by tariffs. But the S and P five hundred closed
2:04
Speaker 3: the down day day down. I speak English as a
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Speaker 3: first language, believe it or not, folks, over one and
2:11
Speaker 3: a half percentage points, NASDAK worse, DOW not quite so bad,
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Speaker 3: And I think it'd be good just to get some
2:19
Speaker 3: context and ground ourselves in terms of where markets are
2:23
Speaker 3: and a few big name companies are that everyone's talking
2:25
Speaker 3: about here, So equity markets as a whole, SMP and
2:29
Speaker 3: NASDAC reached their most recent highs February nineteenth.
2:33
Speaker 2: That was last Wednesday.
2:35
Speaker 3: We are now sitting here with the S and P
2:38
Speaker 3: five hundred, for example. As of the close yesterday, it
2:40
Speaker 3: was off four point six percent from its all time high.
2:43
Speaker 3: NASDAK a little worse seven and a half percent from
2:46
Speaker 3: that high of last Wednesday. Just you know, few big
2:50
Speaker 3: name companies, right. We've talked a lot about Tesla and
2:52
Speaker 3: the struggles that they have been having. Their year to
2:54
Speaker 3: date high was back on January fifteenth of this year.
2:57
Speaker 3: Stalks off thirty four percent from there. I mentioned it
3:00
Speaker 3: because obvious reasons. Elon Musk's not part but kind of
3:04
Speaker 3: part of the administration, and sales have been really struggling recently.
3:09
Speaker 3: Bitcoin all time high I believe January twenty second price
3:14
Speaker 3: was over one hundred five thousand dollars per bitcoin, now
3:17
Speaker 3: sitting below eighty one thy twenty three percent drop on
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Speaker 3: bitcoin and video stock January sixth high of one hundred
3:24
Speaker 3: and forty nine dollars a share, down about nineteen point
3:27
Speaker 3: six percent from those levels. And then finally the ten
3:30
Speaker 3: year treasury which we've been talking at length about January
3:33
Speaker 3: thirteenth high of four point nine percent closing in there
3:36
Speaker 3: at that five percent level again now.
3:38
Speaker 2: Sitting at four and a quarter.
3:40
Speaker 3: So taken in the aggregate, I think you can easily
3:44
Speaker 3: say that there has been a risk off move since January,
3:49
Speaker 3: and specifically for the overall market really over the course
3:52
Speaker 3: of the last week.
3:54
Speaker 2: But some of those most risky assets had their highest
3:56
Speaker 2: peaks back.
3:57
Speaker 3: In January, and if I've seen a steady decline since then,
4:02
Speaker 3: and that's been backed up by the fact that clearly
4:05
Speaker 3: that money has moved, at least in part over to
4:07
Speaker 3: treasury bonds as people walked away from those risk assets.
4:11
Speaker 3: This morning at eight thirty AM, we got an inflation report,
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Speaker 3: and I think it fed into that same narrative that
4:19
Speaker 3: we've been hearing about of risk off, recession concerns, things
4:24
Speaker 3: like that. So let's dive in there as our first
4:27
Speaker 3: story of the day here, which was the PCEE, the
4:31
Speaker 3: Personal Consumption Expenditures Index that was released this morning at
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Speaker 3: eight thirty.
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Speaker 2: This is the Fed's preferred measure of inflation. Paul.
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Speaker 3: Generally speaking, what did we see here. And let's try
4:41
Speaker 3: and compare and contrast to the consumer price index number
4:44
Speaker 3: that was released earlier this.
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Speaker 4: Month on the PC data that we got for the
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Speaker 4: month of January, sun increase of zero point three percent
4:51
Speaker 4: month over month, and taking a look at the core
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Speaker 4: data specifically on a year over year basis two point
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Speaker 4: six percent inter terms of what we saw on the
5:01
Speaker 4: inflation data there.
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Speaker 3: So the good news here was that the CPI print
5:07
Speaker 3: for January came in at half a percent, a bit
5:09
Speaker 3: of a freak out moment for markets when that happened.
5:12
Speaker 3: Half a percent month over month is a big, big move.
5:16
Speaker 3: And this inflation data is elevated, but at point three percent,
5:20
Speaker 3: considerably less so than what we are thinking from CPI.
5:23
Speaker 3: And you know, even if you strip out food and
5:25
Speaker 3: energy you get the same level there. So is it
5:30
Speaker 3: a acceleration from what we were seeing last year, Yes,
5:34
Speaker 3: it is, but we have now reached the lowest year
5:36
Speaker 3: over year number on PC inflation that you've seen in
5:39
Speaker 3: a year. It is something we should continue to keep
5:43
Speaker 3: an eye on inflation numbers, but I don't think it's
5:45
Speaker 3: what investors are most concerned about right now. Interestingly, in
5:49
Speaker 3: that same data, so the PCE index other Unlike CPI,
5:54
Speaker 3: PCE measures both spending as well as prices. It does
5:59
Speaker 3: take look at both on that front. And one thing
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Speaker 3: that seemed to catch a lot of folks eyes was
6:05
Speaker 3: the spending figure. And I think that's what I want
6:09
Speaker 3: to hone in on here because again, it seems to
6:11
Speaker 3: be what investors are caring about right now. So there's
6:16
Speaker 3: some evidence that consumers, you know, kind of drew back
6:20
Speaker 3: in January, with spending falling by zero point two percent.
6:24
Speaker 3: That is the first monthly decline in almost two years.
6:30
Speaker 3: That's big, That is big information here. Incomes, on the
6:35
Speaker 3: other hand, we're up. So incomes grew, personal disposable income
6:40
Speaker 3: grew by zero point nine percent. What that means here, Well,
6:45
Speaker 3: you know, there could be a whole bunch of seasonal
6:46
Speaker 3: stuff that's going on in January, right, Yeah, have incomes
6:49
Speaker 3: going up in January, you had wildfires, cold weather here
6:52
Speaker 3: in the Northeast, really across the entire country. You saw
6:56
Speaker 3: a bunch of cold weather and blizzards in January. So
6:58
Speaker 3: maybe that's playing a real in all of this. But
7:01
Speaker 3: what it meant was that consumer saved a bunch of
7:03
Speaker 3: money in January.
7:04
Speaker 4: Right.
7:04
Speaker 2: In Comes up, spending down, where's that go savings or
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Speaker 2: paying off debt? Whatever.
7:08
Speaker 3: It might have been good for the individual household, terrible
7:11
Speaker 3: for the US economy were it to continue at this
7:14
Speaker 3: type of pace. And so I would reiterate that investors
7:19
Speaker 3: right now at least not immensely concerned about inflation. Maybe
7:22
Speaker 3: they should be because there's some tariff threats underway here
7:25
Speaker 3: that could drive up prices. And we've heard a lot
7:27
Speaker 3: about consumers pulling purchases forward, but investors right now discounting that,
7:32
Speaker 3: They are much more focused on why did spending drop?
7:35
Speaker 2: Why are assets selling off?
7:37
Speaker 3: Why are consumers saying, Hey, I'm really worried about the
7:40
Speaker 3: state of the economy. And I think that that's where
7:43
Speaker 3: you're seeing this, you know, somewhat powerful sell off, especially
7:47
Speaker 3: in some risk assets. Again, markets are four point six
7:51
Speaker 3: percent off their all time highs on the S and
7:53
Speaker 3: P five hundred. I don't think I'm getting terribly worried
7:57
Speaker 3: at this stage, but you have seen this persistent day
8:00
Speaker 3: after day sell off, and in particular a few days
8:04
Speaker 3: here where you started the day positive and then turned
8:06
Speaker 3: into a sell off, with that sentiment just retreating pretty
8:10
Speaker 3: rapidly here.
8:10
Speaker 4: Yeah, my biggest takeaways from the week. If you were
8:13
Speaker 4: to summarize all the activity, you hit on most of
8:15
Speaker 4: them here, but risk off environment you alluded to, whether
8:18
Speaker 4: it's bitcoin. If you look at some of the heavily
8:21
Speaker 4: shorted stocks out there, they fell back to their October levels.
8:25
Speaker 4: Those shorted stock typically tend to be high valuations with
8:28
Speaker 4: low profitability. We saw those getting beaten up a little bit.
8:31
Speaker 4: It's interesting we're now two months into the year and
8:34
Speaker 4: if you look at the sector performance of the S
8:36
Speaker 4: and P five hundred, the areas of the market that
8:39
Speaker 4: carried it over the course of last year and the
8:41
Speaker 4: year prior were largely tech and consumer discretionary and discretionary
8:46
Speaker 4: consumer discretionary that sector a heavy weighting of it is
8:49
Speaker 4: Tesla as well as I believe Amazon gets lumped in
8:53
Speaker 4: there also. Those two sectors are both off six and
8:57
Speaker 4: seven percent year date. But what's interesting, Mike is you
8:59
Speaker 4: have kind of more of those safety sectors, the consumer
9:02
Speaker 4: staples and utilities and others energy faring a lot better.
9:07
Speaker 4: So those are some of the trends that you take away.
9:09
Speaker 4: And then you've got, of course, the economic data that
9:11
Speaker 4: you spoke about, just some concerning reports on the consumer
9:16
Speaker 4: confidence side of things. Whether you look at University of
9:18
Speaker 4: Michigan report on sentiment or the Conference Board data that
9:23
Speaker 4: came out, those are really the things that we are
9:25
Speaker 4: grappling with this week. The question is on some of
9:27
Speaker 4: these reports, whether it's the inflation report or the data
9:31
Speaker 4: that we're looking at here on personal savings rate? Yet,
9:33
Speaker 4: is this a product of seasonality and some one offs here?
9:38
Speaker 4: Can we get some more data that looks like this
9:40
Speaker 4: That would be concerning, because, make no mistake about it,
9:43
Speaker 4: the reason that the US economy has been so resilient
9:46
Speaker 4: is that spending and the data that we got here.
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Speaker 4: If that trend work to continue, that is certainly concerning
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Speaker 4: for the economic growth of the United States.
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Speaker 2: We're going to take a quick break when we come back.
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Speaker 3: There's a word being tossed around quite a bit right
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Speaker 3: now that I have not heard being used since probably
10:05
Speaker 3: early twenty twenty two, and that stagflation. It's getting printed
10:09
Speaker 3: here and there. I think it's worth talking about the idea,
10:12
Speaker 3: the economic phenomenon of stagflation. How realistic are we on
10:18
Speaker 3: this potential worry and what it might mean for you.
10:21
Speaker 3: That's next here on the financial exchange.
10:24
Speaker 1: Business and financial news affecting the markets and your wallet.
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Speaker 1: We've got it all straight from Wall Street right here
10:31
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10:44
Speaker 3: As we mentioned the last segment, we got an inflation
10:46
Speaker 3: report this morning at eight thirty that I don't think
10:49
Speaker 3: was anything to get immensely concerned about in markets. I
10:52
Speaker 3: think are reacting normally to it. It was exactly in
10:56
Speaker 3: line with expectations and did not really spook just the
11:00
Speaker 3: same way that the CPI report did earlier this month.
11:03
Speaker 3: But I do think maybe important to focus on it
11:06
Speaker 3: for a minute here. So if I take a look
11:08
Speaker 3: at the combined data between CPI, the Consumer Price Index
11:12
Speaker 3: report released every month from Bureau Labor Statistics, and the
11:15
Speaker 3: pc which comes from Bureau of Economic Analysis, thank you,
11:23
Speaker 3: you have a year over inflation number that's ranging from
11:27
Speaker 3: two and a half percent on the low end that
11:29
Speaker 3: would be the PCE to three point three percent year
11:32
Speaker 3: over year on the high end. That's core CPI. However,
11:37
Speaker 3: if I'm just looking at, hey, what's the data telling
11:40
Speaker 3: me most recently, that's I think where some of the
11:44
Speaker 3: data becomes a little bit more concerning. And I've done
11:47
Speaker 3: this before, and Mark Fandetti teases.
11:49
Speaker 2: Me about it.
11:49
Speaker 3: But the three month average on CPI is now running
11:53
Speaker 3: four point eight percent, So you know, just annualize the
11:58
Speaker 3: last three months, were they to continue, you'd be coming
12:00
Speaker 3: in at inflation that's pushing up towards five percent. Do
12:04
Speaker 3: I think we'll get there? No, but you know that's
12:06
Speaker 3: what the trend is telling you right now. On the PCE,
12:10
Speaker 3: it's a lot more muted. You're getting to only a
12:13
Speaker 3: three month trend of two point eight percent. But my
12:15
Speaker 3: point with all of this is that all of these
12:17
Speaker 3: numbers are higher than the year over year figures are showing.
12:21
Speaker 3: And I know there's a lot of focus on the
12:22
Speaker 3: year over year because that's how we all think about prices,
12:25
Speaker 3: is hey, what was I paying for everything in my
12:28
Speaker 3: grocery basket a year ago? And what am I paying
12:30
Speaker 3: for it now? And that number is, you know, three
12:32
Speaker 3: percent higher, which is relatively normal. You go the other
12:36
Speaker 3: direction and it's it's a bit of a different story.
12:39
Speaker 3: But all of this is leading to a lot of
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Speaker 3: conjecture and tossing around of the words stagflation, which, to
12:46
Speaker 3: be clear, stagflation, you know, combined word, which is pretty obvious.
12:50
Speaker 3: You've had an economy that would need to be stagnating
12:52
Speaker 3: and inflation that would be getting uncomfortably high. The only
12:55
Speaker 3: time in modern US history that we faced this phenomenon
12:58
Speaker 3: was the nineteen seventies. A bunch of global shocks to prices,
13:03
Speaker 3: combined with a really weak economy and frankly a bad
13:06
Speaker 3: job by the Federal Reserve for a period of time
13:08
Speaker 3: led to exorbitantly high inflation, high unemployment, economic recession, and
13:15
Speaker 3: probably one of the worst decades in US history for
13:20
Speaker 3: all sorts of market returns. Bonds did poorly, stocks did poorly.
13:25
Speaker 3: Pretty much everything but gold did really really poorly for
13:28
Speaker 3: the nineteen seventy decade. The same term is being tossed
13:32
Speaker 3: around right now, and it was tossed around in twenty
13:36
Speaker 3: twenty two as well. Inflation had reached nine percent, the
13:39
Speaker 3: economy was clearly slowing a bit.
13:42
Speaker 2: You had corporate.
13:43
Speaker 3: Earnings coming in poorly. But what you didn't get was
13:47
Speaker 3: an uptick in unemployment. And I think there's a few
13:49
Speaker 3: things you can point to as to why, but one
13:51
Speaker 3: of the big ones was the fact that the US
13:53
Speaker 3: government was still spending six percent of GDP in all
13:57
Speaker 3: sorts of things that I think generally just kept on
14:00
Speaker 3: employment down. They were spending a ton of money to
14:04
Speaker 3: stimulate the economy in different ways, and we just didn't
14:06
Speaker 3: get a recession during that period.
14:07
Speaker 4: Yeah, plus a ton of consumer demands, you know, coming
14:10
Speaker 4: out of the pandemic, a ton of savings rates, low
14:13
Speaker 4: interest rate environment previously. So I think that led to
14:16
Speaker 4: a significant amount of pent up demand and supply chain
14:19
Speaker 4: stocks created that inflationary environment.
14:21
Speaker 3: We just spent the first part of the show talking
14:24
Speaker 3: about how so far this year, and specifically over the
14:26
Speaker 3: course of last week, investors growing more concerned about recession.
14:30
Speaker 3: Very obvious, based on asset prices, based on the trades
14:33
Speaker 3: that we've seen over the last few days, based on
14:35
Speaker 3: consumer sentiment surveys. That is where the focus is lying
14:38
Speaker 3: right now. Is concern about slow down, unemployment, recession. That
14:43
Speaker 3: is what's driving markets right now.
14:46
Speaker 4: But let's finish the point on stagflation, right is that
14:49
Speaker 4: I would say at least that I don't have a
14:51
Speaker 4: tremendous amount of concern for that. The reason being that
14:54
Speaker 4: when you look at stagflation, you see slower economic growth
14:57
Speaker 4: and you see higher inflation. Maybe could make the argument
15:00
Speaker 4: that we'd see a little bit of that. I'm not
15:02
Speaker 4: overly concerned on the runaway higher inflation on that piece
15:06
Speaker 4: of things, because if we're gonna see higher unemployment, we're
15:10
Speaker 4: just not going to have the consumer demand.
15:12
Speaker 2: And I just don't see all those.
15:14
Speaker 4: Factors playing in together where we would have runaway inflation
15:19
Speaker 4: without a significant amount of consumer demand seeing a drop
15:24
Speaker 4: and spending. I think can't get behind that.
15:26
Speaker 3: I'm right there with you, and I think, if I'm
15:28
Speaker 3: going to paint the worst case scenario.
15:31
Speaker 2: Here's it.
15:32
Speaker 3: You've got that slow down and the Trump administration moves
15:37
Speaker 3: forward rapidly with tariffs even as spending cuts that they
15:41
Speaker 3: are implementing across dos and across you know, across the
15:44
Speaker 3: government take place. Right, So, you've got Trump tariffs going
15:47
Speaker 3: into place. You've got China retaliating and for instance, restricting
15:51
Speaker 3: rare earth materials from entering the United States or Canada
15:55
Speaker 3: you know, sapping reciprocal tariffs in Mexico doing the same.
15:57
Speaker 3: You've got a full on trade war developing, having prices
16:00
Speaker 3: higher at the same time that the US government is
16:03
Speaker 3: trying to do the right fiscal responsible thing, which is
16:06
Speaker 3: controlling spending to a more reasonable level. In that type
16:12
Speaker 3: of case, in a worst case scenario, could you see
16:15
Speaker 3: stagflation environments. Yeah, I'll accept that premise. On the other hand,
16:21
Speaker 3: should you see spending cuts at the government level kind
16:24
Speaker 3: of opening up space for private sector investment when combined
16:28
Speaker 3: with tax cuts and maybe a trade war that just
16:32
Speaker 3: does not materialize in the ways that the worst concerns
16:35
Speaker 3: are standing out there, then you've got a very different
16:38
Speaker 3: looking economy. And I'm not willing to say that I'm
16:42
Speaker 3: fully convinced of one versus the other, and quite frankly,
16:45
Speaker 3: we'll probably have somewhere in the middle here. But I
16:48
Speaker 3: am with you, Paul that I have a really difficult
16:51
Speaker 3: time buying into the stagflation argument. A lot of things
16:55
Speaker 3: have to go really really wrong for that to happen,
17:00
Speaker 3: and I'm just not sure we're anywhere near that.
17:03
Speaker 4: Plus there's some outs there from a policy perspective, like
17:06
Speaker 4: the tariff piece. There's always the ability to pivot from
17:09
Speaker 4: that approach. I mean we see it on a daily basis.
17:11
Speaker 4: So the tariff pivot, what do you mean so the
17:15
Speaker 4: idea that you know, under your worst case assumption, we're
17:18
Speaker 4: assuming all of those things are in place for an
17:21
Speaker 4: extended period of time, but we can see very quickly
17:23
Speaker 4: that those things can be modified, and you would probably
17:27
Speaker 4: have federal reserve action occur at the same point in time.
17:30
Speaker 4: If we see unemployment spike and if we see well
17:33
Speaker 4: that that would be a tricky spot because inflation we'd
17:35
Speaker 4: be rising.
17:35
Speaker 2: And yeah, that's my point is FED has no idea
17:38
Speaker 2: what to do with That's right, I don't either. That's
17:40
Speaker 2: why why stagflation sucks. Yeah, there is no solution from it.
17:44
Speaker 3: The solution quite honestly, I mean what got the nineteen
17:47
Speaker 3: seventies out of that period of time was just accepting
17:49
Speaker 3: the fact that we're going to have a terrible recession.
17:52
Speaker 2: It's going to be awful.
17:53
Speaker 3: Yeah, right, that was vulcars is we are going to
17:56
Speaker 3: have an awful period of economic time, but we're going
17:59
Speaker 3: to be this thing.
18:00
Speaker 2: Only way to beat.
18:00
Speaker 3: The inflation expectations down is we are going just going
18:03
Speaker 3: to have a terrible economy for an extended period of time.
18:05
Speaker 3: Nobody's going to like it. Everybody's going to be unhappy.
18:08
Speaker 3: Presidents are going to lose their jobs, and eventually we
18:11
Speaker 3: will beat back those inflation expectations. And that's, you know,
18:16
Speaker 3: probably what the approach would have to be. And nobody
18:20
Speaker 3: would be terribly happy about that. If it were to
18:23
Speaker 3: come to pass, we will be having a Federal Reserve
18:27
Speaker 3: meeting in just a few weeks here. That occurs on
18:30
Speaker 3: March nineteenth. I am sure there are going to be
18:33
Speaker 3: extended questions about Trump administration policy on tariffs and everything else.
18:39
Speaker 3: They are very likely to ignore most of those questions
18:43
Speaker 3: like they have just about everything else when it comes
18:45
Speaker 3: to politics. But this is going to be an increased
18:48
Speaker 3: focus I think of the FED is where do the
18:52
Speaker 3: true risks lie to this economy. That's a FED that's
18:56
Speaker 3: very much wanted to focus more on the unemployment risks
19:00
Speaker 3: and the inflation risks. But will they be able to
19:02
Speaker 3: continue to do so throughout twenty twenty five? That is
19:05
Speaker 3: the big question. Let's take a quick break. When we
19:08
Speaker 3: come back, we're going to have a full market update
19:10
Speaker 3: for you with Wall Street Watch, and then I want
19:13
Speaker 3: to dive into that Federal Reserve question because it's got
19:16
Speaker 3: everyone's interests in mind.
19:18
Speaker 2: Quick break that's next.
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Speaker 1: far today right here on the Financial Exchange Radio network.
19:52
Speaker 5: Following yesterday's sell off driven by concerns about a softening
19:56
Speaker 5: economy and terifun certainty, markets today are bouncing back modestly.
20:01
Speaker 5: Traders this morning are digesting another inflation reading the Core
20:05
Speaker 5: PCE index, which climbed two point six annually, in line
20:09
Speaker 5: with expectations. Right now, the Dow is up by two
20:13
Speaker 5: hundred and twenty four points, are just above half a
20:16
Speaker 5: percent higher. S and P five hundred also up over
20:19
Speaker 5: half a percent higher a thirty three points, and the
20:22
Speaker 5: Nasdaq is up by seven tenths of a percent to
20:24
Speaker 5: one hundred and thirty four points. Russell two thousand is
20:27
Speaker 5: up by about a third of a percent. Tenyure treasure
20:30
Speaker 5: REIEALED is down by two basis points at four point
20:33
Speaker 5: two six percent, and crude oil off over one percent today,
20:38
Speaker 5: training just above seventy three dollars a barrel after sinking
20:42
Speaker 5: eight percent yesterday, and video shares are up by two
20:45
Speaker 5: percent today. This comes after the chip maker saw a
20:48
Speaker 5: decline and gross profit margin in the fourth quarter, while
20:51
Speaker 5: its revenue beat was its smallest in two years. Meanwhile,
20:55
Speaker 5: several Chinese stocks, including Ali Baba, PDD Holdings and automaker
21:00
Speaker 5: Neo are seeing losses of about three percent after China
21:03
Speaker 5: vowed to retaliate if necessary against President Trump's latest threat
21:08
Speaker 5: to impose an additional ten percent tariff Elsewhere. Dell Technologies
21:12
Speaker 5: miss fourth quarter revenue estimates while it's earnings beat. Dell
21:15
Speaker 5: set has sold about ten billion dollars of AI optimized
21:19
Speaker 5: servers in its fiscal twenty twenty five and expects to
21:22
Speaker 5: sell about fifteen billion dollars in AI system sales in
21:26
Speaker 5: the current year. That stocked down by five percent. Sticking
21:30
Speaker 5: with the computer space, where HP shares are down by
21:32
Speaker 5: about six percent after it issued weaker than expected second
21:37
Speaker 5: quarter guidance reflecting the cost of diversifying its supply chain
21:41
Speaker 5: outside of China due to tariff increases. As for its
21:44
Speaker 5: latest quarter, earning slightly missed while revenue beat. Autodesk shares
21:50
Speaker 5: down by three percent after the software company beat fourth
21:53
Speaker 5: quarter forecast. The company also announced that it's planning to
21:56
Speaker 5: lay off thirteen hundred and fifty employees, or about nine
22:01
Speaker 5: percent of its workforce. Walgreens was downgraded by Deutsche Bank
22:05
Speaker 5: to sell, where the firm said it season an unusually
22:07
Speaker 5: high degree of uncertainty around the take private deal from
22:10
Speaker 5: Sycamore Partners, Walgreens down by about four percent, and after
22:15
Speaker 5: twenty one years, Microsoft announced it would shut down messaging
22:18
Speaker 5: service Skype on May fifth. The software company is encouraging
22:23
Speaker 5: any left holder leftover Skype users to migrate over to
22:26
Speaker 5: its free teams app. I'm Tucker Silva and that's Wall
22:30
Speaker 5: Street Watch.
22:31
Speaker 2: Kind of forgot about Skype, right, I don't know that
22:34
Speaker 2: was a verb.
22:36
Speaker 4: Yeah, when I was studying abroad back in twenty ten
22:38
Speaker 4: or two eleven, that's what you do. You skyped with
22:41
Speaker 4: people like family back home. That was the go to
22:43
Speaker 4: And I just I never understood why it didn't take
22:48
Speaker 4: Zoom's position because it's been around way longer.
22:51
Speaker 2: I mean opportunity.
22:52
Speaker 5: Yeah, this is Skype was the original verb.
22:55
Speaker 2: Yeah, and then it shifted into zoom. Yeah, now it's
22:58
Speaker 2: what's app you No, it's zoom.
23:00
Speaker 5: Well, WhatsApp is just like its messenger.
23:03
Speaker 3: Well back in the day again, if you were studying
23:04
Speaker 3: abroad or something like that, like I remember calling, I
23:07
Speaker 3: would buy minutes on Skype to call home right right
23:13
Speaker 3: by the way, Tucker, I'm gonna call you that top
23:16
Speaker 3: ten Wall Street Watches.
23:17
Speaker 2: There, Oh, look at you. Thank you appreciate it.
23:19
Speaker 3: I know it's your job to review me rather than
23:21
Speaker 3: the other way around, but top tenure. So we do
23:27
Speaker 3: head in the next few weeks over to a Federal
23:29
Speaker 3: Reserve meeting, and I'll tell you this administration has been
23:33
Speaker 3: obviously rapid fire with policy shifts and executive orders changes
23:39
Speaker 3: to the government to spending. Doge has been you know,
23:43
Speaker 3: rapid fire announcements teriff announcements. One thing has been notably absent,
23:47
Speaker 3: which I've been quite happy about, which is I've seen
23:50
Speaker 3: almost nothing from Donald Trump himself or his administration on
23:55
Speaker 3: the Federal Reserve. In fact, at the most recent announcement,
23:59
Speaker 3: Donald Trump pretty much agreed with the Feds to king
24:02
Speaker 3: rates are exactly where they were. Other than that, you know,
24:06
Speaker 3: like every question that Jerome Powell faced at the most
24:09
Speaker 3: recent press conference was well, what if the Trump administration
24:12
Speaker 3: leans you on you on this, what are the tariff policies.
24:16
Speaker 2: Going to do?
24:17
Speaker 3: How are you going to exert your influence and not
24:21
Speaker 3: succumb to pressure from the White House. That pressure has
24:24
Speaker 3: been completely absent, which I find very very interesting.
24:27
Speaker 4: It really has you know, some people theorized that perhaps
24:30
Speaker 4: Secretary Treasury Secretary descent is behind that where he has
24:34
Speaker 4: got Trump, you know, sort of focus more on longer
24:38
Speaker 4: term rates, which the Federal Reserve has limited control over.
24:41
Speaker 4: And I can't reinforce enough from an economic perspective, you know,
24:44
Speaker 4: what we do on a daily basis. The autonomy of
24:46
Speaker 4: the FED is critical for the governance structure, regardless of
24:51
Speaker 4: who is in office. The independence of the FED and
24:55
Speaker 4: just being uninfluenced by what's going on from a political
24:58
Speaker 4: perspective is so critical. They need to have sort of
25:01
Speaker 4: an unbiased view. And I know that's not always easy
25:05
Speaker 4: to believe, but it's really critical for where the economy.
25:08
Speaker 3: Yeah, I mean, I would say the lack of independence
25:10
Speaker 3: from the FED was one of the critical reasons that
25:13
Speaker 3: the economy ended up where it did in the nineteen seventies.
25:16
Speaker 3: From most historical reviews, the FED succumbed to political influence
25:23
Speaker 3: from the White House, kept rates lower than they should
25:26
Speaker 3: have been in the face of rising inflation, and what
25:28
Speaker 3: you ended up with was the arguably worst economy for
25:33
Speaker 3: a decade since the Great Depression.
25:34
Speaker 4: And Vulgar having to come in and be the bad guy. Yeah,
25:38
Speaker 4: and that's what the FED has to do sometimes. That's
25:40
Speaker 4: why it needs the autonomy is because they need to
25:43
Speaker 4: be the bad guys and to take away.
25:44
Speaker 2: The punch bowl exactly.
25:45
Speaker 3: They have to take away the punch bowl ultimately. And
25:48
Speaker 3: there's really, again what I'm staying positive about is there's
25:53
Speaker 3: been none of that pressure campaign from the White House.
25:56
Speaker 3: Seemingly at least, you never know what's going on behind
25:58
Speaker 3: closed doors on the FED. And I think part of
26:01
Speaker 3: it is just the recognition and realization that, yeah, if
26:05
Speaker 3: the FED lowers rates, that might be good.
26:06
Speaker 2: For stock prices.
26:07
Speaker 3: Like you know, let's be honest, right if if you're
26:09
Speaker 3: seeing money market rates go down, then you're going to
26:13
Speaker 3: have some investors pumping that money into other asset classes,
26:16
Speaker 3: and so that can influence equity markets to some degree.
26:19
Speaker 3: But take a look at what happened when the FED
26:21
Speaker 3: started cutting rates last fall. The exact opposite of what
26:24
Speaker 3: you would want if you want long term economic growth
26:27
Speaker 3: and development, The exact opposite happened. The Fed cut rates
26:32
Speaker 3: three or four times, three times. Guess what where mortgage
26:39
Speaker 3: rates went. Guess where auto loan rates went. I guess
26:41
Speaker 3: where every interest rate that actually matters to long term
26:45
Speaker 3: growth in this economy went. It went up at the
26:47
Speaker 3: same time that the FED was cutting back on rates,
26:50
Speaker 3: and you know, part of that is not really.
26:53
Speaker 2: Related to what the FED was doing.
26:54
Speaker 3: It was just growing optimism about not sinking into a
26:57
Speaker 3: recession and u and in part range of administration and
27:01
Speaker 3: lower taxes and all these exciting things that were happening,
27:03
Speaker 3: But that will still play out potentially in that same way.
27:08
Speaker 3: And so I think the Trump administration scott essence in particular,
27:12
Speaker 3: remaining focused on longer term rates, which are outside the
27:16
Speaker 3: control of the FED and the White House as well.
27:18
Speaker 3: But you know, again can be influenced if you get
27:21
Speaker 3: serious about cutting spending, if you get serious about bringing
27:24
Speaker 3: down that level of spending compared to GDP, which again
27:28
Speaker 3: under the last few years the Biden administration was running
27:31
Speaker 3: six or seven percent of GDP. For a historical context here,
27:35
Speaker 3: that's run two and a half percent four since since
27:38
Speaker 3: World War Two. Like six to seven percent of GDP
27:42
Speaker 3: is a crazy pace of government spending compared to tax
27:45
Speaker 3: revenues gained. And if that comes back, you do have
27:49
Speaker 3: a real possibility of lowering long term rates. Unfortunately, that's
27:54
Speaker 3: not what's happened recently. What's happened recently is long term
27:57
Speaker 3: rates coming down purely because investors are right about a recession. Right,
28:01
Speaker 3: Let's take a quick break. When we come back. More
28:05
Speaker 3: tariff talk China vowing all necessary measures against new US
28:09
Speaker 3: announced tariffs that could go into place as soon as
28:12
Speaker 3: Tuesday of next week. We'll be right with that. Back
28:14
Speaker 3: with that next Here on the Financial Exchange.
28:17
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Speaker 3: A spokesperson for the Chinese Ministry of Commerce on Friday
29:24
Speaker 3: today said quote, if the US insists on having its
29:27
Speaker 3: own way, China will counter with all necessary measures to
29:30
Speaker 3: defend it's legitimate rights and interests. This is in reaction
29:35
Speaker 3: to the Trump administration announcing that on Tuesday of next
29:39
Speaker 3: week they intend to implement an additional universal ten percent
29:42
Speaker 3: increase on tariffs, which they already face a ten percent
29:47
Speaker 3: bump from the last month's increases. Following that increase, the
29:50
Speaker 3: Chinese Isshijiping in his administration opened up some investigations into
29:56
Speaker 3: big US test tech companies.
29:59
Speaker 2: They it mainly.
30:01
Speaker 3: Took some symbolic measures from everything that I could tell right,
30:03
Speaker 3: and they opened up an anti trust investigation into Google,
30:06
Speaker 3: which hasn't done business in the country for over a decade.
30:11
Speaker 3: The question will be how do they retaliate this time?
30:13
Speaker 3: And I think there's a very key difference between how
30:18
Speaker 3: the EU or Canada and Mexico might be making plans
30:22
Speaker 3: to deal with the US plans of tariffs versus how
30:25
Speaker 3: China will be doing it, and really for one reason,
30:27
Speaker 3: because you have a single person in control of the
30:31
Speaker 3: entire Chinese economy, they can react very differently to it.
30:35
Speaker 3: I mentioned before, I think the retaliation from the Chinese
30:40
Speaker 3: the first time around was largely symbolic. I don't think
30:42
Speaker 3: it had any real effect, and I have no idea
30:45
Speaker 3: what the next round will look like. But one that
30:48
Speaker 3: has been discussed has been China's pretty much monopoly on
30:52
Speaker 3: rare earth materials. If they really want to hit the
30:56
Speaker 3: US economy, if they want to hit the US semiconductor industry,
31:00
Speaker 3: which is you know, another area that we have been
31:03
Speaker 3: very pointedly pushing China back away from, then yeah, restricting
31:09
Speaker 3: the exports of a whole bunch of rare earth materials
31:12
Speaker 3: that are critical to be able to develop semiconductors, to
31:16
Speaker 3: develop batteries and all sorts of technology that the US
31:19
Speaker 3: wants to dominate in would be a fairly low hanging
31:23
Speaker 3: fruit that again might damage the Chinese economy more than
31:25
Speaker 3: the US one, but would still be a big roadblock
31:29
Speaker 3: to development here in the United States.
31:30
Speaker 4: Yeah, I'll be interested to see what sort of retaliatory
31:33
Speaker 4: measures that China comes out with. Like you said, typically
31:36
Speaker 4: they've been pretty measured in their approach and usually only
31:40
Speaker 4: coming out with retaliatory tariffs after the ones that the
31:44
Speaker 4: US have instituted have gone to effect. And it seems
31:47
Speaker 4: like like you mentioned with the Google antitrust case, sort
31:50
Speaker 4: of picking and choosing items that wouldn't overly irritate the
31:54
Speaker 4: United States in terms of its impact.
31:57
Speaker 3: And specifically last time around they targeted into under Republican control, right,
32:03
Speaker 3: they went after Senator Mitch McConnell's hometown, they went and
32:07
Speaker 3: you know, went after I think the coal industry last time,
32:10
Speaker 3: targeting you know, big voter blocks of the of the
32:14
Speaker 3: Trump administration, and it's and it's you know elected officials,
32:18
Speaker 3: senators and House of Representatives, and so that's where they
32:22
Speaker 3: can be much more targeted than say that you can
32:25
Speaker 3: where you've got to get fifteen nations all on the
32:28
Speaker 3: same page about what types of products you're going to
32:30
Speaker 3: retaliate against and with what means like no if shi
32:33
Speaker 3: Jingping says open investigation into Apple's manufacturing of products here
32:39
Speaker 3: in China, then tomorrow that happens.
32:42
Speaker 4: Right, And then also the other piece of it is
32:45
Speaker 4: they have to be a little bit more strategic because
32:47
Speaker 4: we are such a big importer of goods relative to
32:50
Speaker 4: what we export to China. I mean, we're talking about
32:52
Speaker 4: in twenty twenty four, four hundred and sixty two billion
32:55
Speaker 4: worth of goods reported from China, about fourteen percent of
32:58
Speaker 4: total US imports. So it's a signific some and that's
33:01
Speaker 4: why they sort of have to take a more measured
33:03
Speaker 4: approach because the Chinese economy, as we've covered in the show,
33:06
Speaker 4: is not in a tremendous place at the moment.
33:08
Speaker 3: I have been encouraged to see, however, that other countries
33:12
Speaker 3: have been kind of tagging along so far, because here's
33:15
Speaker 3: the concern if you're Europe, or if you are Vietnam
33:17
Speaker 3: or any of those surrounding countries. Korea, Okay, the United
33:20
Speaker 3: States just slapped terrace on a whole bunch.
33:22
Speaker 2: Of Chinese goods.
33:23
Speaker 3: They're suddenly going to need a dumping ground for all
33:26
Speaker 3: those products, and if they dump it into South Korea,
33:29
Speaker 3: then that's going to decimate our whatever aluminum manufacturing sector.
33:33
Speaker 3: And so over the past week, both South Korea and
33:37
Speaker 3: Vietnam followed in Washington's footsteps slapped terrace on Chinese steel
33:40
Speaker 3: products for instance. Yep, mainly because they just didn't want
33:43
Speaker 3: it all dumped into their economy and sink their own
33:45
Speaker 3: domestic manufacturers. So I would like to see more of
33:49
Speaker 3: that type of coordination. That's not exactly been coordination, but
33:52
Speaker 3: that type of coordination is how you actually potentially drive change.
33:57
Speaker 4: What a tangled web we weave.
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Speaker 3: The SEC has declared that meme coins are not subject
35:39
Speaker 3: to their oversight. This has been a very stark difference
35:43
Speaker 3: from the previous SEC and their approach to crypto as
35:47
Speaker 3: a whole. Meme coins obviously a fair bit different in
35:51
Speaker 3: terms of how they work compared to a larger cryptocurrency
35:57
Speaker 3: that is a bit more mainstream, and so I'm not
35:59
Speaker 3: surprised that the SEC has taken this approach because quite frankly,
36:05
Speaker 3: the SEC can't go and try and regulate everything, and
36:08
Speaker 3: trying to make the pitch that a meme coin is
36:11
Speaker 3: a security, I don't know. I found it to be
36:14
Speaker 3: a bit of a stretch under the previous SEC, and
36:18
Speaker 3: I'm not sure how you would justify it under this one.
36:20
Speaker 3: It's not to say that these things should be legitimized,
36:24
Speaker 3: you know, by and large, I don't know how to
36:27
Speaker 3: treat them and how to regulate them, because I think
36:29
Speaker 3: it is an area that is ripe for ripoff fraud.
36:32
Speaker 4: And I mean doesn't there's doesn't that happen on a
36:34
Speaker 4: daily basis. It seems like the only stories that I
36:36
Speaker 4: hear about relative to mean coins are because of abuses
36:40
Speaker 4: of fraud and all sorts of manipulation that goes with it.
36:43
Speaker 4: So at some point you just want the consumer or
36:47
Speaker 4: the buyer beware and not have to, like you said,
36:50
Speaker 4: have regulation jump into this, because to me, it seems
36:53
Speaker 4: so self explanatory that you're not backed by anything when
36:56
Speaker 4: you're jumping into these waters, Like why get into it
36:59
Speaker 4: if you're not willing to lose everything that you put in.
37:02
Speaker 3: I mean, yeah, I mean, to me, it is another
37:05
Speaker 3: form of gambling. It is another form of really weird collectibles.
37:10
Speaker 2: You know.
37:11
Speaker 3: It's how often, for instance, do we see advertisements on
37:15
Speaker 3: the TV about this commemorative coin that's coming out this
37:18
Speaker 3: year and subscribe to yours now and again, I think
37:23
Speaker 3: that's probably a little bit more legitimate than a meme coin.
37:25
Speaker 3: But they're not regulars were really popular, Like I don't
37:29
Speaker 3: know if those I mean, they're still clearly around, but
37:31
Speaker 3: like you'll hear less and less about those. So the
37:33
Speaker 3: lesson here is buyer beware, big time buyer beware, and
37:38
Speaker 3: the SEC is basically saying we're not going to have
37:40
Speaker 3: our hand in it because you need to be aware
37:42
Speaker 3: of it. Quick break, but a lot more to cover
37:44
Speaker 3: in the second hour, the financial exchange, including doom spending,
37:48
Speaker 3: what is it and what's been going on recently?
37:50
Speaker 2: Consumers