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Why is Trump delaying the EU tariffs? · The Financial Exchange Show

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1:12
Speaker 2: Good morning, Happy Tuesday. I hope everyone had a lovely
1:16
Speaker 2: Memorial Day. More of itself was quite nice. The whole
1:19
Speaker 2: rest of the weekend was terrible time to have a
1:21
Speaker 2: three day weekend, but I hope everyone had a great
1:24
Speaker 2: long weekend and back added on Tuesday feeling refreshed. I
1:27
Speaker 2: know I am, especially with markets making a completely illogical
1:32
Speaker 2: jump forward here on some tariff news, we'll be covering that,
1:35
Speaker 2: as well as the news from Friday of last week
1:38
Speaker 2: when it came to the EU, as well as Apple.
1:40
Speaker 2: We'll be talking a little bit too about the deficit
1:44
Speaker 2: and just that growing number and whether or not it
1:47
Speaker 2: should eventually matter to households, and a bit of housing
1:51
Speaker 2: talk as well. It's Mike, Paul and Tucker with you
1:54
Speaker 2: on a Tuesday morning here. In terms of other data
1:58
Speaker 2: points that will be looking at this week, do you
2:00
Speaker 2: get the Federal Reserves preferred measure of inflation, which gets
2:04
Speaker 2: released on Friday of this week. There's some consumer confidence
2:08
Speaker 2: numbers coming out this week as well, but earnings are
2:11
Speaker 2: at this point pretty much done, pretty solid earning season,
2:14
Speaker 2: as we will get into. Obviously, news didn't really focus
2:18
Speaker 2: on that a whole lot, as much as it did
2:20
Speaker 2: the tariff changes and up and down on those policies.
2:23
Speaker 2: But we have a consumer confidence reading that just came out.
2:26
Speaker 2: I believe today at ten am, we'll have Fed Reserve meeting,
2:31
Speaker 2: Federal Reserve members meeting all week and basically telling you
2:35
Speaker 2: that they're not lowering interest rates anytime soon. Every Thursday
2:38
Speaker 2: we get the jobless claims. We'll also get pending home
2:41
Speaker 2: sales on Thursday. And then, like I mentioned, that preferred
2:45
Speaker 2: inflation reading from the Federal Reserve, that the PCE index.
2:48
Speaker 2: They don't produce it. It's the Conference Board that produces this,
2:51
Speaker 2: but that's their preferred measure of inflation. In video tomorrow,
2:54
Speaker 2: the videos is going okay. So the last big and
2:59
Speaker 2: arguably one of the most important earnings calls of the
3:01
Speaker 2: season will be going tomorrow before or after the bell.
3:04
Speaker 2: After the bell tomorrow, So let's just recap what we
3:09
Speaker 2: had happened over the course of the weekend. On Friday
3:12
Speaker 2: during our program, I believe it, right before the program,
3:16
Speaker 2: the White House announced new tariffs on the European Union.
3:20
Speaker 2: After being frustrated, apparently with the pace of negotiations with
3:23
Speaker 2: the EU, we announced new fifty percent tariffs on all
3:28
Speaker 2: European goods starting on June first. Those are now delayed.
3:32
Speaker 2: Those are now July first instead, after calls occurred with
3:36
Speaker 2: the White House and European Commission President Ursula Vonderline, So
3:43
Speaker 2: those are now suspended. Apparently the ones on Apple are
3:48
Speaker 2: I think still on, but we don't have a lot
3:50
Speaker 2: of clarity because I don't think you can have single
3:52
Speaker 2: company tariffs. Tucker, am I missing anything on this. There's
3:56
Speaker 2: been no news on this, but on Friday was announced
3:58
Speaker 2: that Apple specifically was going to face twenty five percent
4:02
Speaker 2: tariffs on all imported iPhones. I doubt that the White
4:07
Speaker 2: House is going to impose specific tariffs on just iPhones.
4:11
Speaker 2: I would suspect that it'll apply to Samsung and Google
4:14
Speaker 2: and many other electronics companies as well. But this apparently
4:19
Speaker 2: in response to the push from Apple to look at
4:22
Speaker 2: India as a kind of replacement for the Chinese manufacturing hub,
4:26
Speaker 2: and in fact you did see in the month of
4:28
Speaker 2: April the US imports of iPhones surge in India. Mainly,
4:33
Speaker 2: my guests would be because they have flexibility in terms
4:37
Speaker 2: of just where they ship the same product from, and
4:39
Speaker 2: so if you can say, okay, send all our Chinese
4:41
Speaker 2: made iPhones to Europe. Send all of our Indian made
4:45
Speaker 2: iPhones to the United States, then you can kind of
4:47
Speaker 2: balance out that trade risk. But nonetheless we will be
4:50
Speaker 2: awaiting more news on that front. And in fact, Trump
4:54
Speaker 2: advisor Hasset says, they quote don't want to harm Apple
4:57
Speaker 2: with iPhone tariffs. To me, this means it's not actually happening.
5:02
Speaker 2: And I guess that's where I want to start with
5:05
Speaker 2: all of this, because we had stock markets sink a
5:08
Speaker 2: little bit on Friday, and my perspective on this whole
5:12
Speaker 2: thing was, I don't buy that the European Union is
5:16
Speaker 2: going to be facing fifty percent tariffs on June first,
5:18
Speaker 2: And apparently stock market investors on Friday didn't buy it either,
5:23
Speaker 2: that the European Union was going to face fifty percent tariffs.
5:26
Speaker 2: It turns out we're right. They are not going to
5:29
Speaker 2: fase fifty percent tariffs come June first. They may face
5:32
Speaker 2: them July first, but my guess is that those don't
5:34
Speaker 2: actually go into place either. And my concern is now
5:39
Speaker 2: that the President has lost most credibility when it comes
5:44
Speaker 2: to tariffs. I don't think that they are the best
5:48
Speaker 2: tool for this job. That they're trying to achieve at
5:51
Speaker 2: least as at least not as used like I think
5:54
Speaker 2: that tariffs actually could be a really good tool when
5:57
Speaker 2: it comes to China and really combating the way they
6:00
Speaker 2: treat American businesses. But if you're going to succeed with that, A,
6:03
Speaker 2: you can't waive them after like thirty days, and B
6:06
Speaker 2: you probably need some of your close allies to pile
6:10
Speaker 2: on there and buy into the idea that, hey, European
6:13
Speaker 2: Union isn't going to keep importing all of these cheap
6:15
Speaker 2: bydevs and we're going to get together on that. And
6:20
Speaker 2: that's not how it's being used. But regardless of my
6:23
Speaker 2: own views, the White House has made tariffs a centerpiece
6:27
Speaker 2: of their policy. And the concern that I have is
6:31
Speaker 2: I don't think European Union officials took it seriously. Stock
6:34
Speaker 2: market investors definitely didn't take it seriously. And I just
6:39
Speaker 2: wonder what position this puts the White House in the
6:41
Speaker 2: next time it heads to the negotiating table with India,
6:44
Speaker 2: with the European Union, with China, is anyone actually going
6:48
Speaker 2: to believe them? And then is the administration going to
6:51
Speaker 2: need to actually push the envelope on this in order
6:54
Speaker 2: to regain credibility. These are big looming questions that I
6:58
Speaker 2: just generally get concerned over because I don't think anybody
7:02
Speaker 2: actually knows where these tariffraids are going to get.
7:03
Speaker 3: I was thinking about this morning it when the news
7:06
Speaker 3: arose on Friday, particularly because of how tight the deadline
7:09
Speaker 3: was going to be June first, the implementation of it.
7:12
Speaker 2: It was a situation.
7:14
Speaker 3: Where I similarly myself sat there and said, I'm not
7:17
Speaker 3: really concerned about this, and over the weekend it's not
7:20
Speaker 3: something that I focused.
7:21
Speaker 2: On a lot, and by Sunday it was gone.
7:23
Speaker 3: Exactly and it was just something that was an afterthought,
7:27
Speaker 3: just because you're starting to get a little bit more
7:30
Speaker 3: comfortable with the playbook from the administration. This is a
7:33
Speaker 3: negotiating tactic, and I was pretty convinced that when that
7:36
Speaker 3: information was announced on Friday that that was the reason
7:40
Speaker 3: for this.
7:40
Speaker 2: It was to a call to action to negotiate further.
7:43
Speaker 3: But not something that was going to be putablly put
7:46
Speaker 3: into place. And it does become like the Boy who
7:49
Speaker 3: Cried Wolf situation a little bit. You do have to
7:51
Speaker 3: be careful how many times you go to using this tactic,
7:55
Speaker 3: and you know, I'm not a politician and don't have
7:58
Speaker 3: the training. So I defer to the administration in office.
8:01
Speaker 3: But in terms of tariffs, I agree with you on
8:05
Speaker 3: some aspects of national security and some targeted sectors of business,
8:10
Speaker 3: it could make sense.
8:12
Speaker 2: But there needs to be a more clear plan and a.
8:18
Speaker 3: Decisive call to action. And we've talked about this a lot,
8:21
Speaker 3: because tariffs have dominated our program for months on months.
8:25
Speaker 3: Is that the back and forth nature of them, I
8:28
Speaker 3: think call into question a little bit the effectiveness of
8:32
Speaker 3: some of these tariffs if you're going to approach it
8:35
Speaker 3: in such a snip, snap on off manner.
8:38
Speaker 2: Yeah, so, I mean, look, my concern earlier this year
8:40
Speaker 2: was that, look, the announcement of these tariffs, if implemented
8:46
Speaker 2: and not given some clear direction as to the end goals,
8:48
Speaker 2: could significantly hurt the economy. It doesn't appear that that's happening.
8:53
Speaker 2: I mean, you know, could the economy. Could unemployment be lower,
8:57
Speaker 2: inflation be lower as well if we you were, and
9:00
Speaker 2: growth be higher if we weren't going back and forth
9:02
Speaker 2: on these tariffs. Maybe, but we'll never know. Right What
9:06
Speaker 2: clearly hasn't happened is massive job loss. You haven't seen
9:10
Speaker 2: a massive pullback in investment. You haven't seen a longer
9:13
Speaker 2: term pullback in US equity. So there's a number of
9:15
Speaker 2: things you can point to that say that hasn't happened
9:18
Speaker 2: in spite of all of the uncertainty around policy. My
9:22
Speaker 2: real concern at this stage continues to be that, hey,
9:24
Speaker 2: if you continue to go back and forth on this
9:26
Speaker 2: stuff for long enough, and businesses, especially smaller ones who
9:30
Speaker 2: don't have a direct line to the White House. Right
9:33
Speaker 2: if you're Tim Cook, you probably knew this was coming
9:36
Speaker 2: and you have a plan to deal with it. If
9:38
Speaker 2: you are some tiny reseller of electronic equipment, you are
9:44
Speaker 2: not having that same connection to the White House. You
9:46
Speaker 2: don't have the ability to plan that much. And so
9:48
Speaker 2: those smaller businesses, I worry about their ability to withstand
9:52
Speaker 2: this volatility and policy long term. But more concerning than that,
9:58
Speaker 2: I have real concern about the White House's credibility when
10:02
Speaker 2: it comes to trade policy right now, HM And I
10:05
Speaker 2: don't know how that manifests, but I certainly think that
10:08
Speaker 2: if you're a country that's opposing the United States when
10:10
Speaker 2: it comes to trade, you're going to push the envelope
10:13
Speaker 2: because you've seen the changes that have played out every
10:16
Speaker 2: time the envelope does get pushed see the China negotiations,
10:21
Speaker 2: and if you are an investor, I think you might
10:24
Speaker 2: just say, eh, I'm going to ignore all this because
10:27
Speaker 2: it doesn't seem like a legitimate risk to the markets
10:29
Speaker 2: of this state.
10:30
Speaker 3: That's what's been so puzzling is that I was pretty
10:33
Speaker 3: convinced that we were gonna see some poor economic reports
10:37
Speaker 3: come out on the heels of all of this tariff chatter,
10:40
Speaker 3: and we just haven't yet. That's not to say that
10:42
Speaker 3: that couldn't happen sometime in the future.
10:44
Speaker 2: Here, the theme for the US economy for the last
10:47
Speaker 2: three years has been its resilience. It's been because everything
10:52
Speaker 2: can go wrong. You can have the worst inflation you've
10:55
Speaker 2: seen in fifty years, you can have confidence in businesses
10:59
Speaker 2: and in individuals really plummeting. But the the things that
11:05
Speaker 2: matter in the big economy, the the global and the
11:09
Speaker 2: US focused economy in particular, haven't really shaken. And that
11:14
Speaker 2: resiliency is proving itself again in twenty twenty five. The
11:19
Speaker 2: question is just how many more, you know, shakes to
11:21
Speaker 2: its foundation can withstand No.
11:23
Speaker 3: It's worth noting that it's hard to remember this time,
11:26
Speaker 3: but when we had the Federal Reserve increasing interest rates
11:29
Speaker 3: on the heels of inflation levels that we hadn't seen
11:32
Speaker 3: in decades where we peaked at nine percent oftentimes, and
11:36
Speaker 3: we quoted the statistic frequently in the program. When you
11:38
Speaker 3: have into the FED raising interest rates, that drives a recession,
11:41
Speaker 3: and by all counts, we dodged that and continue to
11:45
Speaker 3: be in a place where the economy is chuggling on okay,
11:48
Speaker 3: And even on the backdrop of all this uncertainty on
11:52
Speaker 3: the business front on tariffs, we still haven't seen any
11:55
Speaker 3: meaningful economic data weakening on the US economy front, so
12:00
Speaker 3: it gives us plenty to talk about. But now it
12:04
Speaker 3: seems like the debt is taking center stage, and obviously
12:06
Speaker 3: that's something that we'll get into with the passing of
12:09
Speaker 3: this upcoming text BLO, but that seems to be much
12:13
Speaker 3: more of the primary focus. Tariffs are still at the forefront,
12:17
Speaker 3: but to me, the US deficit and the amount of
12:20
Speaker 3: debt we have that seems to be taking over national
12:23
Speaker 3: headlines as the economic focus for the moment.
12:25
Speaker 2: Let's take a quick break when we come back. I
12:27
Speaker 2: do want to continue to stay on the EU for
12:30
Speaker 2: a moment here in trade between the United States and
12:32
Speaker 2: the EU. When you think of it as that entire block,
12:36
Speaker 2: it is a massive amount of trade. Where are the
12:39
Speaker 2: deficits in that trade? Where does the United States have
12:41
Speaker 2: surpluses with the EU? And what's likely to be the
12:44
Speaker 2: focus on what is likely to be some rushed trade negotiations.
12:48
Speaker 2: Now over the next thirty some odd days quick break,
12:51
Speaker 2: We'll be back with that next year on the Financial Exchange.
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13:27
Speaker 2: So when we talk about trade between single nations and
13:30
Speaker 2: the United States, Mexico, Canada, and China obviously top the list.
13:34
Speaker 2: In twenty twenty three, US trade with Mexico total nearly
13:37
Speaker 2: eight hundred billion dollars, Canada seven hundred and seventy three billion,
13:41
Speaker 2: and China five hundred and seventy five billion dollars. So
13:44
Speaker 2: massive individual trade partners there. But when you look at
13:47
Speaker 2: the European Union as a whole, which is who we
13:50
Speaker 2: are negotiating with. When it comes to tariffs, we're talking
13:53
Speaker 2: about a number of one point six trillion dollars. Sorry,
13:56
Speaker 2: that's one point six trillion euro which is pretty close
13:59
Speaker 2: to dollars now. And so these negotiations that are occurring,
14:06
Speaker 2: I think they've been minimized a little bit, probably because
14:09
Speaker 2: of the volatility of them and the implementation and the
14:12
Speaker 2: delay of the tariffs, but they are significant based on
14:16
Speaker 2: that total level of trade, and it is very true
14:19
Speaker 2: the United States has a pretty big deficit with Europe.
14:23
Speaker 2: I think the problem that we're going to face if
14:26
Speaker 2: the end goal is to level out the trade imbalance,
14:31
Speaker 2: which I keep going back to, I'm not sure that's
14:34
Speaker 2: the end goal. Clearly that was the highlight of the
14:38
Speaker 2: Liberation Day tariffs was trade imbalance. But you know, I
14:41
Speaker 2: think it's become pretty clear that one of the goals
14:43
Speaker 2: is to raise revenue to offset tax changes, and one
14:47
Speaker 2: of the goals has been you know, bringing mayfacturs, bringing
14:51
Speaker 2: manufacturing jobs back to the US. But assume for a
14:54
Speaker 2: moment that the goal is addressing the trade imbalance. There
14:57
Speaker 2: are a few concerns that if you're on the EU
14:59
Speaker 2: side of them, yes, you're going to have with that one.
15:02
Speaker 2: When we talk about the trade imbalance, most frequently what
15:04
Speaker 2: gets cited is the imbalance in goods. So they send
15:09
Speaker 2: us olive oil, we send them bourbon, they send us planes.
15:13
Speaker 2: We send them planes, but they send us planes and
15:15
Speaker 2: we send them forwards. And there's a big imbalance there
15:19
Speaker 2: when it comes to that trade and goods. However, when
15:23
Speaker 2: you get to the trade and services, this starts to
15:27
Speaker 2: shift back in the US's favor. Right. So if you
15:30
Speaker 2: go talk about the largest Internet based companies that operate
15:34
Speaker 2: in Europe, yes you've got local telecoms, but there isn't
15:39
Speaker 2: a Spanish Facebook that has made huge headway. It's Facebook,
15:44
Speaker 2: It's Instagram, it is LinkedIn, it's Microsoft, it is Google, Netflix,
15:51
Speaker 2: and US based services companies that provide all sorts of
15:55
Speaker 2: technology services to the European Union. When you include that
16:00
Speaker 2: in there, there's still a small trade imbalance with the
16:02
Speaker 2: European Union. And you know, if that is the focus,
16:06
Speaker 2: I can see where it gets addressed. But that is
16:08
Speaker 2: going to be a major point of the European Union.
16:11
Speaker 2: And I do wonder how the Trump administration tries to
16:14
Speaker 2: navigate that. Might they say, hey, you need to open
16:16
Speaker 2: up even further to US based tech companies, because it's
16:20
Speaker 2: also true that Europe has some of the toughest privacy
16:24
Speaker 2: laws on the books in the world right now. So, hey,
16:27
Speaker 2: do we want you to loosen your privacy rules so
16:29
Speaker 2: that Facebook and Google can do better business in European Union?
16:34
Speaker 2: Is it going to be more about agricultural products? Again,
16:37
Speaker 2: it's not as though there's massive trade barriers across the board.
16:40
Speaker 2: When it comes to agricultural products. It's mainly what types
16:45
Speaker 2: of products they want imported. They have a big problem,
16:48
Speaker 2: for example, with the United States dumping all of our
16:51
Speaker 2: a lot of our chicken, and what do we do
16:53
Speaker 2: to sanitize it? It's I forget it exactly. Yeah, we
16:58
Speaker 2: give it a bath with some chemicals basically to kill
17:01
Speaker 2: all of the uh little bubble play, to kill all
17:04
Speaker 2: of the diseases. And you're being seems like, yeah, we're
17:08
Speaker 2: not going to eat that, we're not going to buy it,
17:09
Speaker 2: We're not going to allow you to import it into
17:10
Speaker 2: the EU. And so you know, again problem there, but
17:14
Speaker 2: how do you address it? Another one is the VAT,
17:17
Speaker 2: so the value added tax. We do not have a
17:19
Speaker 2: value added tacks in the United States. So I think
17:21
Speaker 2: it's worth discussing what it is. It's basically a tax
17:24
Speaker 2: on every part of the supply chain of a good
17:27
Speaker 2: sou Investipeda actually has a perfect example here. Let's imagine
17:31
Speaker 2: that you're manufacturing candy and there's a ten percent VAT.
17:34
Speaker 2: So the manufacturer buys the raw materials for two bucks,
17:37
Speaker 2: and then you add on a twenty cent vat. The
17:40
Speaker 2: price of that total product for the raw goods is
17:42
Speaker 2: two dollars and twenty cents. Now twenty cents goes to
17:44
Speaker 2: the government. The manufacturer then sells that candy to a
17:47
Speaker 2: retailer for five bucks. Then you've got a VAT of
17:50
Speaker 2: fifty cents HM, so you're layering on that tax. And
17:54
Speaker 2: then finally the retailer goes and sells that candy for
17:58
Speaker 2: ten bucks plus a VAT of a so you're adding
18:01
Speaker 2: a tax on every part of that supply chain. It
18:03
Speaker 2: makes you know the sale of goods in those countries
18:07
Speaker 2: compared to the United States, which has no national sales tax.
18:11
Speaker 2: We have a state by state system of sales taxes,
18:13
Speaker 2: but none of them do a value added tax like this.
18:16
Speaker 2: It might be a target of that. The problem there
18:18
Speaker 2: is it's a huge portion of you revenue. We prefer,
18:23
Speaker 2: for whatever reason, in the United States to look at
18:25
Speaker 2: sales taxes, property taxes, and income taxes. EU has a
18:28
Speaker 2: different system. Will they completely reshape the method by which
18:32
Speaker 2: they tax their citizens and instead say, hey, we're going
18:36
Speaker 2: to tax your income a whole bunch more or your
18:37
Speaker 2: property a whole bunch more. I don't know, but those
18:40
Speaker 2: would be really big changes to push for out of
18:43
Speaker 2: the European Union, which by the way, has a really
18:47
Speaker 2: slow legislative process to adapt to adopt changes. Hard to
18:50
Speaker 2: get twenty seven nations on board it is, it tends
18:53
Speaker 2: to be. Yeah, So I'm not saying that a deal
18:57
Speaker 2: is impossible here, and in fact, I think a deal
19:00
Speaker 2: the EU is likely because I don't think either country
19:03
Speaker 2: wants to see fifty percent barriers to trade. However, I
19:08
Speaker 2: think meaningful change and change to the imbalance of trade
19:12
Speaker 2: is very unlikely, mainly because we're different countries that focus
19:15
Speaker 2: on different things. The EU just saves a lot more
19:19
Speaker 2: and does not consume quite as much because of in
19:22
Speaker 2: part things like the value add attacks. Let's take a
19:24
Speaker 2: quick break. When we come back, we're gonna have Wall
19:26
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20:01
Speaker 4: Traders are returning from the holiday weekend and are seeing
20:05
Speaker 4: markets in rally mode in reaction to the US agreeing
20:08
Speaker 4: to delay tariffs of fifty percent on the European Union
20:12
Speaker 4: to July ninth. Right now, the Dow is up by
20:15
Speaker 4: over one percent, or four hundred and seventy eight points,
20:18
Speaker 4: SMP five hundred up one and a half percent or
20:21
Speaker 4: eighty eight points, in the Nasdaq up by nearly two
20:24
Speaker 4: percent higher or three hundred and sixty nine points. Russell
20:27
Speaker 4: two thousand also up nearly one and a half percent.
20:30
Speaker 4: Ten year Treasure reeled down by five basis points and
20:33
Speaker 4: is now at four point four five percent, and crude
20:36
Speaker 4: oil down about two thirds of a percent, trading just
20:39
Speaker 4: above sixty one dollars a barrel. Some breaking acquisition news
20:43
Speaker 4: this morning, after Salesforce agreed to an eight billion dollars
20:47
Speaker 4: deal for data management software firm Informatica, bolstering its AI capabilities.
20:54
Speaker 4: Informatica shares are up by five percent, while salesforce is
20:57
Speaker 4: up by two thirds of a percent. Meanwhile, Tesla jumping
21:02
Speaker 4: by five percent after CEO Elon Musk posted over the
21:06
Speaker 4: weekend he will give greater attention to his company's Xai
21:10
Speaker 4: and Tesla is what must said are have critical technologies
21:14
Speaker 4: rolling out. Separately, Tesla saw its European sales slump four
21:19
Speaker 4: fourth straight month. Elsewhere, Teamwu parent company PDD posted a
21:25
Speaker 4: steep drop in earnings and said it expects growth to slow.
21:29
Speaker 4: Earlier this month, the bargain app said it had stopped
21:32
Speaker 4: sending products to the US from China after the Trump
21:35
Speaker 4: administration ended a tariff exemption for small value shipments. That
21:40
Speaker 4: stock PDD is down by sixteen percent. In case you
21:44
Speaker 4: missed it. On Friday, Nippon Steele received a conditional green
21:49
Speaker 4: light from President Trump to take control of US Steel.
21:52
Speaker 4: After jumping twenty one percent on Friday, US Steel's stock
21:57
Speaker 4: is advancing another one percent. And Disney had a successful
22:00
Speaker 4: Memorial Day weekend at the box office, where its remake
22:04
Speaker 4: of lelo in Stitch brought in one hundred and eighty
22:08
Speaker 4: three million dollars in the US and Canada, Disney is
22:11
Speaker 4: up by two percent. On that news, I'm Tucker Silvan.
22:15
Speaker 4: That's Wall Street Watch.
22:17
Speaker 2: We're going to hear growing talks about the deficit, about
22:21
Speaker 2: the big beautiful bill that's made its way through the
22:25
Speaker 2: House and now sits with the Senate. And I want
22:27
Speaker 2: to bring up a few different pieces of this. There's
22:29
Speaker 2: a pair of articles, one from the Journal, one from
22:31
Speaker 2: Bloomberg about deficits today, and I think some context is helpful.
22:35
Speaker 2: So first of all, pulling up the old US national
22:39
Speaker 2: debt clock, the total national debt is sitting at thirty
22:44
Speaker 2: six point nine trillion dollars, which comes to about one
22:47
Speaker 2: hundred eight thousand dollars per citizen a three hundred and
22:49
Speaker 2: twenty three thousand dollars per US taxpayer. In twenty twenty four,
22:55
Speaker 2: when I would describe the economy as booming, we ran
23:00
Speaker 2: a deficit to GDP of six point four percent. That's
23:05
Speaker 2: a pretty significant number outside of wartime, just to give
23:09
Speaker 2: some context for it. In fact, when it comes to deficits,
23:13
Speaker 2: we have been running deficits every single year since two
23:18
Speaker 2: thousand and two. Two thousand and one was the last
23:20
Speaker 2: surplus that the United States ran. I'm not a proponent
23:24
Speaker 2: of surpluses. I'm not necessarily saying we should get back there.
23:28
Speaker 2: But when we talk about the last several years, which
23:31
Speaker 2: you know, let's take a look at post COVID here
23:34
Speaker 2: for a moment. So twenty nineteen we were running a
23:36
Speaker 2: deficit to GDP of four point six percent. Twenty twenty,
23:41
Speaker 2: I'm gonna say, akin to wartime, we ran one of
23:43
Speaker 2: fifteen percent, twenty twenty one twelve percent, twenty twenty two
23:48
Speaker 2: five point four percent, and twenty twenty three six point
23:50
Speaker 2: three percent. Twenty twenty four, like I mentioned, estimated to
23:53
Speaker 2: be six point four percent. We don't have official data yet.
23:56
Speaker 2: The new tax bill, if passed as is, is a
24:00
Speaker 2: expected to extend deficits by four point six trillion dollars
24:04
Speaker 2: over the next decade. There will be some offsets here
24:08
Speaker 2: and there. The big question, however, is where did tariffs land?
24:13
Speaker 2: So nobody really knows the answer to that question. But
24:17
Speaker 2: the estimates, were they to stay in place as of
24:19
Speaker 2: a few weeks ago, would be to bring in some
24:22
Speaker 2: two to three trillion dollars in income from trade tariffs,
24:26
Speaker 2: which again, these policies are for the decade, for the decade,
24:29
Speaker 2: YAH which leaves, you know, one and a half to
24:32
Speaker 2: two and a half trillion dollar deficit. The all important question,
24:38
Speaker 2: which I think the bloom I think Bloomberg puts it
24:41
Speaker 2: quite well. We're about to discover whether or not deficits
24:44
Speaker 2: actually matter. You know. Famously, VP. Dick Cheney in two
24:48
Speaker 2: thousand and two said that deficits don't matter. And at
24:51
Speaker 2: that point in time, he was right, Yeah, they didn't.
24:56
Speaker 1: Yeh.
24:57
Speaker 2: We ran them for the next twenty five years, nothing happened.
25:00
Speaker 2: They didn't matter. He was absolutely correct about that. I
25:03
Speaker 2: think he correctly took a lot of flak for it,
25:06
Speaker 2: but he was absolutely right that, you know, you could
25:08
Speaker 2: run deficits back in two thousand and two and they
25:11
Speaker 2: did not really matter in spite of all of the
25:13
Speaker 2: concerns that people had. The question is do they this time?
25:17
Speaker 2: And here's the compelling evidence of why they could matter
25:20
Speaker 2: this time. Deficits that we have run in the United
25:24
Speaker 2: States have been largely funded by a growing group of
25:28
Speaker 2: foreign buyers of our debt. They the Japanese, the Chinese,
25:33
Speaker 2: the Germans, all across the globe. I'm calling out a
25:36
Speaker 2: few of them in particular, but all across the globe.
25:39
Speaker 2: Foreigners have bought the United States debt at a pretty
25:43
Speaker 2: low rate for a few reasons. One, you know, they
25:46
Speaker 2: had a bunch of dollars because we were sending them
25:48
Speaker 2: their way. They looked at the global universe for government
25:53
Speaker 2: debt and said, hey, the United States is still growing
25:55
Speaker 2: when everyone else is shrinking, Like, that looks pretty attractive.
25:58
Speaker 2: They're beating the demographic shift, like seems like a good
26:01
Speaker 2: place to invest. And there's so much of it that
26:05
Speaker 2: we can trade in and out of it pretty quickly
26:06
Speaker 2: if we need so they've been piling in. The question
26:11
Speaker 2: is does that change this time? Because if it doesn't
26:14
Speaker 2: change now, then I think Cheney might be right for
26:16
Speaker 2: the long term. But it just doesn't matter. But when
26:19
Speaker 2: you are changing the viewpoint on trade, when you are
26:24
Speaker 2: you know, putting it right in other countries' faces, Hey,
26:27
Speaker 2: we hold all the cards and we can shift the
26:30
Speaker 2: narrative around trade whenever we want. One would think that
26:33
Speaker 2: that would start to matter.
26:34
Speaker 3: I to me, it's not a question of whether or
26:38
Speaker 3: not it matters, it's when does it matter? You know,
26:41
Speaker 3: And that's the hardest question to answer because there isn't
26:45
Speaker 3: really one deadline necessarily that it becomes problematic It really
26:50
Speaker 3: just becomes problematic when there's a shift in sentiment, when,
26:53
Speaker 3: like you mentioned, those foreign buyers start to question whether
26:56
Speaker 3: or not we're good to pay things back. And you also,
27:00
Speaker 3: we've had a period of very low interest rates, and
27:02
Speaker 3: the risk that looms is like anyone who is highly
27:06
Speaker 3: levered with debt, it's sustainable at certain rates, but you
27:10
Speaker 3: can have a very quick rapid rising of interest rates
27:14
Speaker 3: that's due out on your debt, and obviously not all
27:17
Speaker 3: that would be subject to it at once, but you're
27:20
Speaker 3: already seeing that the amount of interest that the US
27:23
Speaker 3: is paying on their debt currently as a line item
27:26
Speaker 3: on their budget is increased to I believe in the
27:29
Speaker 3: month of April was the highest monthly cost out there.
27:33
Speaker 2: Outlay was specific to debt. We now have a GDP.
27:38
Speaker 3: When Vice President Cheney said that back in two thousand
27:41
Speaker 3: and two, debt to GDP was about a fifty seven
27:44
Speaker 3: percent ratio, it's now one hundred and twenty percent. So
27:47
Speaker 3: it gets to a point with leverage of any kind,
27:50
Speaker 3: even if you're a country different than a household where
27:53
Speaker 3: you can print money, it becomes problematic at some point.
27:56
Speaker 2: The question is just when, Yeah, and that's the all
27:59
Speaker 2: important question that absolutely no one can answer. You're right
28:01
Speaker 2: about that, Paul. The mechanics of all this just to
28:06
Speaker 2: be really clear, right, I mean, the US is increasing
28:10
Speaker 2: both the amount of interest has to pay as well
28:13
Speaker 2: as the net deficit every year that we are facing here,
28:18
Speaker 2: and there's a few way, that's few different ways that
28:21
Speaker 2: that gets resolved. Let's say that they're start being fewer
28:24
Speaker 2: buyers of that debt. What happens is rates start to
28:27
Speaker 2: move up supply and demand.
28:29
Speaker 3: If there's not enough buyers, incentivize them with higher rates and.
28:33
Speaker 2: To percentivize them with higher rates. If the Federal Reserve says,
28:37
Speaker 2: can't let that happen. We can't let rates start floating away.
28:40
Speaker 2: They can go buy that debt. The way they do
28:43
Speaker 2: that is they print dollars. So again, what happens there.
28:47
Speaker 2: Hypothetically you print more dollars the dollar devalues, you end
28:51
Speaker 2: up paying back the Chinese, the Europeans, the Japanese with
28:56
Speaker 2: devalue dollars. What are they going to do next? Gonna say, Wow,
29:00
Speaker 2: I'm really worried that if I go lend the United
29:02
Speaker 2: States a bunch of money, I'm gonna get paid back
29:04
Speaker 2: in dollars that are worth a lot less. I'm not
29:06
Speaker 2: going to buy that debt, and once again drives those
29:08
Speaker 2: rates up and it becomes this spiral. What we've seen
29:11
Speaker 2: from other countries that are nothing like the United States, Greece, Argentina, Turkey.
29:16
Speaker 2: Is it happens not at all and then all at once.
29:20
Speaker 2: I'm not saying that's the path we're going to follow,
29:21
Speaker 2: because we don't have a lot in common with Argentina, right,
29:24
Speaker 2: nor Greece nor Turkey, very different economies. But this is
29:28
Speaker 2: what people talk about when they talk about the concerns
29:30
Speaker 2: of deficits. The problem that I have is we've been
29:34
Speaker 2: talking about it the same way for the last fifty
29:36
Speaker 2: some odd years, twenty plus years especially, and nothing bad
29:42
Speaker 2: has happened.
29:42
Speaker 3: But even more of a problem that I have, and
29:44
Speaker 3: this is respect to either political party, is that the
29:49
Speaker 3: amount of attention that's paid to it is so minimal.
29:52
Speaker 2: Basically, since no, that's not true, It is directly correlated
29:57
Speaker 2: to whether or not you hold power. The amount of
30:00
Speaker 2: you paid right, true, is inversely correlated to your political power.
30:04
Speaker 3: Yeah, if you're not in office, if your party's not
30:06
Speaker 3: in offits, it's very easy to beat them up.
30:08
Speaker 2: But when you are in office. It is a difference
30:11
Speaker 2: to completely ignore it.
30:12
Speaker 3: And and this this tax bill, for all that people
30:15
Speaker 3: may hear about this idea of trying to cut things,
30:19
Speaker 3: there are no cuts here. This is just adding more
30:22
Speaker 3: to it and the frustration that I have, and it's
30:25
Speaker 3: just venting at this point because nothing is going to
30:27
Speaker 3: happen about it, because the problem with having shorter terms
30:30
Speaker 3: is that these politicians just don't care. They want to
30:33
Speaker 3: come back to their respective towns or states or wherever.
30:37
Speaker 3: And just got you a forty dollars cap on salt,
30:40
Speaker 3: exactly exact.
30:41
Speaker 2: Congratulations.
30:42
Speaker 1: Yep.
30:42
Speaker 2: Let's take a quick break when we come back here.
30:45
Speaker 2: I want to talk a bit about earning season. Like
30:47
Speaker 2: you said, it was a very solid earning season that
30:49
Speaker 2: was dominated by news about other things. Quick break. We'll
30:52
Speaker 2: cover that next. On the Financial Exchange.
30:54
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30:56
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30:59
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31:01
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31:32
Speaker 2: So other than in video, we've pretty much wrapped up
31:34
Speaker 2: earning season at this point, Paul, and the results better
31:39
Speaker 2: than expected. Again, we have in video to go tomorrow,
31:43
Speaker 2: so we will see what they report. But my guess,
31:46
Speaker 2: especially when you talk about their outlook, given the deals
31:50
Speaker 2: with the Saudis and many Middle Eastern countries when it
31:52
Speaker 2: comes to semiconductors, I think their outlook's probably going to
31:55
Speaker 2: be pretty darned good. But what do we actually see
31:58
Speaker 2: in terms of, you know, profit growth across S and
32:01
Speaker 2: P five hundred companies.
32:02
Speaker 3: Yeah, it seems like the as we wrap up earnings here,
32:04
Speaker 3: the S and P five hundred profits are expected to
32:07
Speaker 3: be up thirteen percent in Q one prior versus the
32:10
Speaker 3: prior year comps. The big caveat with this earnings report here,
32:14
Speaker 3: or this earning season rather, was that this is all
32:18
Speaker 3: prior to the April tariffs that were put into place,
32:21
Speaker 3: so largely have been rather slept off by people like
32:26
Speaker 3: ourselves and other economists and investors out there, just because
32:29
Speaker 3: they were so backward looking in nature.
32:32
Speaker 2: Really the crux of the fair there front running too.
32:34
Speaker 2: That probably took place that boosted those first quarter profits,
32:37
Speaker 2: would be my guest. But the expectations were for seven
32:39
Speaker 2: percent earnings growth. We got thirteen. That it was a
32:43
Speaker 2: nice beat there. Certainly.
32:44
Speaker 3: It was really though, more of a focus on what
32:46
Speaker 3: is the commentary going to be from the executives at
32:49
Speaker 3: these companies at a Walmart, at Target and others out
32:52
Speaker 3: there as to what they're going to do facing these
32:55
Speaker 3: tariffs in future quarters. You had a lot of companies
32:58
Speaker 3: out there pulling their guidance for the remains of the
33:00
Speaker 3: year due to the uncertainty around them. Certainly, you can
33:04
Speaker 3: take some solace in the numbers that we saw in
33:06
Speaker 3: the beat that you had mentioned there on the profitability
33:09
Speaker 3: side of things, but really it does seem like there
33:13
Speaker 3: is just very little to take away from this from
33:17
Speaker 3: the big up economic picture.
33:18
Speaker 2: So tariffs were mentioned on two thousand, one hundred and
33:23
Speaker 2: thirty six earnings calls, some including Ford, withdrew their financial
33:27
Speaker 2: outlooks and so this I go back to the same
33:30
Speaker 2: story here, Paul. The American economy and American businesses have
33:34
Speaker 2: proven incredibly resilient. They are growing their profits at thirteen
33:38
Speaker 2: percent year over year. That's fairly unheard of in a
33:42
Speaker 2: major developed economy for that to continue at any sort
33:45
Speaker 2: of pace. What has held things back, what has held
33:48
Speaker 2: the US equity market back, which is what probably down
33:51
Speaker 2: now like one percent for the year somewhere in that
33:55
Speaker 2: general range, has not been fundamentals core to the economy.
33:59
Speaker 2: It's not been conc uns about inflation or GDP growth,
34:02
Speaker 2: or unemployment or even corporate earnings. It's been about tariffs
34:07
Speaker 2: and what do they mean for the average company, and
34:10
Speaker 2: how will companies react to them should they stay in
34:14
Speaker 2: place for any meaningful length of time. So that will
34:16
Speaker 2: probably just continue to dominate because the earnings they're good.
34:21
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35:23
Speaker 2: The I go about mentioning that earnings have been great,
35:27
Speaker 2: and then we immediately have to talk about a company
35:29
Speaker 2: whose earnings have been abysmal. But let's talk Tesla, Paul,
35:33
Speaker 2: because every metric we get every single month on this company,
35:37
Speaker 2: other than the CEO's commitment to staying there for another
35:41
Speaker 2: five years and finally stepping a bit away from his
35:44
Speaker 2: work with Doge, has been pretty bad news and investors
35:48
Speaker 2: were taking it as such. First off, Tesla's European sales
35:52
Speaker 2: nearly have in the month of April compared to the
35:55
Speaker 2: previous year. That is not because Europeans are driving fewer
35:59
Speaker 2: electric vehicles like is the case in the United States.
36:01
Speaker 2: Sales of gas and diesel models declined. However, deliveries of
36:06
Speaker 2: fully electric models rose some twenty eight percent. Why is
36:09
Speaker 2: Tesla struggling? One His politics don't seem to be terribly
36:12
Speaker 2: popular over in Europe. Two Chinese rival BYD is eating
36:17
Speaker 2: their lunch. Yeah.
36:19
Speaker 3: Not only are they. For the month of April did
36:22
Speaker 3: BYD sell more cars in Europe for the first time.
36:25
Speaker 3: They saw a three hundred and fifty nine percent increase
36:28
Speaker 3: in according to Jado Dynamics, but also they were up
36:32
Speaker 3: against a more unfair playing field in that there was
36:36
Speaker 3: a seventeen percent tariff in place on bid imports from China,
36:41
Speaker 3: thirty five percent on other Chinese vehicles that were electric
36:45
Speaker 3: vehicles that were imported, versus Tessa that its cars that
36:50
Speaker 3: were made in China were only facing in and around
36:52
Speaker 3: an eight percent terraff.
36:54
Speaker 2: So you're facing higher terriffs from the Chin. Chinese BYD
36:58
Speaker 2: is facing higher terrafs than tests Tesla does. Some of
37:01
Speaker 2: the manufacturing in the European Union. Those ones don't face
37:04
Speaker 2: any tariffs, and you are getting destroyed byd outsold you
37:09
Speaker 2: for the first time ever in the month of April.
37:13
Speaker 2: This is I don't know. I continue to just shake
37:17
Speaker 2: my head at Tesla. And now more than ever, no,
37:21
Speaker 2: maybe not quite, now more than any time since their
37:26
Speaker 2: engineering and delivery issues of like late twenty tens when
37:31
Speaker 2: Elon Musk was apparently sleeping on the manufacturing floor in
37:34
Speaker 2: order to get these deliveries out the door. Now, more
37:37
Speaker 2: than any time since then has this company faced a
37:40
Speaker 2: real reckoning. And the company is incredibly reliant at this
37:45
Speaker 2: stage on the future promises of self driving robotics, AI
37:49
Speaker 2: other things that are not direct to their business, because
37:53
Speaker 2: the direct to their business piece is struggling dramatically, and
37:57
Speaker 2: not just because of Elon issues. Right there are just
38:00
Speaker 2: EV demand issues across the globe right now, especially in
38:03
Speaker 2: the US that four GM and everybody else is facing two.
38:06
Speaker 2: But when EV is all you make, it's a tough,
38:09
Speaker 2: tough putt quick break. A lot more to cover in
38:11
Speaker 2: the second hour of the Financial Exchange, including Watch Out
38:15
Speaker 2: a Silver Tsunami. We'll cover that next year on the
38:17
Speaker 2: Financial Exchange