Latest / The Financial Exchange Show / Economists predict more pain for the US from Trump's tariffs

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Economists predict more pain for the US from Trump's tariffs · The Financial Exchange Show

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1:03
Speaker 1: Face is the Financial Exchange with Mike Armstrong and Mark Vandetti.
1:11
Speaker 2: Good morning, Happy Tuesday out there, and welcome to the
1:14
Speaker 2: Financial Exchange. It's Mike, Mark and Tucker with you on
1:18
Speaker 2: a relatively muted day in trading so far, and we
1:23
Speaker 2: are getting some data points that just came across.
1:25
Speaker 3: Six minutes ago.
1:26
Speaker 2: The Joltzer for the job Openings and Labor Turnover survey
1:30
Speaker 2: was released. At ten am, we will have some pieces
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Speaker 2: about the continued effort by the GOP to pass their
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Speaker 2: tax bill and the potential signs in the bond market
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Speaker 2: that it's making some waves. But before we go there,
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Speaker 2: we've got a piece today from Bloomberg. The OECD, the
1:47
Speaker 2: Organization for Economic was a cooperation and development OECD.
1:53
Speaker 3: Founded in nineteen sixty has.
1:54
Speaker 2: Put out a statement regarding global trade in the economy,
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Speaker 2: and you're all gonna be shocked to hear this. The
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Speaker 2: OECD thinks that tariffs are hurting the US and the
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Speaker 2: global economy. I don't think any giant shock there coming
2:10
Speaker 2: from a group that is all about, as the name implies,
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Speaker 2: cooperation and development. Tariffs are kind of the opposite of that,
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Speaker 2: and so not terribly thrilled about that. This is a
2:20
Speaker 2: group of thirty seven member countries founded by the EU,
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Speaker 2: US and Canada in nineteen sixty as I mentioned.
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Speaker 3: And is all about.
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Speaker 2: Again bringing down barriers to trade, cooperation and development, and
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Speaker 2: now includes members of Latin America and other parts of
2:36
Speaker 2: the world. But not hugely surprising that they are not
2:40
Speaker 2: enthusiastic about tariffs and their economic effects. I don't really
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Speaker 2: know that there's anything groundbreaking though about them making the statement,
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Speaker 2: Nor do I think there's any sort of power that
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Speaker 2: the OECD has to prevent the further deterioration of trade relations.
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Speaker 4: Yeah, the point of tariff's is to cause pain in
2:59
Speaker 4: the short term. Even the White Houses acknowledge there would
3:02
Speaker 4: be as the economy trans and by the way, I'm
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Speaker 4: just presenting their narratives sure, which I think is largely
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Speaker 4: not grounded in historical experience. But they would claim that
3:12
Speaker 4: it's supposed to more or less rejigger the economy into
3:15
Speaker 4: making stuff that we currently import. There are lots of
3:18
Speaker 4: reasons why that won't happen and shouldn't happen, but that's
3:21
Speaker 4: the claim. And to do that you need a little
3:23
Speaker 4: bit of pain in the interim. Is foreign goods get
3:26
Speaker 4: more expensive, you can't substitute immediately into cheaper domestic goods
3:30
Speaker 4: because we don't make enough stuff here, so the price
3:32
Speaker 4: of competing goods goes up too, even those made here.
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Speaker 4: The point is pain in the short term in exchange
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Speaker 4: for long term gain. That is questionable at.
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Speaker 2: Best, probably so the latest two focuses on tariffs are
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Speaker 2: obviously the peace making its way through the US court
3:51
Speaker 2: system as to whether or not the rules and laws
3:54
Speaker 2: that the President utilize to impose terrorists, reciprocal tariffs and
3:58
Speaker 2: tariffs based on the fence drug trade.
4:01
Speaker 3: Are at all legal.
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Speaker 2: Those are likely going to wind their way at least
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Speaker 2: through this court, and we should know more in the
4:07
Speaker 2: next six days because the Appeals Court allowed the existing
4:11
Speaker 2: tariffs to stay in place at least until that June
4:14
Speaker 2: ninth date. My guess as it ends up in the
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Speaker 2: Supreme Court deciding who has the proper authority here, given
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Speaker 2: that one court already ruled against the administration. But we
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Speaker 2: will see. You have the continued breakdown of negotiations with China.
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Speaker 2: Will be discussing that at length, and then you have
4:31
Speaker 2: the new imposition of stealing aluminum tariffs going in at
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Speaker 2: a fifty percent rate, and so we'll have some conversations
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Speaker 2: about the likely effects there. But you know, while that's
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Speaker 2: a concentrated area and national security concern, obviously, if you
4:45
Speaker 2: start import we do not make enough steel an aluminum
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Speaker 2: in the United States currently, as Mark pointed out, to
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Speaker 2: be able to can everything and you know, send you
4:57
Speaker 2: your beer, can send you your canned worn and make
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Speaker 2: all the cars and bridges and everything else that we
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Speaker 2: need to make here based on domestic supply of aluminum
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Speaker 2: and steel in the short term. So what it means
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Speaker 2: is that some companies will end up paying these fifty
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Speaker 2: percent tariffs on imported steel and aluminum until those factories
5:15
Speaker 2: are able to ramp up.
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Speaker 4: Yeah, Unlike with other tariffs, a small group of manufacturers
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Speaker 4: and people that work for them benefit, and the rest
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Speaker 4: of us pay the price. We pay the price directly
5:23
Speaker 4: through higher steel costs, and the rest of us isn't
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Speaker 4: just consumers, it's businesses that use steel as an input.
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Speaker 4: Last time, we lost seventy five jobs outside of steel.
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Speaker 4: By last time, I mean twenty eighteen, when when the
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Speaker 4: White House lasts input in the Trump won first term
5:40
Speaker 4: imposed steel tariffs of serious magnitude, we lost seventy five
5:46
Speaker 4: jobs outside of steel. More than one researcher has confirmed
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Speaker 4: more or less this ratio for every job gained in
5:52
Speaker 4: steel manufacturing, that's tech. That is a textbook result. Tariffs
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Speaker 4: benefit a small number of people, they hurt a large
6:00
Speaker 4: number of people.
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Speaker 2: Yeah, at least on that one, I can take a
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Speaker 2: step back and say, Okay, we have some facts from
6:06
Speaker 2: twenty eighteen when this was done recently, and so is that.
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Speaker 3: Worth the national security trade off? Right?
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Speaker 2: I don't think that's how it's being used, but that's
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Speaker 2: the laws under which it's being proposed. Is, Hey, we
6:18
Speaker 2: are going to use the aluminum tariffs to protect a
6:21
Speaker 2: national security industry that we need more domestic manufacturing of.
6:25
Speaker 2: And that's the trade off that the White House can make. Again,
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Speaker 2: you know they're not using it that way because they
6:32
Speaker 2: are using it rather to reciprocate it when other things
6:35
Speaker 2: that have been brought up. But that that is the
6:37
Speaker 2: argument that some would make.
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Speaker 4: Mike, we didn't like the Biden I say we. I
6:41
Speaker 4: don't presume to speak for you, but we thought the
6:43
Speaker 4: chips policy subsidizing manufacturer of chips here might be a
6:47
Speaker 4: good national security case for it. But the idea of
6:48
Speaker 4: picking winners giving love.
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Speaker 3: Not something that the government's grade at historically right.
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Speaker 4: So we had some as free market folks, which people
6:56
Speaker 4: who talk about finance generally are, we had some concerns
6:59
Speaker 4: about that, but it was a defensible way to stoke
7:03
Speaker 4: manufacturing in that sector, and it appears to have worked.
7:06
Speaker 4: I didn't like it. I wouldn't have done it, but
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Speaker 4: manufacturing did boom in that sector, and it continues to
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Speaker 4: experience some of the benefits, which I put in quotes
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Speaker 4: from that policy. My point is there's a first best
7:19
Speaker 4: and a second best way to do something like this.
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Speaker 4: If we think steel is important for national security reasons,
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Speaker 4: you subsidize it. You do what the Biden White House,
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Speaker 4: which I didn't like and I would not have done.
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Speaker 4: But you do what they did for chips. For steel,
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Speaker 4: you make the national security argument, then you subsidize its production.
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Speaker 4: You don't do it in such a way that it
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Speaker 4: makes the good more expensive and hurts those that use
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Speaker 4: it as an import. I'll say again, the steel tariffs
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Speaker 4: in twenty eighteen cost way more jobs than they created,
7:47
Speaker 4: and that's not even accounting for the inflationary effects that
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Speaker 4: rippled through the economy as a whole. Inflation was low,
7:54
Speaker 4: we didn't feel them but there's that angle too, which
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Speaker 4: we can ill afford right now.
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Speaker 3: So let's take a turn here.
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Speaker 2: At twelve minutes ago, we had the Job Openings Labor
8:02
Speaker 2: Turnover Survey released. As a reminder, this survey is fairly
8:06
Speaker 2: backwards looking. It gives you a state of the labor
8:09
Speaker 2: market as at the end of April. So this is
8:11
Speaker 2: the April report for jolts. It's the survey where if
8:15
Speaker 2: you remember, during COVID, there was one one job open
8:21
Speaker 2: no sorry, the other way around, there were two jobs
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Speaker 2: open for every one person looking for work and that
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Speaker 2: was a i think all time high based on this
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Speaker 2: survey and resulted in things like bonuses being paid to
8:35
Speaker 2: people and you know traditions that are traditional roles that
8:37
Speaker 2: don't really get signed on bonuses. At this stage we
8:41
Speaker 2: have come well off those COVID highs in terms of
8:46
Speaker 2: job openings as well as a bit more rebalancing in
8:49
Speaker 2: terms of those who are looking for work. And this
8:52
Speaker 2: is a useful survey in terms of drawing out how
8:55
Speaker 2: employers are thinking about the labor market and advertising roles.
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Speaker 2: And the answer has been fairly stable, has been the
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Speaker 2: survey for the last few months. The job opening's number
9:06
Speaker 2: little change. Sitting at seven point four million at the
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Speaker 2: end of April. It's about a four point four percent rate.
9:11
Speaker 2: It did not change month much month over month. The
9:14
Speaker 2: hire's rate actually did tick up a little bit. And
9:17
Speaker 2: so you know, in spite of all the news of
9:20
Speaker 2: you know, companies putting plans on the on ice and
9:23
Speaker 2: not really doing much. In the month of April, the
9:26
Speaker 2: hire's rate came in at five point six million jobs.
9:29
Speaker 2: That's up just slightly, but you know, any sort of
9:32
Speaker 2: movement can be significant from March of five point four million,
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Speaker 2: So little changed in terms of those total hires, but
9:39
Speaker 2: nonetheless a slight uptick. And same goes for the job openings.
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Speaker 2: Little change, but seven point four million compared to seven
9:45
Speaker 2: point two million in the month of March.
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Speaker 4: So the reason you hear about the VU the vacancy
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Speaker 4: is to unemployment. I was gonna call it the VU ratio.
9:51
Speaker 3: Yeah.
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Speaker 4: The reason you hear about this now and didn't hear
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Speaker 4: about it ten years ago, I certainly wasn't paying attention
9:58
Speaker 4: is in this ratio has been pretty widely reported for
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Speaker 4: about twenty years, but only recently has it become a
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Speaker 4: good measure of slack in the economy. A better measure
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Speaker 4: than the traditional one, which is just the unemployment rate.
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Speaker 4: So for someone who's doing, say a forecast of inflation, generally,
10:14
Speaker 4: when you're thinking about stresses on the economy, pressures on
10:17
Speaker 4: the economy that could cause inflation, well, you look at
10:19
Speaker 4: inflation expectations. We're going to talk about those in a
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Speaker 4: few minutes. You look at output in the economy and
10:25
Speaker 4: how it compares to potential. Said differently, how much slack
10:28
Speaker 4: there is in the economy. The unemployment rate in the
10:31
Speaker 4: twentyds and the twenty tens did allowsy job of measuring slack.
10:34
Speaker 4: The VU ratio, however, vacancy is to unemployment, which you
10:37
Speaker 4: were just talking about, Michael, That suddenly did a much
10:40
Speaker 4: better job of capturing how much access capacity there is
10:44
Speaker 4: or isn't economy. Forecasters that use that in their models
10:47
Speaker 4: got much better results backward forward.
10:50
Speaker 2: Looking, meaning in the twenty tens, they were better able
10:53
Speaker 2: to realize that you could run a hot labor market
10:57
Speaker 2: without resulting in inflation.
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Speaker 4: Really well put yeah, yeah, And in the twenty twenties,
11:01
Speaker 4: more importantly, it better captured the inflation area. You can
11:04
Speaker 4: explain both the surge and inflation and the decline in inflation,
11:08
Speaker 4: and it is important that whatever construct you have does both.
11:12
Speaker 4: You can explain the surge and the decline better using
11:14
Speaker 4: the the vacancy to unemployment ratio, which you were just
11:17
Speaker 4: talking about, than say, other measures of slack in the economy.
11:20
Speaker 4: This is why you suddenly hear so much about it.
11:22
Speaker 4: All the research in this area, the stuff that's on
11:24
Speaker 4: the cutting edge uses the view ratio vacancies to unemployment,
11:28
Speaker 4: not the unemployment rate. When explaining past inflation, particularly the
11:32
Speaker 4: COVID surge and ebbing of inflation, which we're still living through,
11:36
Speaker 4: by the way, and we're gonna talk a little bit
11:37
Speaker 4: about that too, I think later.
11:39
Speaker 3: So what does it tell us now then, Mark.
11:42
Speaker 4: It's still elevated, Mike, it explained. That's actually that actually
11:46
Speaker 4: should have been my main point. The fact that underlying inflation,
11:49
Speaker 4: which i'll use Median as a proxy for I'm sorry,
11:52
Speaker 4: we're getting into a whole different area here, but core inflation,
11:55
Speaker 4: underlying inflation, the trend in inflation, what does it really doing.
11:58
Speaker 4: Forget about the month the month, because there's a lot
12:00
Speaker 4: of noise. To use a general term in that number,
12:05
Speaker 4: core inflation or underlying inflation, I don't mean next, Food
12:08
Speaker 4: and Energy Corp. I mean real core underlying stuff that's
12:10
Speaker 4: probably running somewhere in the threes if you used media
12:12
Speaker 4: in or trimmed mean to measure it. VU stilled vacancy
12:16
Speaker 4: to unemployment ratio is twice what it was pre twenty
12:20
Speaker 4: eighteen twenty nineteen. So the economy started to run hot
12:23
Speaker 4: then and as long as that remains elevated. Yeah, so
12:26
Speaker 4: there's you combine that with inflationary expectations, which you gotta think.
12:29
Speaker 4: We're going to talk about in a few minutes, and
12:31
Speaker 4: this is why the FED can't let its guard down.
12:33
Speaker 3: Let's take a quick break.
12:34
Speaker 2: When we come back, I want to revisit a conversation
12:37
Speaker 2: from yesterday regarding trade with China and the seeming game
12:40
Speaker 2: of chicken that the two countries have been playing, the
12:42
Speaker 2: US and China. That's next here on the Financial Exchange.
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13:25
Speaker 2: There's a good piece in the Wall Street Journal today,
13:28
Speaker 2: I think about the negotiations between the US and China,
13:32
Speaker 2: and I think just gives a pretty decent job of
13:36
Speaker 2: framing it from the Chinese perspective. At the end of
13:39
Speaker 2: the day, who knows how accurate the Wall Street Journal
13:42
Speaker 2: is in any of their assertions here, but they make
13:45
Speaker 2: a few points in here. One would be that Chijing
13:48
Speaker 2: pang in the Chinese generally feel that they didn't get
13:50
Speaker 2: a great deal during the first Trump administration when it
13:53
Speaker 2: came to trade, and they generally felt that they kind
13:57
Speaker 2: of were weak and and succumb to a lot of
14:01
Speaker 2: the pushes from the Trump administration, and that the other
14:06
Speaker 2: conclusion they come to is that this time they are
14:08
Speaker 2: taking a different approach. And while very initially during the
14:11
Speaker 2: Trump administration they tried to be conciliatory and say, hey,
14:14
Speaker 2: you know, we're willing to invest in the US and
14:18
Speaker 2: you know, make some deals, since the imposition of tariffs,
14:21
Speaker 2: they have just said, hey, we're going to fight fire
14:25
Speaker 2: with fire here and really push the envelope when it
14:29
Speaker 2: comes to all of this, and have made some moves
14:32
Speaker 2: in preparation for it all they come up with a
14:37
Speaker 2: bunch of evidence of that. And again, like I said,
14:39
Speaker 2: I don't think anyone other than those very close to
14:42
Speaker 2: shi Jing Ping actually know what the end goals are
14:45
Speaker 2: with all of this, or what the real strategy is.
14:47
Speaker 2: But they make a compelling case that this is the
14:50
Speaker 2: overall approach, which is significantly different than Trump.
14:53
Speaker 3: One point zero.
14:54
Speaker 2: In the negotiations with China, they have done a pretty
14:58
Speaker 2: good job of narrowing the technology.
15:00
Speaker 3: Gap with the US.
15:01
Speaker 2: Since then, they've made massive investments and semiconductors, and they've
15:04
Speaker 2: really identified their strategic importances right, like strategic importance number one,
15:10
Speaker 2: which recovered yesterday rare earth materials. We can't really make
15:14
Speaker 2: anything without them. China manufactures and minds all of them.
15:18
Speaker 2: So they've identified some of these things and are willing
15:20
Speaker 2: to use them as levers. I suppose in negotiations you
15:24
Speaker 2: look like you want to say something.
15:26
Speaker 4: No, I'm just I'm thinking about it more. I think
15:27
Speaker 4: all those points are good. Who am I to say
15:29
Speaker 4: I don't understand the intricacies of it. It's really not
15:32
Speaker 4: my area. I will tell you though, that when you
15:35
Speaker 4: start a trade war with everybody, and you're also hyper
15:38
Speaker 4: sensitive to every movement in the stock market. You were
15:40
Speaker 4: going to be the one to fold first, go ahead.
15:44
Speaker 2: Yes, this is the exact topic that I was getting
15:46
Speaker 2: to was this game of Chicken that the United States
15:49
Speaker 2: is playing with China.
15:51
Speaker 3: And I made the point yesterday and.
15:52
Speaker 2: It was kind of off the cuff of Chuck and
15:54
Speaker 2: I hadn't really thought through it much that I don't
15:56
Speaker 2: really love the idea of the United States needing to
15:59
Speaker 2: play a game of.
16:02
Speaker 3: You know, how much pain can you inflict on your
16:05
Speaker 3: own economy chicken?
16:06
Speaker 2: Because in the United States, we have these democratic forces
16:09
Speaker 2: that will likely force you to change. You know, You've
16:12
Speaker 2: got House and Senators that might make a vote to
16:14
Speaker 2: say no, we've had enough of this. We're losing jobs
16:17
Speaker 2: and unemployment has gone higher, so we're we are going
16:20
Speaker 2: to force you to change.
16:21
Speaker 3: You've got, you know.
16:22
Speaker 2: The stock market forces that the president needs to be
16:25
Speaker 2: worried about when it comes to midterm reelections. And so
16:27
Speaker 2: therefore I'm not in love with the idea of getting
16:30
Speaker 2: into this game of chicken. Chuck's point was, yeah, you know,
16:35
Speaker 2: I think his point was I acknowledge all of that,
16:37
Speaker 2: but all of those things are also advantages. And in China,
16:42
Speaker 2: the system is just a constant feedback loop where nobody
16:46
Speaker 2: there is no pressure from other institutions, There is no
16:49
Speaker 2: pressure from the stock market to to inflict pain or
16:53
Speaker 2: change on president changing pain, and so it just leads
16:56
Speaker 2: them to make bad decisions, and ultimately those can cut
17:00
Speaker 2: olminate in something far worse than what we had experienced
17:02
Speaker 2: in the US, which would be depression, regime change, and
17:06
Speaker 2: you know, yep, something akin to the fall of the
17:09
Speaker 2: Soviet Union.
17:09
Speaker 4: They key put and Okay, Savin you, I'm glad you brought
17:11
Speaker 4: it up, because I'm thinking Stalin, he's a slip of
17:14
Speaker 4: the switch. Hitler invades, he doesn't.
17:16
Speaker 3: Know what to do.
17:17
Speaker 4: He hides for like two weeks. Guys come to see him.
17:19
Speaker 4: He thinks they're there to kill him. Instead, they're there
17:21
Speaker 4: to say, please come out and lead us in this resistance.
17:25
Speaker 4: The point is the one you made. I think there's
17:27
Speaker 4: no feedback in an authoritarian system. You don't get into
17:32
Speaker 4: a manpower war with the Soviet Union because they will
17:35
Speaker 4: just throw tens of millions of people at you, as
17:37
Speaker 4: Stalin actually did. Presumably the Chinese would do the same
17:41
Speaker 4: thing slightly. Not a perfect parallel here, but the point
17:46
Speaker 4: is they are willing to inflict because of the absence
17:48
Speaker 4: of feedback, as you pointed out, more pain on their
17:51
Speaker 4: people than we are willing to inflict on ours. And
17:53
Speaker 4: we also have a White House that is hyper sensitive
17:56
Speaker 4: to the value of the stock market. Every time it
17:58
Speaker 4: goes up. Look how wonderful I am every time it
18:00
Speaker 4: goes down. That's the last guy's fault. They follow this
18:03
Speaker 4: sucker tick for tick. They they've demonstrated this. There's this
18:07
Speaker 4: acronym now that describes it, so called taco. I don't
18:10
Speaker 4: know if you and Chuck have talked about this. Trump
18:12
Speaker 4: always chickens out. That's a little provocative.
18:14
Speaker 3: It's not. It's not how I asked him about it
18:16
Speaker 3: during press It's not yeah, and he.
18:17
Speaker 4: Responded very healthily to that. He it's not how I
18:21
Speaker 4: would put it. It's a little bit unkind. But the
18:23
Speaker 4: point is it's widely known that weed. It's not just
18:26
Speaker 4: Donald Trump. Any American president would have to back down
18:30
Speaker 4: because of the intense feedback you get in a democratic
18:34
Speaker 4: market base. There are two forms. There are two channels
18:37
Speaker 4: for feedback. There's the democratic system and the flack you
18:41
Speaker 4: get from lawmakers, and there's the market, which is nanosecond
18:45
Speaker 4: by nanosecond, just punching you in the face if you
18:48
Speaker 4: do something misguided, nobody could resist that.
18:50
Speaker 2: Mic Whenever there is any sort of you know, competition,
18:55
Speaker 2: or however you want to describe this, you have to
18:58
Speaker 2: describe it in odds. And so what I would describe
19:00
Speaker 2: it in odds is in the United States we have
19:02
Speaker 2: a high likelihood of blinking first because of these democratic
19:05
Speaker 2: systems that might require change. And in China you have
19:09
Speaker 2: a very low probability of need to blink because your
19:15
Speaker 2: entire system gets upended, like the fall of Suda Union.
19:17
Speaker 2: I find that outcome less likely in the short term,
19:21
Speaker 2: but much more severe in terms of its consequences for China.
19:24
Speaker 2: And that's I guess how I've begun to freeze it
19:26
Speaker 2: in my mind.
19:28
Speaker 3: Let's take a quick break. When we come back, Wall
19:30
Speaker 3: Street Watch is next.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show.
19:45
Speaker 5: Breaking business news is always first right here on the
19:49
Speaker 5: Financial Exchange Radio Network. Time now for Wall Street Watch
19:55
Speaker 5: a complete look and what's moving market so far today?
19:58
Speaker 1: Right here on the final Michel Exchange Radio Network.
20:02
Speaker 6: Well, markets are relatively quiet so far, as Wallstreet reacts
20:05
Speaker 6: to the OECD cutting its US growth forecast, with terrorists
20:09
Speaker 6: and political uncertainty cited as key factors. Investors also sifting
20:13
Speaker 6: through the Julter port posted at ten am this morning.
20:17
Speaker 6: Right now, the Dow is flat, s and P five
20:19
Speaker 6: hundred is up by eight points, and the Nasdaq is
20:22
Speaker 6: up by four tenths of a percent. Russell two thousand
20:25
Speaker 6: up by about a third of a percent. Ten Year
20:27
Speaker 6: Treasure reeled down by one basis point, now at four
20:30
Speaker 6: point four to four percent, and crude oil is up
20:33
Speaker 6: one point six percent today, trading its sixty three dollars
20:36
Speaker 6: in fifty three cents a barrel.
20:38
Speaker 3: Big news from Meta.
20:39
Speaker 6: This morning, where a tech giint agreed to deal with
20:41
Speaker 6: Constallation and Energy to buy the power generation of an
20:45
Speaker 6: Illinois nuclear plant for twenty years beginning in twenty twenty seven.
20:49
Speaker 6: Constellation jumping by three percent, while Meta is retreating by
20:53
Speaker 6: about a third of a percent. Meanwhile, Dollar General jumping
20:56
Speaker 6: by thirteen percent after the discount retailer lifted its annual
21:00
Speaker 6: sales outlook, saying it's updated guidance assumes that current terriff
21:04
Speaker 6: rates will remain through mid August. The company also beat
21:07
Speaker 6: first quarter estimates on the top and bottom lines. Elsewhere,
21:11
Speaker 6: a telehealth platform Hymns and Hers, announced it will acquire
21:14
Speaker 6: European counterparts Zava. That stock is up by five percent.
21:19
Speaker 6: Ford reported a sixteen point three percent year over year
21:22
Speaker 6: sales increase for May as the automaker continues in employee
21:26
Speaker 6: pricing program amid rising tariff costs in vehicle price increases.
21:31
Speaker 6: Sales were led by a seventeen point two percent increase
21:34
Speaker 6: in its vehicles with traditional internal combustion engines, as well
21:38
Speaker 6: as a roughly twenty nine percent jump in hybrid models,
21:41
Speaker 6: offsetting a twenty five percent drop in sales for evs.
21:46
Speaker 6: Ford is actually down by three quarter excuse me, up
21:49
Speaker 6: by three quarters of a percent. And after today's close,
21:52
Speaker 6: we'll see earnings from CrowdStrike, and tomorrow morning Dollar Tree
21:55
Speaker 6: will post their first quarter results. I'm Tucker Silvan, That's
21:59
Speaker 6: Wall Street.
22:00
Speaker 2: The House GOP bill is now moving to the Senate,
22:03
Speaker 2: and President Trump and his advisors are likely leaning heavily
22:08
Speaker 2: on those Senators that are expressing concerns about the bill,
22:11
Speaker 2: and less listeners are really interested. We're not going to
22:14
Speaker 2: be spending a whole lot of time on the intricacies
22:16
Speaker 2: of the House pass tax bill at this point in time,
22:19
Speaker 2: because quite honestly, it's going to change a lot once
22:22
Speaker 2: the Senate gets its hands on it, and so we
22:24
Speaker 2: will start covering different aspects of what this looks like once,
22:29
Speaker 2: you know, once some of those factors come in here.
22:32
Speaker 2: But I think the key thing to understand at this
22:33
Speaker 2: point is that the House version of the bill, which
22:35
Speaker 2: does include cuts to Medicaid and other services, is estimated
22:39
Speaker 2: to run deficits up about four trillion dollars higher over
22:44
Speaker 2: the next decade.
22:45
Speaker 3: Now, members of the Trump administration.
22:47
Speaker 2: Including Scott Bessen to have put out statements that hey,
22:50
Speaker 2: you know, but we're going to have two trillion dollars
22:52
Speaker 2: in tariff revenue to offset that, We're going to do
22:54
Speaker 2: other spending cuts out there. Suffice to say, we'll see
22:58
Speaker 2: where that comes in. But what's known about the tax
23:00
Speaker 2: bill today is that it likely increases deficits over the
23:03
Speaker 2: next decade by some four trillion dollars. And you can
23:07
Speaker 2: debate how much that is or isn't going to come
23:10
Speaker 2: to pass as much as you'd like.
23:13
Speaker 4: The well, can we talk about the interest rate implications
23:15
Speaker 4: of that or are you going to get into that.
23:17
Speaker 4: Let's go straight there to the Yeah, let's just talk
23:19
Speaker 4: about what this means for investors, because it's going to happen.
23:21
Speaker 4: These guys are going to get their tax bill. Deficit
23:24
Speaker 4: is going to increase, not decrease. The growth has never offset.
23:28
Speaker 3: Go ahead.
23:29
Speaker 2: I would agree with you. I do think the bill
23:30
Speaker 2: is going to pass in some way shape. I'm just
23:32
Speaker 2: four trillion dollars, whether it's more or less. I think
23:35
Speaker 2: that there's going to be a tax bill that does
23:37
Speaker 2: pass that increases deficits some four trillion dollars.
23:39
Speaker 4: So let's assume the deficit is going to go up.
23:42
Speaker 4: It's already at extraordinary levels for peace time, six or
23:48
Speaker 4: so percent of the economy, which is one way to
23:50
Speaker 4: look at it. The other way to look at it
23:52
Speaker 4: is just the growth relative to the debt, overall deficit
23:57
Speaker 4: being the year over year difference between revenue and what
24:01
Speaker 4: you take in, and the debt being the cumulative deficit.
24:04
Speaker 4: Just wanted to make that distinction. So, no matter how
24:06
Speaker 4: you look at it, the overall debt is a percentage
24:08
Speaker 4: of GDP, which is now about one hundred percent, or
24:10
Speaker 4: the deficit as a percentage of GDP, both at unheard
24:14
Speaker 4: of levels in peace time. So What does this mean, Well,
24:17
Speaker 4: if savings does not go up, if we don't save
24:19
Speaker 4: more and buy those treasury bills, notes and bonds, if
24:23
Speaker 4: foreigners don't want to buy our treasuries, interest rate, So
24:27
Speaker 4: this is an all LSEQL argument, interest rates will go up,
24:30
Speaker 4: and you could argue that you're seeing that effect in
24:32
Speaker 4: markets now. The ten year treasury is stubbornly stuck around
24:36
Speaker 4: four and a half percent, despite some evidence of economic
24:39
Speaker 4: slow down.
24:40
Speaker 2: The thirty year bond has been flirting with five percent.
24:42
Speaker 2: You know over the last few.
24:44
Speaker 4: Thirty year mortgage what about seven percent plus or minus
24:47
Speaker 4: thirty year fixed rates, So we're seeing some of the
24:49
Speaker 4: effects of this now. Presumably those will get worse over time.
24:52
Speaker 4: What does this mean for stock price as well? If
24:54
Speaker 4: the economy grows like gangbusters, and that would be a
24:56
Speaker 4: reckless assumption because there is there are natural forces that
25:01
Speaker 4: keep its growth within a certain range. If the economy
25:05
Speaker 4: were to exceed that, that would put even more pressure on
25:07
Speaker 4: interest rates because it would increase the demand for laanable funds.
25:10
Speaker 4: If economic growth slows by a lot, it might reduce
25:12
Speaker 4: the pressure a little bit. It's hard to say how much.
25:15
Speaker 4: So this is probably not good for bonds and bond
25:18
Speaker 4: prices I mean, which will go down if interest rates
25:22
Speaker 4: go up. Those two things are inversely related, and at
25:24
Speaker 4: the same time all lseql the present value of equities
25:28
Speaker 4: because in a fundamental sense, that's the right way to
25:30
Speaker 4: think about stock prices should also go down.
25:33
Speaker 2: I think the overall simplest way of me thinking about this,
25:38
Speaker 2: if I'm trying to convey it to the general public,
25:42
Speaker 2: it's that you want to reserve your dry powder at
25:47
Speaker 2: the government level for when you really need it. When
25:51
Speaker 2: you really need it are times like when you decide
25:54
Speaker 2: to shut down the entire country due to a virus
25:56
Speaker 2: that you don't know anything about, like in March of
25:58
Speaker 2: twenty twenty. They need it is when a subprime mortgage
26:02
Speaker 2: crisis causes a bunch of banks to nearly fail and
26:05
Speaker 2: unemployment shoots up to eight percent. When you really need
26:08
Speaker 2: it is when you are engaged in a war with
26:11
Speaker 2: a with a large other nation and need to borrow
26:15
Speaker 2: the money to fund that war and defend your sovereignty.
26:19
Speaker 2: Those are all, I think, historically, at least when you
26:23
Speaker 2: know historians have looked back more justifiable reasons to run
26:26
Speaker 2: large deficits. What we've been doing over the last twenty years,
26:30
Speaker 2: but hyper concentrated in the last five. And I'm not
26:33
Speaker 2: blaming Trump for all of this. This was done at
26:35
Speaker 2: the end of the Trump administration, one the entirety of
26:38
Speaker 2: the Biden administration, and now we're looking at in twenty
26:42
Speaker 2: twenty five has been running large deficits compared to GDP
26:48
Speaker 2: in times of relative financial and economic calm and success.
26:55
Speaker 2: And so now you might say, hey, all that you know,
26:58
Speaker 2: financial calm and economic success might not have come to
27:00
Speaker 2: pass without.
27:01
Speaker 3: These big deficits. But I think you're.
27:03
Speaker 2: Kind of making the wrong argument there, And I guess
27:07
Speaker 2: the question would be, and I'm sure economic researches have
27:11
Speaker 2: done this, but I believe that you weaken your position
27:15
Speaker 2: in the future to deal with those crises by building
27:19
Speaker 2: up all this debt ahead of time. That type of
27:22
Speaker 2: deficit spending that you will need to rescue the economy
27:25
Speaker 2: from the next crisis, which always happens, will be orders
27:30
Speaker 2: of magnitude.
27:30
Speaker 3: Larger than what is needed if you don't do this.
27:33
Speaker 4: We don't have a lot of evidence on that because
27:34
Speaker 4: we've only practiced stabilization, which is the economics term for
27:39
Speaker 4: fiscal policy leaning against the wind and monetary policy. You
27:43
Speaker 4: can fiscally stabilize. You can stabilize via monetary policy. Fiscal
27:46
Speaker 4: stabilization does require the resources to do it, As you said,
27:49
Speaker 4: you do need to keep some dry powder. The theory
27:51
Speaker 4: says you run surpluses in good times during economic recoveries,
27:54
Speaker 4: and you run deficits in bad times. You want to
27:57
Speaker 4: mitigate the effects of those deficits with unemployment of the
28:00
Speaker 4: recession excuse me, i e. Bad times, with unemployment, insurance
28:04
Speaker 4: and other stabilizers. You risk not being able to do that,
28:08
Speaker 4: as you said, other than at putative interest rates, by
28:12
Speaker 4: running deficits in good times too, and more or less,
28:15
Speaker 4: with the exception of the late nineteen nineties thanks to
28:18
Speaker 4: the George hw Bush and then Clinton tax increases and
28:23
Speaker 4: spending control and people forget the George hw Bush tax increases,
28:26
Speaker 4: we're a big part of this. Aside from the nineties,
28:29
Speaker 4: in every decade since the eighties, we've run deficits in
28:32
Speaker 4: good times, huge deficits and bad times, and that will,
28:36
Speaker 4: at some point, as you say, might imperil our ability
28:38
Speaker 4: to react to bad economic times.
28:41
Speaker 2: Let's take a quick break when we come back. Mark
28:44
Speaker 2: mentioned the savings rate we are seeing a slight uptick
28:48
Speaker 2: so far this year. We have a new word for it.
28:51
Speaker 2: There was first revenge travel, Now it's revenge saving. We'll
28:54
Speaker 2: be talking about that next. Here on the Financial Exchange.
28:57
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29:00
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30:00
Speaker 2: MarketWatch has a piece out this morning on Americans being
30:06
Speaker 2: financially responsible, which is kind of shocking to me, and
30:10
Speaker 2: I kind of doubt that it's true for that reason.
30:12
Speaker 2: But here is the evidence that they put together that
30:16
Speaker 2: Americans are increasing their savings rate, or at least saying
30:19
Speaker 2: that they want to. New data came out that the
30:23
Speaker 2: personal savings rate, according to the Bureau of Economic Economic Analysis,
30:27
Speaker 2: increased in April to four point nine percent from four
30:30
Speaker 2: point one percent, according to a report released on Friday.
30:33
Speaker 2: I'm gonna go ahead and discount that April, everybody was
30:35
Speaker 2: getting their tax refunds.
30:37
Speaker 3: Throw it out, not useful.
30:40
Speaker 2: Among the nearly sixty percent of Americans who recently revised
30:43
Speaker 2: their savings goal, So sixty percent of Americans apparently have
30:48
Speaker 2: revised their savings goal. The top change was increasing their
30:50
Speaker 2: emergency savings forty five percent, according to a Santander Bank
30:54
Speaker 2: survey that was done in the end of March. Compared
30:59
Speaker 2: with the stars the year, forty percent of people said
31:01
Speaker 2: they became more concerned about emergency savings, so more people
31:04
Speaker 2: are saying they are concerned about emergency savings. I guess
31:08
Speaker 2: the one piece of evidence that I will actually say
31:11
Speaker 2: seems useful is from the Conference Board, and they found
31:16
Speaker 2: that American households do typically increase their savings in March
31:20
Speaker 2: and April after receiving their tax refunds. That's from Bank
31:24
Speaker 2: of America. But this year, median deposits were up seventeen
31:28
Speaker 2: percent on inflation adjusted basis compared with the same levels
31:32
Speaker 2: in twenty nineteen. So there's the only evidence that I
31:35
Speaker 2: find reasonable is, hey, look, we do acknowledge that people
31:38
Speaker 2: usually save a little bit more in March and April,
31:40
Speaker 2: but this time it was a lot more than it
31:43
Speaker 2: was back in twenty nineteen, and so they're seeing that bump.
31:47
Speaker 2: If this actually happened, I think it could be a
31:50
Speaker 2: really good thing, because every time there's any sort of
31:52
Speaker 2: economic disruption, a whole bunch of people start defaulting on
31:55
Speaker 2: their credit cards and other sources of debt that they
31:58
Speaker 2: have to repay, and some of those emergency funds could
32:01
Speaker 2: be useful. I just I don't see enough compelling evidence
32:05
Speaker 2: that it's any sort of real structural change to the
32:08
Speaker 2: state of the economy and where people are going with
32:11
Speaker 2: savings the other Sorry.
32:13
Speaker 4: There is an up trend. So savings goes up during
32:16
Speaker 4: bad economic periods. Researchers call it precautionary savings.
32:21
Speaker 2: In the you think that the economy is about to
32:24
Speaker 2: you know what the bed, you don't bug?
32:26
Speaker 4: When the range about when uncertainty and sorry, I'm doing
32:29
Speaker 4: this like you can see the chart I'm thinking of
32:31
Speaker 4: in my head. But when uncertainty, I sorry, bad habit.
32:36
Speaker 4: So that's why that's why I'm doing this pincer move
32:37
Speaker 4: for any for the three people watching on YouTube.
32:40
Speaker 3: Three thousand mark, everyone's watching.
32:41
Speaker 4: I talk. I talk in multiples of one hundred of
32:46
Speaker 4: a thousand.
32:46
Speaker 1: Excuse me, idiot.
32:50
Speaker 4: All the radio is just like this guy's dope. Uh So,
32:53
Speaker 4: when the range of outcomes increases, you you say more.
32:56
Speaker 4: The word for that is the freight of the term
32:57
Speaker 4: for that is precautionary savings. Which is kind of interesting.
32:59
Speaker 4: But I would have thought that savings might go just intuitively,
33:02
Speaker 4: you think, well, maybe savings go up as people start
33:04
Speaker 4: to make more money and they put more away. No,
33:06
Speaker 4: no personal savings rate, which is a disposable personal income
33:09
Speaker 4: less outlays. Actually goes down reliably in expansions and goes
33:14
Speaker 4: up during difficult economic times, which is why this caught
33:18
Speaker 4: my eye. It bottomed out at about three point five,
33:21
Speaker 4: maybe a little lower than that in the last year.
33:23
Speaker 4: Now we're at four point nine. You're right, some of
33:26
Speaker 4: that might be tax refunds allowing people to save more
33:30
Speaker 4: of their DPI.
33:31
Speaker 2: I mean, I don't doubt that in April people were
33:33
Speaker 2: pretty worried about the state of the economy and saved
33:35
Speaker 2: a lot.
33:35
Speaker 4: Yeah, I don't know, but there is a little bit
33:36
Speaker 4: of an upbrend, even if you take out the surge
33:38
Speaker 4: in April.
33:40
Speaker 2: I do want to highlight something that I found a
33:43
Speaker 2: little bit laughably funny from the survey by Santander. Only
33:46
Speaker 2: thirty five percent of survey takers agreed that high yield
33:49
Speaker 2: savings accounts I ensured by the FDIIC are less risky
33:54
Speaker 2: than investment accounts.
33:57
Speaker 3: Let me say that again.
33:58
Speaker 2: One third of the people they asked, when they said, hey,
34:00
Speaker 2: do you perceive a FDIC insured savings account as being
34:05
Speaker 2: safer than an investment account?
34:08
Speaker 3: Two thirds said nah, not really. I think you have
34:11
Speaker 3: to Some of that can said I'm unsure.
34:13
Speaker 4: That sounds stupid. But maybe they need to define FDIC
34:16
Speaker 4: and better phrase the question.
34:18
Speaker 2: It could have just been a phrasing question. And I
34:20
Speaker 2: will say that I personally keep a large degree of
34:22
Speaker 2: my emergency savings in an investment account. But I also
34:27
Speaker 2: feel educated enough on investment decisions to know what type
34:32
Speaker 2: of stuff to put in that investment account to feel
34:34
Speaker 2: that I'm still saving in an emergency fund rather than
34:38
Speaker 2: risking my money. I do get this question a lot, though,
34:42
Speaker 2: especially recently, from folks, which is, maybe I have that
34:45
Speaker 2: emergency fund, or maybe I'm trying to build it, and
34:48
Speaker 2: what's the.
34:48
Speaker 3: Best tool for that?
34:50
Speaker 2: Should it be in just a plain old money market
34:54
Speaker 2: savings account that's FDIC insured. Can I do something with
34:57
Speaker 2: one of these money market mutual funds that I keep
35:00
Speaker 2: hearing about that's paying a higher interest rate? What are
35:02
Speaker 2: the risks to doing that? What about a CD? What
35:07
Speaker 2: about a CD offered through my investment company like Schwaber Fidelity.
35:11
Speaker 2: What's the difference between that bank CD and that brokerage CD.
35:14
Speaker 2: What are the risks of using treasuries or bonds in
35:17
Speaker 2: a savings plan, an emergency savings plan. The perfect example
35:21
Speaker 2: that comes to mind is somebody that I know who
35:23
Speaker 2: sold their house in order to move closer to family.
35:26
Speaker 2: They're renting until they can find a new one, and
35:28
Speaker 2: so they're sitting on a boatload of savings and they're
35:30
Speaker 2: just saying, we might want to buy a house soon.
35:33
Speaker 2: We don't know what's the best place for this type
35:36
Speaker 2: of money. And the answer is that it really depends
35:39
Speaker 2: on each individual scenario. Right If you need to maybe
35:42
Speaker 2: buy a home thirteen months from now because your lease
35:44
Speaker 2: runs up, then that's very different than well, we're just
35:47
Speaker 2: thinking about it and you know, we want to maybe
35:50
Speaker 2: buy a home sometime in the next few years. If
35:52
Speaker 2: you have questions like this, where do I put my
35:55
Speaker 2: emergency savings, how do I handle it and how do
35:58
Speaker 2: I think it and think about it and relate to
36:00
Speaker 2: my investment portfolio depending on where I am am in
36:04
Speaker 2: my life spectrum, Because this answer is really different if
36:07
Speaker 2: you're the young parent of three kids and you know
36:10
Speaker 2: two working adults versus sixty seven years old and already
36:14
Speaker 2: retired and on social Security. These are important questions that
36:18
Speaker 2: are customized to each individual. Call us at the Armstrong
36:21
Speaker 2: Advisory Group so we can help you navigate it. The
36:23
Speaker 2: numbers eight hundred three nine three four zero zero one.
36:26
Speaker 2: Again the number for the Armstrong Advisory Group eight hundred
36:30
Speaker 2: three nine three four zero zero one.
36:33
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
36:35
Speaker 1: registered investment advisor. Nothing in the ad or in any
36:38
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
36:41
Speaker 1: your own financial tax into state planning advisors before making
36:44
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
36:47
Speaker 1: advisory services.
36:48
Speaker 2: Walt Disney stock is having a pretty good resurgence this year,
36:53
Speaker 2: especially after their most recent earnings report. The stock actually
36:56
Speaker 2: the stock's about flat for the year, I take that back,
36:58
Speaker 2: but bounced back big in April after they released their earnings,
37:03
Speaker 2: which showed that park revenue and other big entertainment items
37:07
Speaker 2: are doing pretty well. They're also have a pretty decent
37:09
Speaker 2: year at the box office, but nonetheless announcing they plan
37:12
Speaker 2: to layoff hundreds in multiple different areas, including marketing for
37:17
Speaker 2: film and television, TV, publicity, casting and development, and corporate
37:21
Speaker 2: financial operations. They are taking a look at that business
37:25
Speaker 2: model and like many others, laying off here and there.
37:29
Speaker 3: In March, Disney laid off two.
37:30
Speaker 2: Hundred employees at their ABC News group and a few
37:33
Speaker 2: years ago, they laid off a few thousand for cost savings.
37:37
Speaker 2: The company, headquartered out of Burbank, California, now has about
37:42
Speaker 2: two hundred and thirty three thousand employees globally at least
37:45
Speaker 2: as of the end of September. So quite honestly, them
37:48
Speaker 2: cutting a few hundred jobs does not mean a whole lot,
37:51
Speaker 2: but stock is actually getting rewarded today, up about one percent,
37:57
Speaker 2: in part at least in reaction to this news from Disney.
38:00
Speaker 4: Markets love layoffs.
38:02
Speaker 3: Markets do love layoffs. Let's take a quick break. When
38:05
Speaker 3: we come back, a whole lot more here on the
38:08
Speaker 3: Financial Exchange, including a full market recap. We'll be right
38:11
Speaker 3: back