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Moody's downgrades US debt and Wall Street isn't thrilled · The Financial Exchange Show

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  Speaker 2: Alrighty, it is Chuck, Mike and Tucker with you, and
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  Speaker 2: we are holding in our hands right now, just a
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  Speaker 2: whole bunch of no longer triple A raided by Moody's
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  Speaker 2: US government debts.
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  Speaker 3: Very when did.
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  Speaker 2: They get rid of bearer bonds? It had to be
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  Speaker 2: after die Hard, because that's what I was gonna go nineties.
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  Speaker 2: I'm curious when it was, because you can't actually hold
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  Speaker 2: US treasuries in your hands anymore, but you used to
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  Speaker 2: be able to back when you add bearra bonds, which
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  Speaker 2: quite honestly, as the name implied, was just hey, if
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  Speaker 2: you are holding it, you own it.
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  Speaker 3: Like to the deal. Eighty two was the last ones
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  Speaker 3: that they had.
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  Speaker 4: Yeah, the issuance and did in eighty two. I assume
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  Speaker 4: that you could still have a bearer bond after that,
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  Speaker 4: but they didn't get issued anymore.
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  Speaker 2: So realistically, the longest duration that they were was probably
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  Speaker 2: thirty years. So the last US treasury that could have
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  Speaker 2: been in bear form went away by twenty twelve.
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  Speaker 3: Is that right?
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  Speaker 2: That would seem I don't even know if they were
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  Speaker 2: issued in that explain what a bear I mean, it's
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  Speaker 2: really the holder of the Bond Ohn, Yeah, I just did.
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  Speaker 3: Okay, sorry, Yeah, it's okay. You were googling or something.
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  Speaker 3: I was. Yeah.
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  Speaker 2: But so in any case, over the weekend, actually it
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  Speaker 2: was Friday, at around four thirty, Moodies, who is one
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  Speaker 2: of the three major US rating agencies aside from Standard
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  Speaker 2: and Pores and Fitch, decided to say, hey, you know what,
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  Speaker 2: we don't think the US deficit picture is that sustainable anymore,
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  Speaker 2: and as such, we are going to downgrade you from
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  Speaker 2: the highest possible rating to one level below.
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  Speaker 3: There where you have been Moodies. So this is the
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  Speaker 3: thing about.
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  Speaker 2: Moodies is they are widely viewed by Wall Street as
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  Speaker 2: the class clown of rating agencies.
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  Speaker 3: And it's not to.
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  Speaker 2: Say like they don't have smart people working there. I'm
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  Speaker 2: sure they do. It's nothing about like the individuals at Moody's.
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  Speaker 2: It's much more look S and p downgraded the US
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  Speaker 2: back in was a twenty eleven or twenty twelve. I
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  Speaker 2: can't remember which one.
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  Speaker 4: Now. You told me twenty eleven earlier today, So I'm
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  Speaker 4: gonna go with what you told me earlier.
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  Speaker 3: I'm just pulling it up just to make sure. Okay,
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  Speaker 3: here we go.
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  Speaker 2: So the S andp downgraded him back in twenty eleven, which,
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  Speaker 2: by the way, also happened. I think it was like
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  Speaker 2: eight thirty on a Friday when they did this, So
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  Speaker 2: this wasn't that was.
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  Speaker 3: A big deal. They were first to the scene.
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  Speaker 2: This wasn't Moody's trying. It wasn't Moody's trying to like
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  Speaker 2: slip this by like a Friday news. This is just
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  Speaker 2: like when this happens because of the magnitude of it,
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  Speaker 2: they don't want to do it during active trading because
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  Speaker 2: of the stuff that it can cost. So they do
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  Speaker 2: it on a Friday so that banks and traders have
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  Speaker 2: a little bit of time over the weekend to actually
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  Speaker 2: think about it and figure out what they want to
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  Speaker 2: do with it.
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  Speaker 4: And when this happened in twenty eleven, it was pretty noteworthy.
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  Speaker 4: I think we were on the heels of the Great Recession.
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  Speaker 4: There was a somewhat new idea that hey, you know,
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  Speaker 4: lawmakers might not extend the debt ceiling, and you know, hey,
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  Speaker 4: this could be an actual threat to the US economy.
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  Speaker 4: We had just loaded up on a whole lot of
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  Speaker 4: debt in order to combat to the effects of the
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  Speaker 4: Great Recession, and so this was pretty newsworthy in groundbreaking
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  Speaker 4: that Hey, a major agency is downgrading what is generally
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  Speaker 4: seen as the safest asset that exists.
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  Speaker 2: There was a lot going on then, though, So like
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  Speaker 2: the thing that you come back to if you look
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  Speaker 2: after this is people will be like, oh, like stock
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  Speaker 2: sold off, but bonds rallied, Like who would have thought it?
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  Speaker 3: Well.
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  Speaker 2: Part of the reason that bond's rallied was that the
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  Speaker 2: EU was kind of in the process of, you know,
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  Speaker 2: having its every ten years overfalling apart.
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  Speaker 3: What do we do?
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  Speaker 2: That was like right in the midst of the Greek
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  Speaker 2: debt crisis and this and that, and so investors were
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  Speaker 2: like trying to figure out what's actual safe to hold.
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  Speaker 2: And so again I don't think that you can like
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  Speaker 2: read into this and be like, oh, well, bonds got
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  Speaker 2: bought up then and stock sold off, So that's what's
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  Speaker 2: gonna happen now. Completely different environment in so many different ways.
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  Speaker 2: A great So you had that back in twenty eleven.
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  Speaker 2: And the big thing that SMP cited then was it
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  Speaker 2: questions about US governance and policy making stability that's gotten
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  Speaker 2: better since twenty eleven if they could only see us now.
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  Speaker 2: So I think that number one like SMP was first
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  Speaker 2: to the party on this. Was it right wrong or
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  Speaker 2: anything else?
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  Speaker 3: I have no idea.
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  Speaker 2: I'm not going to like say, like whether or not
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  Speaker 2: they should have or should not, because obviously the United
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  Speaker 2: States has not defaulted in the fourteen years since then.
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  Speaker 2: But they they did this, and it is what it is.
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  Speaker 2: Other ones that you saw since then back in twenty thirteen,
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  Speaker 2: I'm not going to count like the non major rating agencies.
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  Speaker 2: I don't even know what business there is for non
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  Speaker 2: major ones, but apparently there's enough that there's actually like
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  Speaker 2: five or six of these guys out there. It's just
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  Speaker 2: no one really pays attention to the other ones. But
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  Speaker 2: in twenty thirteen, Fitch warned that it might cut the
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  Speaker 2: US credit rating again, talking about political brinkmanship about the
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  Speaker 2: debt ceiling. In twenty fourteen, after the debt ceiling was punted,
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  Speaker 2: Fitch said, hey, we're you know, upgrading our outlook. We're
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  Speaker 2: not going to change, you know, the triple A rating.
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  Speaker 2: In twenty nineteen, Fitch said, hey, we might you know,
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  Speaker 2: have to do something about this, And in twenty twenty three,
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  Speaker 2: with the debt ceialing crisis that happened, then Fitch put
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  Speaker 2: the US on negative credit watch and then downgraded the
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  Speaker 2: US from triple A to double A plus. So last Friday,
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  Speaker 2: Moodies comes in and says, gosh, it's twenty twenty five.
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  Speaker 2: We should get in this party too, And so they
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  Speaker 2: downgraded the US debt from triple A to what they
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  Speaker 2: call double A one. They all have like their own
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  Speaker 2: unique little things, but double A one is effectively the
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  Speaker 2: same as double A plus from and do A plus
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  Speaker 2: from SMP.
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  Speaker 4: So I want to continue this, but I want to
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  Speaker 4: talk about where this does matter because like two weeks ago,
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  Speaker 4: for example, Whirlpool, the maker of washing machines, they owned
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  Speaker 4: Kitchen Aid may Tag, they were cut to junk status
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  Speaker 4: by SMP. Real world implications for Whirlpool immediately. If you're
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  Speaker 4: cut to junk status from investment grade quality, there are
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  Speaker 4: a whole bunch of investors out there, many many investors
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  Speaker 4: out there who by prospect us are not allowed to
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  Speaker 4: own your debt. Yes, many mutual fund managers must sell
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  Speaker 4: your bonds immediately.
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  Speaker 3: What does that do?
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  Speaker 4: And it makes it immediately more expensive in the future
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  Speaker 4: to refinance your debt, to raise new debt offerings, etc.
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  Speaker 4: Because you are given this brand of junk status, which
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  Speaker 4: is a certain threshold and below if you are an
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  Speaker 4: issuer of that debt. That is very fundamentally different than
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  Speaker 4: what we're talking about with the United States here.
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  Speaker 3: In a couple of different respects.
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  Speaker 2: The first is, no one goes out and purchases you know,
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  Speaker 2: even when Wharlpool was you know, double B or something
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  Speaker 2: like that, No one goes out and purchases Whirlpool bonds,
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  Speaker 2: being like, you know what, I made a bunch of dollars.
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  Speaker 2: I need somewhere safe to put this money for ten years.
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  Speaker 2: Let me go put it in Warlpool debt. Because if
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  Speaker 2: you're rated double be to begin with, even before you
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  Speaker 2: get downgraded from there, odds are that there are some
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  Speaker 2: questions about exactly what your next ten years look like.
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  Speaker 2: You're on the lowest level next to junk correct so like,
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  Speaker 2: and there might even be mutual funds in the investment
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  Speaker 2: grade space that say, yeah, we're gonna shy away from
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  Speaker 2: you because we have these specific concerns that we've researched.
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  Speaker 2: So it's not just like you hit a cliff, like
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  Speaker 2: people have already kind of shied away from you a
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  Speaker 2: little bit in a number of cases. In this case,
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  Speaker 2: and I'll go back to what happened during you know
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  Speaker 2: that the previous downgrades. One of the concerns out there is, hey,
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  Speaker 2: are there you know, insurance companies or pension plans that
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  Speaker 2: have to you know, liquidate because they can only hold
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  Speaker 2: triple A rated you know, solid for debt and all
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  Speaker 2: that most of those guys did back during all those
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  Speaker 2: previous not all those previous downgrades, but the two previous
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  Speaker 2: ones change the rules.
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  Speaker 3: They just said, yeah, you know what.
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  Speaker 2: We can hold double A plus now. And why is
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  Speaker 2: because they want to own US treasuries.
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  Speaker 4: Yes, and they want to own US treasuries for a
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  Speaker 4: few reasons. One would be it's still considered to be,
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  Speaker 4: if not the most credit worthy, then one of the
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  Speaker 4: most credit worthy items that you can own.
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  Speaker 3: But two, it's also the most liquid.
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  Speaker 4: Well, and as a result of us having like a
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  Speaker 4: twenty seven trillion dollar you know, twenty nine trillion, where
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  Speaker 4: are we now in terms of the total debt whatever.
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  Speaker 4: It's an incredibly liquid market for you to hold something
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  Speaker 4: that is quite considered quite safe.
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  Speaker 2: Let's also not forget the third piece of this, which
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  Speaker 2: is when you're you're on a big boat with the cannon,
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  Speaker 2: you don't turn the cannon around and point it at
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  Speaker 2: your own hull. And if every insurance company simply said,
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  Speaker 2: you know what, we can't hold triple A rated debt anymore,
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  Speaker 2: you know double we can't hold US treasuries because they
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  Speaker 2: went from triple A to double A plus, then every
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  Speaker 2: insurance company instantly goes out of business because all of
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  Speaker 2: their collateral is worthless. So like part of it is
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  Speaker 2: they can't actually do that because they would have no
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  Speaker 2: one to sell too.
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  Speaker 4: That's an interesting analogy, Chuck, when you're talking about the
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  Speaker 4: US debt ceiling pointing a canon at your ship's own hull. Yes, well,
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  Speaker 4: it also applies to those who try to vote against
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  Speaker 4: raising the debt ceiling.
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  Speaker 2: In light of what happened at the Brooklyn Bridge a
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  Speaker 2: few days ago. You know, we're all kind of in
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  Speaker 2: nautical mode these days again, kind of like we were
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  Speaker 2: back in the uh the winter of twenty twenty two
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  Speaker 2: when the ever Given got stuck in the Suez Canal.
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  Speaker 2: And so hey, I'm I'm just playing to the zeitgeist
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  Speaker 2: here with what everyone's focused on. So big thing, the
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  Speaker 2: actual downgrade of the US debt by Moodies, non event.
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  Speaker 2: But and this is a big, big butt. I appreciate that, Tucker.
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  Speaker 2: I appreciate that what this gets at is something that
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  Speaker 2: everybody knows right now, and everybody knows that. Everybody knows this,
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  Speaker 2: which is that you can't run deficits at seven percent
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  Speaker 2: annually and expect to be able to get away with
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  Speaker 2: it without any consequences. And the Moodies has no unique
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  Speaker 2: insight into this. But the timing is interesting just because
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  Speaker 2: everyone's paying attention here right now, and what are the
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  Speaker 2: consequences as a result of that? In that, Hey, could
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  Speaker 2: any interested party who wants to say, yeah, we want
• 11:45
  Speaker 2: to use this as a rationale for changing what we
• 11:48
  Speaker 2: previously did, that now is in play as what people
• 11:53
  Speaker 2: can use for Hey, you know what, We're a company
• 11:57
  Speaker 2: based out of name any foreign country that's not the
• 12:01
  Speaker 2: United States. We previously held, you know, one hundred percent
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  Speaker 2: of our you know, excess cash in dollars because we
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  Speaker 2: transact mostly in dollars. We're gonna be looking for alternatives
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  Speaker 2: for you know, portions of this just to balance the
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  Speaker 2: risks that are present to us.
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  Speaker 4: So Besant said over the weekend. I believe it was
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  Speaker 4: that the downgrade is a lagging indicator and while that's.
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  Speaker 2: By the way, I gotta tell you, calling Moody's a
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  Speaker 2: lagging indicator it's good insult, especially from him. It's kind
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  Speaker 2: of like, who's the guy that got called a medium
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  Speaker 2: talent on SNL.
• 12:39
  Speaker 3: Was a chevy Chase by Bill Murray? I think it was.
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  Speaker 2: I forget who it was, but it was just like
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  Speaker 2: just this biting thing, just like, oh, like, you're not awfully,
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  Speaker 2: You're just like a medium talent. I think it was
• 12:49
  Speaker 2: chevy Chase who got called that by Bill Murray.
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  Speaker 3: Yeah.
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  Speaker 5: Bill Murray's yelling that at chevy Chase medium talent.
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  Speaker 2: This is basically like Scott Bessen't calling Moody's medium talent.
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  Speaker 2: In the financial business, the last thing you want to
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  Speaker 2: be called is a lagging indicator.
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  Speaker 3: Yeah, so I do not.
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  Speaker 2: I thought that was great, by the way, I think
• 13:07
  Speaker 2: it was a good insult, and in and of itself,
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  Speaker 2: I don't think it matters. I'm with you there, but
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  Speaker 2: it is another straw that has been piling onto the
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  Speaker 2: US fiscal situation that who am I to say? Maybe
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  Speaker 2: it does correlate and coincide this time with a real
• 13:27
  Speaker 2: problem and change to the state of our I'm not
• 13:33
  Speaker 2: even calling it reserve currency, just our special status that
• 13:36
  Speaker 2: the United States has had for the better part of
• 13:39
  Speaker 2: a century. To take a quick break, I want to
• 13:41
  Speaker 2: dig more into Beston's comments and kind of talk a
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  Speaker 2: little bit about them, this downgrade and the tax plan
• 13:48
  Speaker 2: that Congress is trying to put together.
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  Speaker 2: All right, so, I want to talk a little bit
• 14:54
  Speaker 2: more about what Scott Bessen said over the weekend, just
• 14:57
  Speaker 2: because I think it is again just interesting in the
• 15:03
  Speaker 2: context of where we stand today on the deficits and
• 15:10
  Speaker 2: best one was asked about, you know, the Moody's downgrade,
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  Speaker 2: and he gave the you know the Moodies as a
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  Speaker 2: lagging indicator, you know line, which I.
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  Speaker 3: Gotta tell you, like it's a good line.
• 15:20
  Speaker 2: But then I want to read this quote here he says, quote,
• 15:22
  Speaker 2: we didn't get here in the past one hundred days.
• 15:24
  Speaker 2: It's the Biden administration and the spending that we've seen
• 15:27
  Speaker 2: over the past four years that we inherited, and we
• 15:29
  Speaker 2: are determined to bring spending down and grow the economy.
• 15:33
  Speaker 2: So here's what I'll say on this. This is a
• 15:37
  Speaker 2: problem that now goes back twenty five years. It goes
• 15:40
  Speaker 2: back to two thousand and two, which really two thousand
• 15:44
  Speaker 2: and three, but for obvious reasons, in the wake of
• 15:48
  Speaker 2: the bursting of the tech bubble and September eleventh, the
• 15:53
  Speaker 2: Bush too first term, the second Bush's first term was
• 16:00
  Speaker 2: not going well by his third year, and so he said, look,
• 16:03
  Speaker 2: I got to do something in order to you know,
• 16:05
  Speaker 2: boost the economy enter you know, things like medicare Part D,
• 16:08
  Speaker 2: A whole bunch of spending comes in. And here's where
• 16:12
  Speaker 2: deficits have been. I'll actually go back to nineteen ninety
• 16:15
  Speaker 2: just to give some context.
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  Speaker 3: Here.
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  Speaker 2: Here are the annual deficits percentage wise relative to GDP.
• 16:22
  Speaker 2: I'll start in nineteen ninety three point seven percent, in
• 16:25
  Speaker 2: ninety four point four and ninety one, obviously looking at
• 16:28
  Speaker 2: the Gulf wur going on a lot of spending, four
• 16:30
  Speaker 2: point five percent in ninety two, three seven, and ninety three,
• 16:34
  Speaker 2: two eight, two one one three zero point three percent.
• 16:38
  Speaker 2: That is ninety four through ninety seven. We then had
• 16:41
  Speaker 2: four years of surpluses ninety eight, ninety nine, two thousand,
• 16:44
  Speaker 2: and two thousand and one all were surpluses, which, if
• 16:46
  Speaker 2: you've listen to our show, you know my feelings about surpluses.
• 16:49
  Speaker 2: They're not actually good things because it literally means you've
• 16:51
  Speaker 2: taken in more taxes than you know what to do with.
• 16:53
  Speaker 3: And no one was the last time. Uh correct. I'm
• 16:55
  Speaker 3: not saying rung giant deficits.
• 16:57
  Speaker 2: I'm just saying tax surpluses are is literally giving one
• 17:00
  Speaker 2: to politicians that they don't know.
• 17:01
  Speaker 3: What to do with.
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  Speaker 2: Just doesn't seem like the best idea to me, but
• 17:06
  Speaker 2: your mileage may vary. Two thousand and two one point
• 17:09
  Speaker 2: four percent, then three point three, three point four, two
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  Speaker 2: point four, one point eight, one point one, three point one.
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  Speaker 3: There's two thousand and eight.
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  Speaker 2: Even through two thousand and eight, we were basically running
• 17:19
  Speaker 2: like two to three percent deficits. That was the norm typically,
• 17:23
  Speaker 2: and that's a pretty sustainable place to be.
• 17:26
  Speaker 3: Actually. You might say, well, you know, why is that
• 17:28
  Speaker 3: the case? And the answer is pretty much. Look, if you're.
• 17:31
  Speaker 2: Growing your economy by five percent nominally and your debts
• 17:35
  Speaker 2: increasing by three percent a year, your debt's actually shrinking
• 17:39
  Speaker 2: relative to GDP each year, it's not a bad place
• 17:41
  Speaker 2: to be. You can actually build an economy sustainably like that.
• 17:45
  Speaker 2: Here's what we've done since then. Nine point eight percent,
• 17:48
  Speaker 2: eight point six percent, eight point three six point six,
• 17:51
  Speaker 2: four point zero two point eight two point four three
• 17:54
  Speaker 2: point one.
• 17:54
  Speaker 3: That's through twenty sixteen.
• 17:56
  Speaker 2: We had three years then out of there where we
• 17:58
  Speaker 2: were anywhere close to three percent deficits. YEP twenty seventeen,
• 18:02
  Speaker 2: three point four, twenty eighteen, three point eight, twenty nineteen,
• 18:06
  Speaker 2: four point six, twenty twenty COVID fourteen point seven, twenty
• 18:10
  Speaker 2: twenty one. Also COVID eleven point eight, twenty two, five
• 18:13
  Speaker 2: point three, twenty three, six point two, twenty four, six
• 18:16
  Speaker 2: point seven. So here, here's where we are now is
• 18:21
  Speaker 2: in the last fifteen years, in particular, since two thousand
• 18:24
  Speaker 2: and nine, the only years that we could credibly say
• 18:28
  Speaker 2: we were close to, you know, a three percent annual deficit.
• 18:30
  Speaker 2: We're twenty fourteen through twenty seventeen. Everything else we were
• 18:34
  Speaker 2: close to the four percent or above. And so this
• 18:38
  Speaker 2: is a problem that's fifteen years in the making. Really,
• 18:41
  Speaker 2: I call it twenty five years because you know Bush
• 18:44
  Speaker 2: two kind of kicked this off. But we've been through
• 18:46
  Speaker 2: five administrations now where there has been no major shift
• 18:50
  Speaker 2: in the trajectory of the deficit other than up Bush two, Obama,
• 18:56
  Speaker 2: Trump one, Biden and now Trump two. When I say
• 19:00
  Speaker 2: Trump too, because if you look at you know, kind
• 19:02
  Speaker 2: of the numbers so far for the first four months,
• 19:04
  Speaker 2: you're not seeing any meaningful shift in spending from the
• 19:07
  Speaker 2: previous year.
• 19:09
  Speaker 4: And we'll get into the tax bill that has been proposed,
• 19:12
  Speaker 4: but we're talking about an extra three trillion plus at it.
• 19:17
  Speaker 2: So I think this gets to the point where, again
• 19:20
  Speaker 2: when you start running like six percent deficits year after year,
• 19:24
  Speaker 2: the math starts to get complicated. We'll talk about why
• 19:26
  Speaker 2: that's the case and how this impacts the tax bill
• 19:30
  Speaker 2: after this.
• 19:40
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:43
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:53
  Speaker 1: Street Watch a complete look at what's moving market so
• 19:56
  Speaker 1: far today right here on the Financial Exchange Radio Network.
• 20:00
  Speaker 5: Markets are negative territory to begin the week, with treasury
• 20:03
  Speaker 5: yields jumping higher, in the dollar weakening, and reaction to
• 20:06
  Speaker 5: Moody's downgrade of the country's credit rating citing large fiscal deficits.
• 20:11
  Speaker 5: At the moment, the Dow down by only forty points,
• 20:14
  Speaker 5: SMP five hundred is down over a third of a percent,
• 20:17
  Speaker 5: or twenty three points. NASDAC down by six tenths of
• 20:20
  Speaker 5: a percent, Russell two thousands down one percent. At the
• 20:24
  Speaker 5: moment ten your treasury yield is up by seven basis
• 20:27
  Speaker 5: points now at four point five to one percent, and
• 20:30
  Speaker 5: crude oil up about a quarter percent higher. Training it's
• 20:33
  Speaker 5: sixty two dollars and sixty two cents a barrel. Walmart
• 20:37
  Speaker 5: down by about three quarters of a percent after President
• 20:39
  Speaker 5: Trump called out the retailer over the weekend, saying the
• 20:42
  Speaker 5: retail giant should eat the tariffs and not raise prices
• 20:46
  Speaker 5: for the more. Treasury Secretary best And told Meet the
• 20:48
  Speaker 5: Press yesterday that Walmart's CEO Doug McMillan told him the
• 20:52
  Speaker 5: retailer would absorb some of the levies. Meanwhile, in video,
• 20:56
  Speaker 5: Annow's plans to deepen its partnerships with partnerships with Taiwan.
• 21:00
  Speaker 5: These companies including fox Con, with which it plans to
• 21:03
  Speaker 5: build an AI computer. The chip maker also said its
• 21:06
  Speaker 5: new envy Link Fusion program will allow customers and partners
• 21:11
  Speaker 5: to use non Invidia central processing units and graphics processing
• 21:15
  Speaker 5: units together with its Nvidia products and its Envy Link.
• 21:19
  Speaker 5: In video, pulling back by about a quarter percent. Elsewhere,
• 21:22
  Speaker 5: Ageneron said it will acquire virtually all of twenty three
• 21:26
  Speaker 5: meters assets for two hundred and fifty six million dollars
• 21:30
  Speaker 5: after coming out on top at a bankruptcy auction for
• 21:32
  Speaker 5: the startup that stock, Regeneron is down by one percent.
• 21:37
  Speaker 5: JP Morgan downgraded Netflix to neutral from overweight, citing the
• 21:40
  Speaker 5: stock's recent outperformance and noted there is no change to
• 21:44
  Speaker 5: its long term bullish view. Netflix down by three quarters
• 21:48
  Speaker 5: of a percent after shedding twenty three percent last week.
• 21:51
  Speaker 5: United Health shares are slightly rebounding by three percent today.
• 21:56
  Speaker 5: Bath and body Works as a new CEO, naming Daniel
• 21:59
  Speaker 5: Heath to the new roll. Heath was most recently Nike's
• 22:03
  Speaker 5: Chief Strategy and Transformation officer. Bath and body Works down
• 22:07
  Speaker 5: by one percent, and tomorrow morning we'll see retailer earnings
• 22:11
  Speaker 5: from Home Depot. I'm Tucker Silvan. That's Wall Street Watch.
• 22:15
  Speaker 2: All right, So we've got we've got three stories here,
• 22:20
  Speaker 2: and I'm feeling a little bit.
• 22:23
  Speaker 3: You guys remember.
• 22:24
  Speaker 2: The Always Sunny episode where Charlie Dave becomes a conspiracy theorist.
• 22:28
  Speaker 3: Sure, That's how I'm feeling right now. Okay, I'm like
• 22:31
  Speaker 3: all strung out.
• 22:32
  Speaker 2: I got like a big wall of like all different
• 22:33
  Speaker 2: papers behind me with like you know, pieces of yarn
• 22:37
  Speaker 2: going between them and stuff like that, and I'm trying.
• 22:39
  Speaker 3: To explain it to everyone.
• 22:40
  Speaker 2: But these next three stories dovetail here, and I want
• 22:43
  Speaker 2: to talk more about what Besson said. I want to
• 22:46
  Speaker 2: talk about the tax bill, and I want to talk
• 22:49
  Speaker 2: about Walmart and the tariffs.
• 22:51
  Speaker 4: I can connect two of the three, but go on.
• 22:53
  Speaker 2: Okay, So a couple things that Besson said that caught
• 22:56
  Speaker 2: my eye. The first is talking about the tariffs, and
• 23:05
  Speaker 2: they asked him, look like, what's what's kind of the
• 23:07
  Speaker 2: next plan? He said, Look, we've got, you know, so
• 23:09
  Speaker 2: many negotiations going on, but if someone's not negotiating in
• 23:12
  Speaker 2: good faith, they're going to get a letter saying here's
• 23:15
  Speaker 2: the rate. So I would expect that everyone would come
• 23:17
  Speaker 2: and negotiate in good faith. Those that get the letter
• 23:20
  Speaker 2: will face the tarifrate that the White House announced on
• 23:23
  Speaker 2: April second. So I mentioned earlier like I loved that
• 23:28
  Speaker 2: quote from Bessent about calling Mood he's a lagging indicator.
• 23:33
  Speaker 2: Does anyone out there actually believe that the White House
• 23:36
  Speaker 2: is going to impose the April second tariff rates on
• 23:39
  Speaker 2: countries that like don't play ball because they tried that
• 23:44
  Speaker 2: for twelve hours and it didn't work.
• 23:46
  Speaker 4: Yeah, I would say not. No, I don't think any
• 23:49
  Speaker 4: of the negotiators believe it. I don't believe it, and
• 23:51
  Speaker 4: certainly I don't believe it with any trade partner that
• 23:54
  Speaker 4: is significant in terms of anything.
• 23:57
  Speaker 3: There's a credibility issue there.
• 23:58
  Speaker 2: I mean, look China, for all to talk about how
• 24:01
  Speaker 2: the US has the biggest problems with China out of anyone.
• 24:04
  Speaker 2: China is below their liberation day rate. It was fifty
• 24:08
  Speaker 2: four percent, they're at thirty.
• 24:10
  Speaker 4: I mean, frankly, China is below most countries liberation day rate.
• 24:14
  Speaker 2: Whatever the point is, I don't think there's much credibility
• 24:18
  Speaker 2: on that side to be like, yes, we're going to
• 24:20
  Speaker 2: raise the raids back to where they were stated on
• 24:23
  Speaker 2: April second.
• 24:24
  Speaker 4: To the point, I think they could even announce it
• 24:27
  Speaker 4: and nobody would believe them.
• 24:29
  Speaker 2: Yeah, I don't think anyone would believe what would happen
• 24:31
  Speaker 2: because they already tried it once and pulled it back
• 24:34
  Speaker 2: the same day they were supposed to be implemented. Yeah,
• 24:36
  Speaker 2: because the market was throwing up all over itself. So
• 24:39
  Speaker 2: that's that's point one that I found interesting. It dovetails
• 24:43
  Speaker 2: with this piece on the tariffs and Walmart, because obviously
• 24:49
  Speaker 2: the Trump administration does not want tariff's equals price hikes
• 24:53
  Speaker 2: to be something that is in the minds of the
• 24:55
  Speaker 2: American people. The unfortunate thing is that tariffs are price hikes,
• 25:00
  Speaker 2: and it's just a question of whether Walmart eats them
• 25:02
  Speaker 2: as the Trump administration would like them to we'll get
• 25:04
  Speaker 2: back to that in a second, or passes them on
• 25:07
  Speaker 2: as Walmart said they were going to. In reality, it's
• 25:09
  Speaker 2: going to be a combination of both. It's not all
• 25:12
  Speaker 2: of one or all of another. But here's the piece
• 25:15
  Speaker 2: that I think we need to continue to hone in on,
• 25:17
  Speaker 2: which is Walmart and other retailers. They don't have wide margins.
• 25:22
  Speaker 2: The margins are four percent. There is not a lot
• 25:25
  Speaker 2: of juice there for Walmart to eat them. Even if
• 25:27
  Speaker 2: Walmart said, hey, we'd love to eat as much of
• 25:30
  Speaker 2: this as possible, they can't eat all of it.
• 25:33
  Speaker 4: So here's the quote from President Trump over the weekend
• 25:35
  Speaker 4: Walmart billions of dollars last year between Walmart and China.
• 25:40
  Speaker 4: They should, as is said, eat the tariffs and not
• 25:43
  Speaker 4: charge valued customers anything. I'll be watching, and so will
• 25:46
  Speaker 4: your customers. Yes, of course, they made billions of dollars
• 25:50
  Speaker 4: last year that represented, according to the data I had
• 25:53
  Speaker 4: a five point six percent operating margin on their entire business.
• 25:57
  Speaker 4: So yes, we may billions of dollars, but had expenses
• 26:03
  Speaker 4: been substantially higher, that could have been eliminated quickly. Because
• 26:06
  Speaker 4: our margins are in the single digit percentages that that.
• 26:09
  Speaker 3: Doesn't they made dollars on volume. It's correct.
• 26:14
  Speaker 2: Look, if if you want a company where hey, they
• 26:16
  Speaker 2: could certainly pass them through and eat them. Talk to
• 26:19
  Speaker 2: me about Visa, Sure, okay, Visa, And it's not to
• 26:22
  Speaker 2: be like, you know, picking on them. But Visa has
• 26:24
  Speaker 2: revenue of thirty seven billion dollars. They made nineteen billion
• 26:28
  Speaker 2: dollars on that they're operating margins are north of fifty percent. Yes, Like,
• 26:33
  Speaker 2: this is one of those companies where I look at
• 26:35
  Speaker 2: it and I'm like, what is it you say you do here?
• 26:38
  Speaker 3: You know, like it's called the monopoly, chuck, and you
• 26:40
  Speaker 3: need to respect it.
• 26:41
  Speaker 2: I appreciate that it's not quite a monopoly because there
• 26:44
  Speaker 2: are a couple of tripoly maybe yeah, it's maybe a
• 26:47
  Speaker 2: quadruply or if that's a thing, But it's it's there's
• 26:50
  Speaker 2: not much competition, and they all effectively.
• 26:54
  Speaker 3: Collude without colluding. Correct.
• 26:56
  Speaker 2: So where I'm going with this is you have this
• 27:01
  Speaker 2: tariff situation that I continue to come back to and
• 27:03
  Speaker 2: say they want to raise revenue from tariffs because all
• 27:07
  Speaker 2: the other stuff is gone.
• 27:08
  Speaker 3: At this point.
• 27:09
  Speaker 2: If you wanted to bring back manufacturing to the US,
• 27:12
  Speaker 2: you have to keep the tariffs in place.
• 27:14
  Speaker 3: More than twelve hours. Agreed.
• 27:16
  Speaker 2: If you want to, you know, dramatically alter you know,
• 27:20
  Speaker 2: the flow of goods around the world, you have to
• 27:23
  Speaker 2: keep them in place more than a month.
• 27:25
  Speaker 4: And if you want to have China change its practices
• 27:27
  Speaker 4: around how they treat American businesses doing business, and chinam
• 27:31
  Speaker 4: in place more than the month place.
• 27:32
  Speaker 3: Yeah, so I agree with you.
• 27:34
  Speaker 4: It seems to me that revenue generation in order to
• 27:37
  Speaker 4: offset tax changes is important to the administration.
• 27:41
  Speaker 2: This gets me to my third point. And this is
• 27:44
  Speaker 2: a great quote from Besson here, which I think also
• 27:46
  Speaker 2: validates something I said last week. So of course I
• 27:48
  Speaker 2: think it's a great quote. To go back to your
• 27:51
  Speaker 2: question about the Moody's downgrade.
• 27:54
  Speaker 3: Who cares?
• 27:55
  Speaker 2: Qatar doesn't, Saudi doesn't, the UAE doesn't. They're all pushing
• 27:59
  Speaker 2: money and they've made ten year investment plans. Remember President
• 28:04
  Speaker 2: Trump went on this big trip to the Middle East
• 28:06
  Speaker 2: last week and secured you know, these these investments that
• 28:11
  Speaker 2: are going to be made in the United States. They
• 28:15
  Speaker 2: never specified what the investments were going to be. Now,
• 28:19
  Speaker 2: when someone normally hears, oh, we're gonna make an investment
• 28:22
  Speaker 2: in your country, you typically think, oh, you're gonna build
• 28:24
  Speaker 2: a factory or you're gonna build a building. Are you're
• 28:26
  Speaker 2: gonna you know, do And I wondered, I think it
• 28:30
  Speaker 2: was on Friday. Hey, what if the investment they're making
• 28:34
  Speaker 2: is not an equity investment or you know, a construction
• 28:38
  Speaker 2: of anything in the United States. What if it's just, yeah,
• 28:42
  Speaker 2: we're gonna buy your bonds and you're gonna let us
• 28:45
  Speaker 2: pump as much oil as we can in order to
• 28:47
  Speaker 2: keep oil prices low for you, and in return, we
• 28:51
  Speaker 2: get a bunch of high end chips that we can
• 28:53
  Speaker 2: do whatever we want with.
• 28:55
  Speaker 3: And that's a hint that that was the case, right.
• 28:57
  Speaker 2: Like it if if Beson is talking about this Katari investment,
• 29:01
  Speaker 2: the Saudi investment, the UAE investment, in the context of
• 29:05
  Speaker 2: the Moody's announcement, doesn't it suggest that the much of
• 29:08
  Speaker 2: that investment could come in the form of purchases of
• 29:11
  Speaker 2: US bonds rather than building a factory or investing in
• 29:16
  Speaker 2: US companies.
• 29:17
  Speaker 3: Seems to it could be. And so this gets me then,
• 29:21
  Speaker 3: Oh wow, I know, I'm totally Charlie Dane, I know,
• 29:25
  Speaker 3: so if you look over here.
• 29:27
  Speaker 2: So this gets me then to the tax bill, because
• 29:32
  Speaker 2: it is painfully clear now and again the details are
• 29:35
  Speaker 2: going to be what they are. The tax bill is
• 29:38
  Speaker 2: not going to reduce the deficit. It is going to
• 29:40
  Speaker 2: increase it. It's a matter of how much.
• 29:42
  Speaker 4: It was clear from day one, guys, there hasn't been
• 29:45
  Speaker 4: a tax bill that has raised that has reduced the
• 29:48
  Speaker 4: deficit since pre Reagan.
• 29:49
  Speaker 2: I always take an open mind until I start to
• 29:51
  Speaker 2: see the details because I don't I don't want to
• 29:54
  Speaker 2: come in preconditioned to say this is going to be X,
• 29:57
  Speaker 2: Y or Z. But here's where we're going on this.
• 30:01
  Speaker 2: The best case scenario for the tax bill right now
• 30:04
  Speaker 2: is that it maintains six percent deficits.
• 30:07
  Speaker 3: It's the best case.
• 30:09
  Speaker 2: The worst case ones are closer to eight percent. And
• 30:13
  Speaker 2: so where I'm going with this is they need the
• 30:17
  Speaker 2: revenue from the tariffs in order to try to make
• 30:19
  Speaker 2: the math math. And part of this is also securing
• 30:24
  Speaker 2: commitments from foreign countries with a boatload of money to say, hey,
• 30:29
  Speaker 2: if the math doesn't math, are you still with us
• 30:32
  Speaker 2: on this? And here's what we can give you an
• 30:34
  Speaker 2: order for you to be with us.
• 30:37
  Speaker 3: That is where I am. I don't know. I think
• 30:40
  Speaker 3: connect those dots. I don't have anything left.
• 30:42
  Speaker 4: I think you did it well mighty to listen to
• 30:45
  Speaker 4: the tape to see if I can follow it again
• 30:46
  Speaker 4: the second day.
• 30:47
  Speaker 3: But I hear you, I don't have anything else to say.
• 30:52
  Speaker 3: I'm done one thing. I'll say.
• 30:55
  Speaker 4: You know what I don't want to own as a company,
• 30:58
  Speaker 4: hold on Blockbuster, one that reduces their profit margins intentionally
• 31:03
  Speaker 4: to kiss up to the White House. So I don't
• 31:05
  Speaker 4: think Walmart's gonna do that.
• 31:09
  Speaker 2: Here's the thing, Okay, here's one other thing to watch,
• 31:12
  Speaker 2: just because you brought it up. And I do think
• 31:13
  Speaker 2: this is gonna be interesting. When the tax bill finally passes,
• 31:19
  Speaker 2: they're gonna pass something like I don't know exactly what it's.
• 31:22
  Speaker 2: It's going to pass in some way, shape or form,
• 31:25
  Speaker 2: probably in the next three to four months. When the
• 31:28
  Speaker 2: tax tax bill finally passes and everything that these companies
• 31:31
  Speaker 2: want is codified into law. Now that Walmart and Home
• 31:37
  Speaker 2: Depot and Apple have gotten what they want from Congress,
• 31:40
  Speaker 2: what do they say about their spending plans? Then I'm
• 31:45
  Speaker 2: just curious, just curious. Let's take a quick break when
• 31:49
  Speaker 2: we come out come back, we'll talk about why Europe
• 31:53
  Speaker 2: is out as a vacation destination and road trips are
• 31:56
  Speaker 2: in Man where We're going in the old volks bus.
• 32:01
  Speaker 3: Who knows but where we're going. We don't need roads.
• 32:04
  Speaker 1: Right after this, breaking business and financial news first throughout
• 32:09
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• 32:12
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• 32:16
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• 32:19
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• 32:23
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• 32:37
  Speaker 2: I thought I was done with the the Scott Bessant interview.
• 32:42
  Speaker 2: I have one other thing that I want to come
• 32:44
  Speaker 2: back to in terms of what he was talking about.
• 32:50
  Speaker 3: Over the weekend.
• 32:51
  Speaker 2: And you know, he was asked, look, how are you
• 32:53
  Speaker 2: going to get the US out of this situation? And
• 32:57
  Speaker 2: there are two ways when talking about a high debtity
• 33:00
  Speaker 2: DP ratio, there are two ways that you can do it.
• 33:03
  Speaker 2: The first is by saying we are going to cut
• 33:06
  Speaker 2: the deficit. That's what they were saying for the last
• 33:10
  Speaker 2: six months or so. Second is what Scott said over
• 33:13
  Speaker 2: the weekend. I'll quote, we are going to grow the
• 33:16
  Speaker 2: GDP faster than the debt growth and that will stabilize
• 33:19
  Speaker 2: the debt to GDP, which is the most important number.
• 33:22
  Speaker 4: So the agree is they're not gonna cut deficits. They're
• 33:25
  Speaker 4: gonna run it hot.
• 33:27
  Speaker 2: They're gonna run it hot and hope that you can
• 33:30
  Speaker 2: get to like eight percent nominal GDP and six percent
• 33:35
  Speaker 2: annually annual you know, debt on GDP and shrink it
• 33:39
  Speaker 2: that way.
• 33:41
  Speaker 3: Is it gonna work? I don't know, but I want
• 33:43
  Speaker 3: to be really clear, it's not. Really. It has never.
• 33:46
  Speaker 4: Worked in forty five years of tax cuts.
• 33:52
  Speaker 3: Well, no, not saying it will work.
• 33:53
  Speaker 2: It won't work this time, but it So this approach
• 33:56
  Speaker 2: is what the US basically did after World War Two, yep.
• 33:59
  Speaker 2: And it did work then, yep. But it was also
• 34:02
  Speaker 2: a very different economy then.
• 34:03
  Speaker 4: I mean saying, the last forty five years, when you've
• 34:05
  Speaker 4: done this sort of thing, it has not done what
• 34:07
  Speaker 4: they are describing.
• 34:08
  Speaker 2: So maybe it does this time. Well, this isn't talking
• 34:11
  Speaker 2: even just about tax cuts caught. This is this is
• 34:13
  Speaker 2: literally just, hey, we don't want there's no way that
• 34:16
  Speaker 2: we can cut the deficit right, and so we're just
• 34:19
  Speaker 2: gonna try to shrink it through growing.
• 34:20
  Speaker 3: The economy faster. Can it work? Yes?
• 34:24
  Speaker 2: It also has you know, really high risks associated with
• 34:28
  Speaker 2: it in that look, even in the successful example after
• 34:31
  Speaker 2: World War Two in early nineteen fifty one, the US
• 34:35
  Speaker 2: was seeing twenty one percent annualized inflation. Now there's your again.
• 34:41
  Speaker 2: It worked in that, like the US debt situation was
• 34:44
  Speaker 2: much more under control after that. But how many of
• 34:48
  Speaker 2: you listening were working in nineteen forty nine. The answer
• 34:52
  Speaker 2: is none of you. I don't think we have. I
• 34:55
  Speaker 2: don't think we have many one hundred and two year
• 34:57
  Speaker 2: old people listening right now, but not many. There's a couple, yeah,
• 35:01
  Speaker 2: you know, and we love them.
• 35:02
  Speaker 3: But that's what it is.
• 35:04
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• 35:08
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  Speaker 1: The proceeding was paid for and the views expressed are
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  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
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  Speaker 2: By the way, this calculus, if I'm reading this right,
• 36:20
  Speaker 2: is pretty much the same decision that the Biden administration made.
• 36:23
  Speaker 3: Oh.
• 36:23
  Speaker 2: The difference being the Biden administration said we're not going
• 36:26
  Speaker 2: to cut taxes, but we're going to increase spending. Yep,
• 36:28
  Speaker 2: here's the IRA with a bunch of green money coming.
• 36:31
  Speaker 4: Out, arguably why you didn't get a recession back in
• 36:33
  Speaker 4: twenty twenty two.
• 36:34
  Speaker 2: But also exacerbated inflation and people felt generally uncomfortable with
• 36:38
  Speaker 2: how things were going. This is another gamble along the
• 36:41
  Speaker 2: same lines. Will it work better or worse? I have
• 36:44
  Speaker 2: no idea, but this is why I continue to go
• 36:48
  Speaker 2: back to in the last twenty five years, there has
• 36:50
  Speaker 2: not been an administration that has been able to credibly
• 36:53
  Speaker 2: take on the deficit, Whereas the really interesting thing is
• 36:58
  Speaker 2: you would get basically the eighties, nineties and basically the
• 37:02
  Speaker 2: eighties and nineties, and it was the opposite. Reagan didn't
• 37:06
  Speaker 2: like it, raised taxes, had to Bush raised taxes cost him.
• 37:11
  Speaker 2: Clinton cut spending, had to Like you could look at
• 37:16
  Speaker 2: three presidents in row and be like, at least they
• 37:18
  Speaker 2: thought they had to at the time they did, I
• 37:20
  Speaker 2: mean like they did do it. And since that point
• 37:25
  Speaker 2: in time, the entire narrative has shifted, which is deficits
• 37:29
  Speaker 2: don't matter, deficit somebody else's problem.
• 37:31
  Speaker 3: Yeah, which it looked really interesting school.
• 37:35
  Speaker 2: Here's the thing, to be completely honest, it basically has
• 37:39
  Speaker 2: been to this point over the last eight years. If
• 37:42
  Speaker 2: a great gamp, if every time you got concerned about
• 37:44
  Speaker 2: the deficit for the last eighty years you said, short
• 37:46
  Speaker 2: that idea, it's not going to be a problem.
• 37:48
  Speaker 3: Yep, you were right.
• 37:50
  Speaker 2: Maybe it will be this time too, But there the
• 37:54
  Speaker 2: math is just not mathing, is where I'm kind of getting.
• 37:57
  Speaker 2: And it's been building for twenty five year now, Like
• 38:01
  Speaker 2: this is not a Donald Trump thing, this is not
• 38:03
  Speaker 2: a George W. Bush thing, It's not a Baraco but
• 38:06
  Speaker 2: it's in all of the like, we've all gotten to
• 38:09
  Speaker 2: this point together and.
• 38:13
  Speaker 3: We're in uncharted territory.
• 38:14
  Speaker 2: I don't know exactly how this plays out over the
• 38:18
  Speaker 2: next This is like a ten to fifteen year thing
• 38:19
  Speaker 2: that you're gonna have to see unfold. We'll take a
• 38:22
  Speaker 2: quick break here when we come back our two in
• 38:25
  Speaker 2: just a bit.