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Tariff Refunds Boost Earnings as Inflation Fatigue Builds · The Financial Exchange Show

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Speaker 1: the Financial Exchange with Chuck Zada and Mike Armstrong.
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Speaker 2: Chuck Mike Tucker with you here on a Thursday. You
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Speaker 2: gotta be honest. I was going through the stack this
1:16
Speaker 2: morning and it's it's a pretty quiet week, like there's
1:20
Speaker 2: there's just not much going on, if we're being honest.
1:24
Speaker 2: But the stack is dynamite to them. So I'm pretty
1:27
Speaker 2: pumped up about what we got. So we did get
1:30
Speaker 2: Producer Price Index data this morning. It was very muted,
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Speaker 2: very calm, and puts another log on the fire for Hey,
1:41
Speaker 2: the Fed doesn't need to do anything in September, and
1:43
Speaker 2: so they're probably not going to do anything in September.
1:47
Speaker 2: Where do the odds have a night?
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Speaker 3: It was like fifty to fifty at last look, and
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Speaker 3: is it now favoring do nothing?
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Speaker 2: As of this very moment in time, we are now
1:54
Speaker 2: at a sixty five percent chance of new no hike
1:58
Speaker 2: and a thirty five percent chance of hike. So I
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Speaker 2: don't think there's anything particularly important to say about this
2:05
Speaker 2: PPI report other than it's good news that you have
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Speaker 2: when it's relatively muted. The catch on both this and
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Speaker 2: CPI is this came during the month of July, where
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Speaker 2: gas prices were about five to six percent lower than
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Speaker 2: they are today, and so some of the improvement is
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Speaker 2: going to be given back when we get the August data. Yeah. Look,
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Speaker 2: the heavy inflation for this year came in.
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Speaker 3: During the months of the heavy conflict in Iran that
2:32
Speaker 3: dissipated in June and July.
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Speaker 2: Yep.
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Speaker 3: And I don't think anyone in their right mind would
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Speaker 3: say that they are confident that we're not going to
2:41
Speaker 3: get back to those places where we were in April
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Speaker 3: and May. So, yeah, you can take it with what
2:48
Speaker 3: grain of salt. Who knows where inflation is going to
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Speaker 3: be three months now.
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Speaker 2: There's a reasonable path by the end of the year
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Speaker 2: for oil prices to be back down in the low seventies,
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Speaker 2: high sixties. There's a reasonable path for them to be
3:01
Speaker 2: back at one hundred and twenty. So and again, when
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Speaker 2: I say reasonable, I'm saying like, look, it's not a
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Speaker 2: fifty to fifty thing. But you could probably look at
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Speaker 2: both those prices and be like, yeah, there's at least
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Speaker 2: like a fifteen percent chance that both that either one
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Speaker 2: of those happens, maybe both of those happened before the
3:17
Speaker 2: end of the year, would not be something.
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Speaker 3: And it while it does make sense for us and
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Speaker 3: the FED to you know, ignore to some degree what
3:26
Speaker 3: is happening in energy markets, right We talk about that frequently.
3:29
Speaker 3: How you know, the FED cares something more about core
3:33
Speaker 3: prices than they do food and energy because it's largely
3:37
Speaker 3: outside of the control. It's a bit of a different
3:38
Speaker 3: story when you are talking about the lack of availability
3:42
Speaker 3: of refined energy products, again not here in the United States,
3:46
Speaker 3: but globally, and what that can do to longer term
3:50
Speaker 3: trend lines and prices and supply chains. Right, Like, it's
3:53
Speaker 3: one thing to say, oh, yeah, gas prices went up,
3:55
Speaker 3: we should look through that. It's another to say, large
3:58
Speaker 3: manufacturing hubs in Vietna can't get access to diesel to
4:02
Speaker 3: run their manufacturing facilities, and so we need to be
4:06
Speaker 3: cognizant of prices going higher because of that issue.
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Speaker 2: So we'll see how that all develops. Again, no unique
4:12
Speaker 2: insight on exactly what's going to happen in the Middle
4:14
Speaker 2: East over the next three to four months. We'll see
4:16
Speaker 2: how it goes.
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Speaker 3: And if you have unique insight, we'd love to hear it,
4:21
Speaker 3: but I don't. I don't get a sense that a
4:23
Speaker 3: lot of people have unique insight about what is happening
4:25
Speaker 3: right now, not really any insight at all, because there's
4:29
Speaker 3: just about nothing coming out of there right now.
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Speaker 2: I have unique insights on some topics, not ones that
4:35
Speaker 2: would be interesting to most people. But they still let
4:38
Speaker 2: me talk for two hours here. Yeah, which is great.
4:41
Speaker 3: I was trying to great what unique insights I would
4:44
Speaker 3: guess about, but I don't need to do that right now.
4:46
Speaker 2: You know, like you're all stuck with me for a
4:48
Speaker 2: couple hours, So huh, it's great, matg just spending twenty
4:52
Speaker 2: four hours with me, Like, it's wonderful. Let's talk a
4:57
Speaker 2: little bit about the FED specifically. Didn't get a little
5:00
Speaker 2: bit more on inflation and the FED because we got
5:04
Speaker 2: kind of two companion pieces here that I think get
5:07
Speaker 2: at the crux of the problem. You've got a piece
5:11
Speaker 2: from Dick Timorros in the Wall Street Journal. Inline inflation
5:14
Speaker 2: reading buys the FED more time to defend its forecast.
5:17
Speaker 2: So basically saying, okay, because you've had you know, you know,
5:21
Speaker 2: a couple muted readings in a row for inflation, the
5:24
Speaker 2: FED could say, hey, we think more of these could
5:26
Speaker 2: be coming, and so we don't need to hike or
5:27
Speaker 2: cut we can just stand pat got it.
5:30
Speaker 3: Yeah, with the knowledge that there's going to be let's
5:34
Speaker 3: see when's the next meeting.
5:35
Speaker 2: It's going to be on September sixteenth, So we will.
5:37
Speaker 3: Get one more jobs report and inflation report before that
5:44
Speaker 3: meeting happens.
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Speaker 2: Sure, then we get this piece from Bloomberg Opinion, the
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Speaker 2: twenty dollars burrito debate is a sign of inflation fatigue.
5:55
Speaker 2: So I got a couple bones to pick just in
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Speaker 2: general on this. Okay, as someone who had a burrito
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Speaker 2: last week, an expert on the subject, It's not my
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Speaker 2: first one either. I've had a few over the course
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Speaker 2: of my lifetime. What I can tell you is none
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Speaker 2: of the burritos I've ordered are twenty dollars. And like,
6:19
Speaker 2: we're in a high cost of living area. This is Massachusetts.
6:23
Speaker 2: We're not in Iowa. We're not in in Kansas, We're
6:27
Speaker 2: not in Wyoming. This is Massachusetts, probably one of like
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Speaker 2: the three or four highest cost of living areas in
6:33
Speaker 2: the country, and one of the top ten cost of
6:36
Speaker 2: living areas in the world. Yes, here are my burrito
6:40
Speaker 2: costs over the last year. Michael, Oh god, you tracked him.
6:43
Speaker 2: I did because I wanted to actually, Like, I was
6:46
Speaker 2: wondering why you had your phone out there I have.
6:48
Speaker 2: All of my transactions were burritos here. So I hated
6:52
Speaker 2: Chipotle three times last year fifteen forty one, sixteen ninety one,
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Speaker 2: fourteen fifty five, well five, Chuck, I ate it and
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Speaker 2: his takaria last week, huh. And granted I got two
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Speaker 2: burritos because I ordered one for Ben. Also twenty seven
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Speaker 2: to eleven for two, which means they were thirteen fifty
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Speaker 2: for each burrito on average. So where are you getting
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Speaker 2: a twenty dollar burrito? I don't freaking know in JFK Airport.
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Speaker 2: And I gotta tell you, Like I had guak on mine,
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Speaker 2: I had sour cream like. I wasn't being skimpy about it.
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Speaker 2: I was like, no, pork me up, like I want to, like,
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Speaker 2: you know, really get something out of this.
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Speaker 3: And so I did not think we would have the
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Speaker 3: phrase pork me up in the first fifteen minutes the
7:32
Speaker 3: show to the.
7:33
Speaker 2: WoT one You ever see that, you know Jerry Seinfeld,
7:38
Speaker 2: No it's not Seinfeld, it's Ray Romano. Actually in his
7:41
Speaker 2: uh in his book he talks about on long car rides,
7:45
Speaker 2: the thing that he would do to entertain himself was
7:47
Speaker 2: he would try to come up with sentences that have
7:50
Speaker 2: never been said before in human history, and like, in
7:53
Speaker 2: doing so, he could come up with like the concept
7:55
Speaker 2: for like an episode of a show like oh, like
7:58
Speaker 2: give me back my fudsuit case, and it'd be like, okay,
8:02
Speaker 2: like what's the context that someone would say that, and
8:05
Speaker 2: like you develop like an episode on that. In any case, burritos,
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Speaker 2: First of all, I don't know where these twenty dollar
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Speaker 2: burritos are coming from, because the ones I'm seeing are
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Speaker 2: twenty five percent cheaper than that in Massachusetts. Like you're
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Speaker 2: not like walking out of a Chipotle, like, oh, I
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Speaker 2: didn't get enough food, Like no one's ever said that
8:26
Speaker 2: in their life. Need a nap, right exactly. It's like
8:29
Speaker 2: I probably could have done with half of that, but
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Speaker 2: I finished it in a bathroom easy. But when we
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Speaker 2: talk about this this again debate, whether it's this burrito debate,
8:39
Speaker 2: you remember the McDonald's one, Like why is a McDonald's
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Speaker 2: meal like fifteen dollars a couple of years ago? People
8:46
Speaker 2: are fed up with the cost of living, Like, regardless
8:49
Speaker 2: of the specific number, they're fed up with it. Yeah,
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Speaker 2: And it gets at the core idea behind why people
8:57
Speaker 2: hate inflation. It's not because they're inherently worse off. Usually
9:03
Speaker 2: it is because they're not better off. And specifically, you
9:07
Speaker 2: go back fifteen years, like when I was, you know,
9:10
Speaker 2: first out of college, and a burrito from a Chipotle
9:14
Speaker 2: or an Anastacorea was eight nine dollars somewhere in that ballpark, right, yep.
9:19
Speaker 2: But Michael, the people that were working at that Chipotle
9:24
Speaker 2: or at that Anastacorea, what do you think they were
9:26
Speaker 2: making an hour? Thirty percent less than eight or nine dollars?
9:29
Speaker 2: They were probably making about that. What do you think
9:31
Speaker 2: they're making today? Right? Probably like fifteen sixteen bucks an hour.
9:35
Speaker 2: And so the point that I'll make is the cost
9:38
Speaker 2: of these things has gone up as our wages have
9:41
Speaker 2: gone up, and it feels worse to us because we
9:44
Speaker 2: all remember fifteen years ago when we're like, man, that
9:46
Speaker 2: burrito cost half as much as it does today. Yes,
9:50
Speaker 2: but on a wage perspective, you're probably making about twice
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Speaker 2: as much as you were twenty fifteen, twenty years ago.
9:58
Speaker 2: It's just that like doesn't feel like it because it's
10:01
Speaker 2: getting eaten up. In real terms, buy these higher prices.
10:04
Speaker 2: What percentage of Americans own their home two thirds, about
10:08
Speaker 2: sixty percent and about sixty percent of those still have mortgages.
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Speaker 2: So like outright, probably about twenty percent of Americans own
10:16
Speaker 2: their homes with no mortgage. So I'm just wondering psychologically
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Speaker 2: if I'm just different.
10:21
Speaker 3: I know that I'm a little bit different, but in
10:24
Speaker 3: the way that I think about some of these things,
10:26
Speaker 3: because I buy burritos on occasion too, I go out
10:30
Speaker 3: to dinner every once in a while, I buy new
10:32
Speaker 3: cars every here and there, And I am also dissatisfied
10:36
Speaker 3: with the price of those things.
10:38
Speaker 2: Do you wish was higher?
10:40
Speaker 3: No, I wish all those things were lower. I wish
10:42
Speaker 3: my property tax was lower. But then I also think
10:45
Speaker 3: about my situation and say, well, you know what. When
10:48
Speaker 3: I think about all that, and I look at, for instance,
10:51
Speaker 3: the value of my home that I've owned for the
10:53
Speaker 3: last seven years, which I know is not everybody sure,
10:56
Speaker 3: I look at things and say, well, you know what,
10:58
Speaker 3: compared to the wealth that I've built in some of
11:01
Speaker 3: these other areas, I'm not all that surprise that a
11:04
Speaker 3: brito is closing in on sixteen dollars, and I'm not
11:07
Speaker 3: all that frustrated with the fact that a car is
11:10
Speaker 3: more expensive than it was before. But I don't maybe
11:15
Speaker 3: the value of a home is such an opaque topic
11:18
Speaker 3: that people don't consider that. It's not that it's not
11:21
Speaker 3: in front and center them, but to me that look
11:23
Speaker 3: at it every day, No they don't.
11:25
Speaker 2: But I'll tell you.
11:27
Speaker 3: Like, I get a stupid postcard in my mailbox every
11:30
Speaker 3: week asking if I want to sell my home, and
11:31
Speaker 3: I get an email from redfin every once in a
11:33
Speaker 3: while saying your home is increased by this much this time.
11:37
Speaker 3: And yeah, I don't know for me at least, and
11:42
Speaker 3: maybe it's because I'm much closer to these topics than
11:45
Speaker 3: the average person. I'm unhappy with the prices of all
11:49
Speaker 3: these things, but I also recognize that I've benefited pretty
11:52
Speaker 3: substantially from the inflation that we've seen.
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Speaker 2: It's tough to kind of look at this stuff and
12:00
Speaker 2: figure out, you know, where the real issue is now.
12:03
Speaker 3: I'd be especially pod if I experienced all this inflation.
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Speaker 3: You know, my wage is just barely kept pace with it,
12:11
Speaker 3: and I didn't own assets during that period of time
12:14
Speaker 3: and have seen my rent increase substantially, and now my
12:17
Speaker 3: available ability to get a mortgage has, you know, creeped
12:20
Speaker 3: up quite a bit.
12:21
Speaker 2: So I'm not saying.
12:22
Speaker 3: That that forty percent plus of Americans should be completely
12:28
Speaker 3: satisfied with this economy. But there's no you know, two
12:30
Speaker 3: thirds that have benefited quite a bit from the inflation
12:33
Speaker 3: that we're seeing it.
12:34
Speaker 2: But here's the problem is that burrito is never going
12:38
Speaker 2: to get cheaper in all likelihood. Neither is your home. No,
12:44
Speaker 2: this is the deal. Like we you don't have deflation.
12:47
Speaker 2: And I know people are like, oh, I want deflation,
12:49
Speaker 2: I want prices to go down. Here's the deal. If
12:52
Speaker 2: you know that something's going to be cheaper a year
12:53
Speaker 2: from now as opposed to today, you will not buy
12:56
Speaker 2: it today and so will everyone else, which means economic
12:59
Speaker 2: activity goes down, which means you end up with a
13:02
Speaker 2: deflationary spiral, which read up on like the post Civil
13:06
Speaker 2: War to World War One period and why there was
13:09
Speaker 2: a recession every like three to five years, And it's
13:12
Speaker 2: basically because you would have these recurrent bouts of deflation
13:16
Speaker 2: where the economy would just go in the toilet, and
13:20
Speaker 2: it's not good when it happens. I'm not saying that
13:22
Speaker 2: you want like high inflation, but don't be looking at
13:25
Speaker 2: it like, oh, like deflation would be great. Yeah, deflation
13:29
Speaker 2: is great if your income is maintained while the price
13:32
Speaker 2: of everything goes down. The problem is that every example
13:35
Speaker 2: of deflation that we have historically that doesn't happen. Your
13:39
Speaker 2: income goes down while the prices go down.
13:42
Speaker 3: Solid segment guys, we refer to burritos, pork, and toilets twice.
13:46
Speaker 2: Let's let's take a break and we touched on the
13:48
Speaker 2: Civil War. I mean that was like well rounded. It's
13:52
Speaker 2: a little bit of something for everything, something for every one. Yeah,
13:57
Speaker 2: and we'll have more we're gonna be talking about. But
14:01
Speaker 2: let's talk about teriff free funds when we return.
14:04
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15:08
Speaker 2: P's in the Wall Street Journal. Tariff free funds are
15:10
Speaker 2: here and our turbot charging earnings. During the second quarter
15:15
Speaker 2: earning season, over forty S and P five hundred companies
15:17
Speaker 2: reported nine point six billion dollars in tariff free funds,
15:21
Speaker 2: including about two billion dollars in cash already received. Customs
15:25
Speaker 2: and Border Protection had accepted one hundred and twenty eight
15:28
Speaker 2: point seven billion dollars in refund applications for processing through July.
15:34
Speaker 2: Several of these companies have said that they plan to
15:36
Speaker 2: share or pass refunds onto customers where they can basically
15:42
Speaker 2: like prove what the what the tariff paid was. Most notably,
15:47
Speaker 2: think about FedEx. Just as an example, on your FedEx
15:50
Speaker 2: shipping slip, it was a line item for you know,
15:53
Speaker 2: tariff for the item in the package. And so it's
15:57
Speaker 2: very easy for them to address that.
15:59
Speaker 3: Yeah, they got about an eight hundred million dollar tariff
16:01
Speaker 3: refund as part of this structure.
16:04
Speaker 2: Yeah, on other companies, it's going to be a little
16:08
Speaker 2: bit harder for that to happen. So they may end
16:11
Speaker 2: up just keeping the tariff refunds even though you pay
16:14
Speaker 2: the higher price.
16:14
Speaker 3: Because remember, there are a few companies that tried to
16:18
Speaker 3: line item this Amazon, Amazon didley right, They put it
16:21
Speaker 3: in there and then immediately walked it back because of
16:25
Speaker 3: the President calling them out and probably making a phone
16:28
Speaker 3: call the Jeff Bezos along the way, and so instead,
16:32
Speaker 3: you know, we all have a sense that the stuff
16:35
Speaker 3: we bought on Amazon and a Costco and Walmart were
16:37
Speaker 3: affected by tariffs, but it wasn't clear to any of
16:41
Speaker 3: us on our receipts or anywhere else to what degree
16:45
Speaker 3: the TV I bought was affected by a terror for
16:47
Speaker 3: the bicycle or this, that or the other. And so
16:50
Speaker 3: how do you go about processing refunds if your costo
16:53
Speaker 3: and you get that much of a refund, do you
16:55
Speaker 3: just say, Okay, these customers spent the most amount in
17:00
Speaker 3: twenty five so we're gonna pro rata do that.
17:02
Speaker 2: It gets complicated quickly. A company like Nike, who has
17:07
Speaker 2: received like a few hundred million dollars in refunds to
17:09
Speaker 2: this point, when you go and buy a Nike shoe,
17:13
Speaker 2: you can go to Nike dot com and buy then
17:15
Speaker 2: that's what Nike was trying to get people to do
17:17
Speaker 2: several years ago. But then they didn't abandon that, but
17:19
Speaker 2: they said no, like we got to go back to like,
17:22
Speaker 2: you know, retailers, and pretty much nobody actually does it right.
17:24
Speaker 2: It's like, okay, like not a lot of people were
17:26
Speaker 2: doing that. So when you go to Amazon or foot
17:28
Speaker 2: Locker wherever you buy your Nike shoes, Nike hasn't sold
17:33
Speaker 2: to you. Nike sold to Amazon, and who knows how
17:37
Speaker 2: Amazon marked that up or down based on whatever the
17:40
Speaker 2: new price was from Nike. Who knows how Footlocker marked
17:43
Speaker 2: it up or down. So it's like there's multiple levels
17:46
Speaker 2: then between who paid the tariff and your eventual purchase. Well, again,
17:51
Speaker 2: I don't know exactly what we're going to end up
17:53
Speaker 2: seeing in terms of how many companies attempt to pass
17:57
Speaker 2: these refunds onto customers. Some like FedEx should be able
18:01
Speaker 2: to pretty easily. Others, like in Nike, it's kind of like, well,
18:05
Speaker 2: we don't know who bought our shoe. Actually, I'm not.
18:08
Speaker 3: Sure Nike's in a position to be refunding much of
18:10
Speaker 3: anything these days.
18:12
Speaker 2: Maybe they could give you shares in Nike they are,
18:17
Speaker 2: that would be interesting. We're on sale now, fifty percent
18:21
Speaker 2: off almost exactly over the last twelve months. I know,
18:25
Speaker 2: I know. It's it hasn't been a good run for them. Yeah. Nice. Yeah,
18:30
Speaker 2: So we got a text that I want to touch on.
18:34
Speaker 2: This was in the discussion of our twenty dollars burrito. Indeed,
18:38
Speaker 2: and I went through my burrito transactions for the last
18:40
Speaker 2: year and found none adding up to twenty dollars. The
18:43
Speaker 2: text read the CBI, if you will to chot burrito
18:46
Speaker 2: in depth, Yes, it's a nice companion to the CPI.
18:49
Speaker 2: The text reads, burrito twenty dollars comes from the delivery charge,
18:53
Speaker 2: credit card charge and tip for delivery. Well, don't do that.
18:57
Speaker 2: That's a fundamentally different thing that we're talking about here.
19:01
Speaker 2: Like that, that's that's different. That's like lunch cost me
19:05
Speaker 2: three thousand dollars because I flew to Spain for it, right,
19:08
Speaker 2: Like you know, well, the the bottled water was more
19:16
Speaker 2: expensive than the tap water. Well, yeah, because it's it's different,
19:20
Speaker 2: you know. So those are apples and orangutangs that we're
19:24
Speaker 2: talking about here. Let's take a quick break. When we return,
19:28
Speaker 2: we've got Wall Street Watch next.
19:38
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Speaker 1: The Financial Exchange Radio Network. Turn out full Wall Street
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Speaker 1: Watch trekking the stocks, the data, and the headlines driving
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19:58
Speaker 4: Markets again, moving, hires, and investors react to more inflation
20:02
Speaker 4: data with a producer price index remained unchanged in July,
20:06
Speaker 4: better than estimates of a zero point two percent increase
20:09
Speaker 4: in wholesale prices. Right now, the Dow is up over
20:13
Speaker 4: third percent, or two hundred points higher, s and P
20:16
Speaker 4: five hundred up over eight tents of a percent, or
20:18
Speaker 4: sixty six points higher, Nasdaq up over one percent, or
20:22
Speaker 4: two hundred and eighty one points higher. Russell two thousand
20:25
Speaker 4: is up about two thirds of a percent. Tenure Treasure
20:28
Speaker 4: Reeled is down six basis points at four point sixty
20:31
Speaker 4: two percent, and Oiled down three percent today, trading at
20:35
Speaker 4: eighty dollars a barrel. Cisco reported a jump in net
20:39
Speaker 4: income in the previous quarter as the tech firm continued
20:42
Speaker 4: to receive billions in orders from AI Hyperscalars. However, investors
20:47
Speaker 4: were disappointed by its AI sales guidance, sending the stock
20:51
Speaker 4: down by seven percent. Meanwhile, in its second earnings report,
20:55
Speaker 4: since its IPO shares and Sarabrush Systems are down by
20:59
Speaker 4: nine percent, if the chip designer and cloud computing provider
21:03
Speaker 4: projected slower growth than some investors anticipated. Elsewhere, ticket seller
21:09
Speaker 4: stub pab is seeing it's stock plunged thirteen percent after
21:12
Speaker 4: the company failed to turn a profit in the second
21:15
Speaker 4: quarter due to climbing cost despite surging revenue from the
21:18
Speaker 4: World Cup. Tapestry posted underwhelming results for the previous quarter,
21:24
Speaker 4: sending shares in the parent of Kate Spade and Coached
21:28
Speaker 4: down by fifteen percent. And after today's closed, chip Giant
21:32
Speaker 4: Applied Materials will report its second quarter earnings. I'm Tucker
21:37
Speaker 4: Silva and that is Wall Street watch.
21:39
Speaker 2: Peace in the Bloomberg It's titled mortgage rates are high
21:43
Speaker 2: and here's why they could get higher? Well, because they
21:48
Speaker 2: could go up right, Yeah, the current Federal Reserve is.
21:57
Speaker 3: Unsure about raising interest rates on the let's actually get
22:00
Speaker 3: some of these technicals. So last meeting for the Federal Reserve,
22:03
Speaker 3: Kevin Warsh announced that the FED was not moving on
22:05
Speaker 3: interest rates. There were three voting members who decided that
22:08
Speaker 3: they wanted to, but they decided as a committee not to.
22:11
Speaker 3: Immediately after the words, long term bond rates moved up
22:17
Speaker 3: instead of the in spite of the FED saying we're
22:19
Speaker 3: not moving interest rates. So the mechanics here are important.
22:22
Speaker 3: The FED controls the overnight short term rate by mechanically
22:29
Speaker 3: trying to target a range. They have zero control over
22:32
Speaker 3: those longer term rates. And as a result of the
22:36
Speaker 3: Fed's lack of actions and as well as some perceived
22:41
Speaker 3: concern that they may be unwilling or enable to get
22:44
Speaker 3: inflation under control, investor sold bonds, driving interest rates higher.
22:49
Speaker 2: Subsequently, that has reversed. If you look at the ten
22:52
Speaker 2: year treasury right now, it's at four point six ye
22:54
Speaker 2: nine percent. It's basically exactly where it was before the
22:57
Speaker 2: FED meeting. So yeah, like, interest rates could move higher
23:02
Speaker 2: if conditions warrant. If they don't, then they won't. Like
23:08
Speaker 2: I don't think again, this is another one where it's
23:12
Speaker 2: like the headline of the piece, you know, kind of
23:14
Speaker 2: makes it. I know that, like fear cells and like, oh,
23:16
Speaker 2: you gotta be nervous about this, Like I get that,
23:19
Speaker 2: like sure, but I just don't know. I mean, here's
23:24
Speaker 2: the thing. I struggle to find an environment going forward,
23:27
Speaker 2: like if we will get the next two years, I
23:30
Speaker 2: struggle to see an environment where mortgage rates are gonna
23:33
Speaker 2: be consistently in the fives. And I struggle, not quite
23:38
Speaker 2: as much to see a case where mortgage rates could
23:41
Speaker 2: consistently be in the sevens. Right, In order for mortgage
23:45
Speaker 2: rates to go into the fives, you have to have
23:47
Speaker 2: one of two things. Either inflation has to get so
23:50
Speaker 2: under control that the long end of the yield curve
23:53
Speaker 2: no longer prices in any material risk of it anymore,
23:57
Speaker 2: or the or the US economy goes into recession. In
24:01
Speaker 2: order for rates to go into the sevens, the US
24:04
Speaker 2: economy needs to be cranking, and inflation has to be
24:07
Speaker 2: you know, high enough that it warrants higher rates than
24:09
Speaker 2: are currently in play.
24:13
Speaker 3: And to just you know, put out the odds here,
24:17
Speaker 3: we're a heck of a lot closer to seven than
24:19
Speaker 3: we are five.
24:20
Speaker 2: Which is which is why I say, like, if if
24:22
Speaker 2: you ask me to like price out like and when
24:25
Speaker 2: I say, like, for an extended period of time by
24:28
Speaker 2: the end of twenty twenty nine, twenty twenty eight, so
24:31
Speaker 2: two and a half years, we got thirty months here,
24:33
Speaker 2: our rate's going to spend at least half of that
24:36
Speaker 2: time with one of those digits, you know, as the
24:40
Speaker 2: first number, I would say, there's probably like a seventy
24:44
Speaker 2: percent chance. I mean, I would say, like, if you
24:48
Speaker 2: want the distribution of like the most frequent rate, the
24:51
Speaker 2: number that you see in the first digit, seventy percent chance,
24:54
Speaker 2: it's a six twenty percent chance, it's a seven ten
24:57
Speaker 2: percent chance to five there. Yeah, you know it's it's
25:01
Speaker 2: kind of where I land right now. The most likely
25:05
Speaker 2: outcome is rate stays somewhere in the sixes on mortgages.
25:09
Speaker 3: Yeah, I think I land there as well, because to
25:12
Speaker 3: your point, you either get the recession to get you
25:15
Speaker 3: down to the fives or that stability on inflation would
25:18
Speaker 3: really have to mean that there is not an ongoing
25:22
Speaker 3: concern in Iran. Like that would be a starting point
25:25
Speaker 3: for me. I think unless you get a.
25:27
Speaker 2: Full on recession. Remember like, but even before Iran, like
25:30
Speaker 2: you still weren't down to two.
25:31
Speaker 3: Percent relace, which is why it's so tough for me
25:33
Speaker 3: to get there without a recession, which I do wonder
25:40
Speaker 3: what that spells for the housing market. More and more,
25:43
Speaker 3: I'm getting the sense that homeowners are adapting to and
25:48
Speaker 3: becoming used to these higher rates. I was speaking with
25:52
Speaker 3: Paul Lane the other day, and his sister's in the
25:54
Speaker 3: housing market, and you know, they already have a more
25:58
Speaker 3: pull me on that in the fives or six is
26:03
Speaker 3: and they had a starter home they're looking for potentially
26:06
Speaker 3: another move, and so you know, every year that goes
26:10
Speaker 3: by here this becomes a little bit easier. But what
26:14
Speaker 3: I think was detrimental to this Springs housing market is
26:16
Speaker 3: you were at six in February and nearly seven by April.
26:23
Speaker 2: The big thing in terms of that, the thing that
26:26
Speaker 2: will make this easier the uh there's a the FHFA
26:29
Speaker 2: tracks the average interest rate outstanding on mortgages, sure, and
26:33
Speaker 2: it's ticking up by aboutero point two percent. Uh every
26:38
Speaker 2: you know, six to nine months, like somewhere in that
26:41
Speaker 2: ballpark is kind of what we're seeing, which means that again,
26:45
Speaker 2: like it's it's a process to get there, but right
26:48
Speaker 2: now it's it's like four point four percent by the
26:50
Speaker 2: end of this year, it'll probably be somewhere in like
26:52
Speaker 2: that four point six four point seven percent range. And
26:56
Speaker 2: so the big thing that I see is look as
26:58
Speaker 2: that average interest rate moves up, it's indicative of a
27:02
Speaker 2: housing market that doesn't have as many people that are
27:04
Speaker 2: mortgage locked, and you can see more transactions turning over
27:07
Speaker 2: and pricing is not as much of an issue. It's
27:10
Speaker 2: taking time to get there. But also these higher turnover markets,
27:14
Speaker 2: remember that's the average interest rate nationally, These higher turnover
27:18
Speaker 2: markets like Florida and Texas and Georgia, those markets, you're
27:22
Speaker 2: already seeing higher interest rates on average that are in
27:26
Speaker 2: play for people that own their homes. And this is
27:28
Speaker 2: why you're starting to get signs from the big home
27:31
Speaker 2: builders that things are going to be normalizing from a
27:34
Speaker 2: construction perspective in a lot of those areas. So I
27:38
Speaker 2: think that twenty seven and twenty eight are years where
27:42
Speaker 2: nationally the housing data is probably going to start to improve.
27:46
Speaker 2: And this is another reason why when you look at
27:48
Speaker 2: the economic data, it's kind of hard to get to
27:51
Speaker 2: recession in the next couple of years. Right, you got
27:55
Speaker 2: data centers powering things through for at least the next
27:58
Speaker 2: six to nine months, like that construction's already started. It's
28:00
Speaker 2: not going anywhere. And if it does start to slow
28:03
Speaker 2: down sometime in twenty seven or twenty eight, I think
28:05
Speaker 2: there's a housing impulse that's ready to pick up the
28:07
Speaker 2: mantle at that point finally after like five to six
28:10
Speaker 2: years or just you know, mushy nothingness. Yeah, mushy nothingness
28:16
Speaker 2: in the housing market. How'd you like that? I did.
28:20
Speaker 3: Yeah, I can see the case, but I think there's
28:24
Speaker 3: always that risk of a yeah crash that results in
28:30
Speaker 3: job loss, And I'm with you, it is tough to
28:33
Speaker 3: paint that picture.
28:34
Speaker 2: We gotta find out the approximate causes though.
28:36
Speaker 3: Like it's with the amount of spending that's being committed
28:40
Speaker 3: right now, and especially the way the spending is being
28:45
Speaker 3: done right three years ago, it was all kind of
28:47
Speaker 3: pie in the sky stuff. Now it's no. Actually, we
28:50
Speaker 3: are physically building stuff. Facebook is trying to train people
28:54
Speaker 3: into the new workspaces that they're going to need over
28:57
Speaker 3: the next few years. Like it is becoming realer, more real,
29:03
Speaker 3: realer than it was two three?
29:05
Speaker 2: Is it the realist? Yeah, yeah, it's up there. I
29:09
Speaker 2: want to do one quick item here, just on SpaceX.
29:12
Speaker 2: Mike do you remember a couple of weeks ago after
29:14
Speaker 2: SpaceX's IPO and then it fell fifty percent and you
29:17
Speaker 2: were getting the articles like watch out, this is like dangerous,
29:21
Speaker 2: blah blah blah. And I made the point in concert
29:25
Speaker 2: with data from Brent Donnelly. Hey, after the lockups actually expire,
29:29
Speaker 2: you tend to see a little bit of a bounce.
29:32
Speaker 2: Oh gee, looky, lou right here, you've got SpaceX having
29:35
Speaker 2: gone from one oh four now up to north of
29:38
Speaker 2: one hundred and forty bucks a share in the last
29:41
Speaker 2: week and a half or so. And so this is
29:43
Speaker 2: why you don't judge an ipo by what it's done
29:45
Speaker 2: in the last week, Because a week ago everyone was like, oh,
29:48
Speaker 2: this ipo is awful, why would anyone like buy this?
29:51
Speaker 2: Now people are like, oh, it's up forty percent in
29:53
Speaker 2: a week. This is kind of fun. Like, guys, they're IPOs.
29:56
Speaker 2: They are highly volatile. You're not gonna be able to
29:59
Speaker 2: tell whether it's a success or failure based on how
30:02
Speaker 2: it trades for a week. Give it some time to breathe,
30:07
Speaker 2: give it some time to rest. We all just need
30:09
Speaker 2: a little time, man, even Elon. Let's take a quick
30:13
Speaker 2: break when we come back. We're talking about Taylor Farms
30:17
Speaker 2: and why it just seems like there's another outbreak coming
30:21
Speaker 2: from their produce every week. Right now, next.
30:25
Speaker 1: Breaking business news as it happens only here on the
30:29
Speaker 1: Financial Exchange Radio Network. Miss the show. You can find
30:34
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30:40
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30:43
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30:58
Speaker 2: You know, sometimes we read pieces and them and we're
31:01
Speaker 2: kind of critical of them or the writing in them.
31:04
Speaker 2: This this is not one of those cases. I quote
31:07
Speaker 2: from Kevin Draper in the New York Times, it has
31:10
Speaker 2: not been a good summer for eaters of fresh food.
31:13
Speaker 2: Just as Americans are starting to come to grips with
31:15
Speaker 2: the psyclospore acis wave in Iceberg lettuce recall, jalapinos from
31:20
Speaker 2: Mexico were reported as suspected of being contaminated by salmonella.
31:25
Speaker 2: Not a great few months for Taylor Farms. Both contaminations
31:28
Speaker 2: involved Taylor Farms, one of the country's largest fresh produce companies,
31:31
Speaker 2: and both are linked to farms in Mexico. So this
31:36
Speaker 2: this jalipino situation was actually developing. Last week as I
31:41
Speaker 2: was ordering my burrito and Ben mentioned it to me,
31:44
Speaker 2: and I said, you know what, I also like to
31:47
Speaker 2: live dangerously. I'm gonna give it a chance and and
31:50
Speaker 2: see what happens here. And I was fine. But you know,
31:57
Speaker 2: here's the thing. I often say, there's no upside with lettuce.
32:03
Speaker 2: It's it's my version if you don't make friends with salad,
32:06
Speaker 2: like let us, the best case that you get with
32:09
Speaker 2: it is that it exists and goes down and it's fine,
32:16
Speaker 2: Like doesn't bring anything to the table, is your point? No,
32:19
Speaker 2: Occasionally like look, I do enjoy a nice, crisp lyief
32:24
Speaker 2: from Literly Farms lettuce that I think is a really
32:27
Speaker 2: high quality. But in general, in particular like Romaine, which
32:32
Speaker 2: is like nine out of ten times, Romaine is where
32:34
Speaker 2: the outbreak comes from. Romaine is just floppy. It's tasteless,
32:40
Speaker 2: Like what are you even doing messing with that? To
32:42
Speaker 2: begin with? This was Iceberg, But yeah, Iceberg at least
32:45
Speaker 2: has a crunch, like you can you can see like
32:47
Speaker 2: some value in that put it in a nice wedge.
32:50
Speaker 2: It's lovely. I don't know, let us. In general, I'm
32:54
Speaker 2: just not excited about and could do without it most is,
32:59
Speaker 2: on the other hand, love them huge fan, love them
33:01
Speaker 2: so candied, pickled ones. I think the question to be
33:04
Speaker 2: asking on this is, look, is there anything that has
33:08
Speaker 2: changed in terms of There's two questions. Number one, are
33:14
Speaker 2: we actually seeing an elevated rate of recalls or is
33:16
Speaker 2: this just for some reason these have captured the nation's imagination.
33:21
Speaker 2: And number two, if there is an elevated rate of
33:24
Speaker 2: recalls related to you know, diseases making their way through produce, Hey,
33:28
Speaker 2: what could be causing it and what can we do
33:30
Speaker 2: to stop it? I don't have the answers on that,
33:33
Speaker 2: but those are the questions we need to be asking.
33:35
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34:32
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34:34
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
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34:43
Speaker 2: Piece here from Bloomberg. Faulty backup cameras are plaguing tens
34:46
Speaker 2: of millions of US cars. So back in two thousand
34:49
Speaker 2: and eight, at the tail end of the second Bush administration,
34:54
Speaker 2: the h there was a law passed that required that
35:01
Speaker 2: effectively directed regulators to help prevent pedestrian deaths and cars.
35:04
Speaker 2: And one of the things that ended up being required
35:06
Speaker 2: coming out of that was backup cameras mandated on all
35:10
Speaker 2: vehicles as of I think eight years ago. Oh, I
35:13
Speaker 2: didn't know that. Okay, so they're all required at this point.
35:18
Speaker 2: But basically what you have here is that automakers have
35:24
Speaker 2: recalled about twenty one million vehicles for faulty backup cameras
35:29
Speaker 2: in the past eight years since they became mandated, including
35:33
Speaker 2: six million just in the last year. So a couple
35:37
Speaker 2: things on this number One. When we talk about, you know,
35:40
Speaker 2: any kind of video technology, it's obviously adding complexity to
35:44
Speaker 2: a car, and when you have to build it at scale,
35:46
Speaker 2: the possibility that not possibility, but just the sheer math is, hey,
35:51
Speaker 2: if you included in every vehicle going forward, there are
35:54
Speaker 2: going to be more vehicles that end up being recalled
35:57
Speaker 2: in terms of the total numbers. So I don't put
35:59
Speaker 2: much stock and the fact that more were recalled last
36:02
Speaker 2: year than like earlier in the period because more cars
36:04
Speaker 2: have them now, like that just makes sense.
36:08
Speaker 3: What amazes me is how quickly technology makes sense just
36:13
Speaker 3: suck at basic skills.
36:14
Speaker 2: Well, and this is the part that I was going
36:16
Speaker 2: to get at, which is I haven't taken Drivers AD
36:20
Speaker 2: in a long time, sure about twenty five years now.
36:23
Speaker 2: But the thing that I learned in Drivers D Like,
36:26
Speaker 2: I took like three things from DRIVERSAD that stuck with
36:29
Speaker 2: me to this day. One of them is always look
36:32
Speaker 2: the direction that you're driving. So like when I'm backing up,
36:35
Speaker 2: I'm not looking at the backup camera. I glanced at
36:38
Speaker 2: it to begin with, to make sure there isn't a
36:40
Speaker 2: little kid right behind the car, because that's the real
36:42
Speaker 2: purpose of it, is to detect stuff below the trunk
36:46
Speaker 2: height where you can't see with your eyeballs. But otherwise
36:51
Speaker 2: it's no I turn and look where I'm backing up,
36:54
Speaker 2: because you should always be looking in the direction that
36:57
Speaker 2: you're going. I'll be honest, so guilty of this. I don't.
37:00
Speaker 2: You don't know.
37:01
Speaker 3: I will frequently in a parking spot back up, look
37:04
Speaker 3: in the camera, occasionally glance around make sure I'm not
37:07
Speaker 3: seeing a car. But even now, my newest car has,
37:10
Speaker 3: you know, motion sensors of cars coming in other directions
37:13
Speaker 3: that the camera's not picking up.
37:14
Speaker 2: Sure, right, I get the beeping and everything. Still like
37:17
Speaker 2: I'm lazy and I don't do it. No, you always
37:20
Speaker 2: look at yeah the car's going. Yeah. Absolutely. Likewise, any
37:25
Speaker 2: whenever you're moving anywhere, you should be looking in that direction.
37:29
Speaker 3: I tell this to Some of the funniest things I've
37:31
Speaker 3: ever seen are people don't look in the direction.
37:34
Speaker 2: There my kids again, like they're they're you know, five
37:37
Speaker 2: and two, and like ninety percent of the time that
37:40
Speaker 2: they get into trouble, it's because it's like, oh, they're
37:42
Speaker 2: looking one way, they bump into a wall, or they're
37:44
Speaker 2: looking one way and they slip on a toy. They
37:46
Speaker 2: didn't see me.
37:47
Speaker 3: My daughter had a mean meeting with a mailbox a
37:51
Speaker 3: few years ago on her bicycle that resulted in the
37:53
Speaker 3: R visit.
37:54
Speaker 2: So aways always look in the direction that you're moving,
37:57
Speaker 2: whether in a vehicle or out of one. That's what
38:00
Speaker 2: you should be doing. I'm stationary right now, so I
38:04
Speaker 2: spin my head like a radar platform. An hour or
38:08
Speaker 2: the Exorcister Girl, one of those three things. Yeah, let's
38:13
Speaker 2: take a quick break when we come back. We got
38:16
Speaker 2: hour two.