Latest / The Financial Exchange Show / Apple was on the brink of a crisis until Trump's tariff concessions

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Apple was on the brink of a crisis until Trump's tariff concessions · The Financial Exchange Show

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Speaker 2: Another week here on the Financial Exchange, shortened trading week
1:13
Speaker 2: as markets will be closed in observance of Good Friday,
1:17
Speaker 2: so it is a four day trading week this week.
1:21
Speaker 2: What do we have on tap starting to get into
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Speaker 2: earning season? Also some economic data as well economic data
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Speaker 2: that you know, we're gonna be paying attention to retail
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Speaker 2: sales on Wednesday. This is a big one, quite honestly,
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Speaker 2: simply because the previous retail sales numbers the last couple
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Speaker 2: months haven't been very good. The expectations are for this
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Speaker 2: one to be, you know, kind of knock your socks
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Speaker 2: off awesome for a couple of reasons. First one, last
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Speaker 2: week we already got it. Maybe it was a week
1:46
Speaker 2: and a half ago now I can't even remember. We
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Speaker 2: got auto sales numbers for the month of March and
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Speaker 2: they were through the roof as people tried to front
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Speaker 2: run Terra. I don't think you really stock up on
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Speaker 2: cars in advance of tariffs, because.
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Speaker 3: Expectively what's happening though it's.
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Speaker 2: Kind of but like you always won, it's not really
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Speaker 2: a stocking. It's yeah, we're replacing.
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Speaker 4: So I did speak to somebody over the weekend who
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Speaker 4: planned to need to replace a car within the next
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Speaker 4: eighteen months and said I'm doing it now, and they
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Speaker 4: did so.
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Speaker 2: I do expect the numbers to be high there. The
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Speaker 2: question that I think I'm going to be looking at
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Speaker 2: from my perspective is, Hey, when you're not looking at
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Speaker 2: auto sales, what are you seeing for the more discretionary
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Speaker 2: items that are out there? And remember, this is going
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Speaker 2: to be distorted, but I guess my message is more
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Speaker 2: or less, Hey, if this number does not have a
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Speaker 2: robust bounce back, then you got a real problem. Then
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Speaker 2: you got a real problem. But again, the auto number
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Speaker 2: is going to be so monstrous. I think, like the
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Speaker 2: auto number, the auto number month over month? Can can
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Speaker 2: we just give Can we do a little prediction? Wall Tucker?
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Speaker 1: Sure?
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Speaker 3: Boy.
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Speaker 2: Remember the big spike that we saw back in I
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Speaker 2: think it was either November or December of last year,
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Speaker 2: was a two point eight percent month over month jump
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Speaker 2: in auto sales. I'm going to go with six and
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Speaker 2: a half percent.
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Speaker 1: Wow.
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Speaker 3: I want to offer a prediction because I had no
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Speaker 3: real opinion beforehand, and so.
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Speaker 2: I so what I didn't have. I didn't have an
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Speaker 2: opinion beforehand either. I just made this up. Just now
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Speaker 2: for for what percentage points are for cars?
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Speaker 5: Four percentage points okay, yeah, yeah, point two or no, okay.
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Speaker 3: Just there?
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Speaker 2: Nice even four? Uh yeah.
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Speaker 4: In either case, the retail sales number is to your point, yeah,
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Speaker 4: important because we saw a slow down. Important because we've
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Speaker 4: seen a real souring on sentiment from consumers, and so
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Speaker 4: does that play out in spending numbers or do you
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Speaker 4: actually have some front running happening here with purchases and
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Speaker 4: some purchases being pulled forward, especially as as you mentioned,
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Speaker 4: the auto sector is so all important to these numbers
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Speaker 4: because they're such big ticket items.
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Speaker 2: But other little things that you want to see in
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Speaker 2: the retail sales data. Hey, they include restaurants in there.
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Speaker 2: Are we seeing any evidence that people are starting to
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Speaker 2: pull back on restaurants spending as they're doing this other
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Speaker 2: you know, surge of spending stuff. Stuff like that is
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Speaker 2: going to be interesting.
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Speaker 3: To me earnings wise, still heavily financial.
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Speaker 2: Still have more economic data first, real fine, yeah, don't
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Speaker 2: worry about it. So we've got nh B Housing Market
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Speaker 2: Index that is on Wednesday as well Thursday, we got
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Speaker 2: building permits and housing starts, as well as jobless claims
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Speaker 2: and that's basically it. So it's again not a huge
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Speaker 2: week for economic data, but a few things that are
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Speaker 2: going to be kind of interesting marginally, you know, of
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Speaker 2: value to us.
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Speaker 3: The earning schedule is mainly heavy in the financials.
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Speaker 4: You've got Goldman Sachs that reported this morning, Bank of America,
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Speaker 4: City Group going tomorrow, PNC as well. Non financials, we've
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Speaker 4: got Johnson and Johnson reporting tomorrow morning before the bell,
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Speaker 4: ASML is reporting this week, Abbott Laboratory. So again, some bigger,
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Speaker 4: well known names outside on Thursday outside of the I
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Speaker 4: don't have them Thursday.
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Speaker 5: They are Thursday.
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Speaker 3: They are Thursday. You're right after the bell. I wasn't
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Speaker 3: seeing it.
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Speaker 2: My apologies American Express. Also, I'm going to be kind
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Speaker 2: of interested to see what XP is telling us, just
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Speaker 2: because sure, look the growth engine or one of them
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Speaker 2: in the last six months, the back end of last
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Speaker 2: year was high end consumers still spending money. YEP. Is
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Speaker 2: American Express telling us, Hey, that's still what we're seeing.
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Speaker 2: People are you know, you know, spending is robust or
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Speaker 2: are they starting to see, you know, some some signs
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Speaker 2: of wavering and things shifting a little bit. So that's
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Speaker 2: that's what we're going to be looking for this week
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Speaker 2: as we start to get against some economic data and
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Speaker 2: earnings coming through the next two weeks are the big
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Speaker 2: ones for earnings. The last two weeks of April is
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Speaker 2: when I think we have about sixty percent of S
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Speaker 2: and P five hundred companies reporting earnings. So that's going
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Speaker 2: to be you know again, a week from now, we'll
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Speaker 2: be talking about, Hey, we got Apple this week, we
5:39
Speaker 2: got Meta this week. Those are you know, all on deck,
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Speaker 2: and certainly we're going to be you know, wanting to
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Speaker 2: hear what companies are telling us about their future prospects
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Speaker 2: for earnings more than how was Q one.
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Speaker 4: I feel as though this is we are going to
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Speaker 4: speak heavily about tariffs on today's program because there have
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Speaker 4: been changes over the weekend. But I do feel as
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Speaker 4: though this is the program we've done in about a
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Speaker 4: week and a half that is not exclusively about tariffs.
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Speaker 2: Yes, we'll try to keep it to lights exciting. We'll
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Speaker 2: try to keep it to somewhere in the ballpark of
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Speaker 2: you know, ten percent the standard tariff rate is what
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Speaker 2: we're going to try to do for you know, time
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Speaker 2: of show.
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Speaker 3: I can almost guarantee you we're closer to half.
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Speaker 2: But yeah, fine, you can do that. I'll just do
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Speaker 2: something else. It's it's fine, it's not really a big deal.
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Speaker 2: Let's talk a little bit about what we saw over
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Speaker 2: the weekend. So on Friday, Customs and Border Patrol posted
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Speaker 2: to their website basically a list of exceptions to the
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Speaker 2: China tariffs, and really to all of the tariffs, not
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Speaker 2: specifically China, but it really was, you know, the China
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Speaker 2: ones that matter most and included in there semiconductors, computers, laptops, tablets,
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Speaker 2: like smart devices, those kinds of things.
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Speaker 4: Consumer electronic devices were included in this pretty heavily as
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Speaker 4: a seeming carve out for Apple.
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Speaker 2: Correct. So you have that on on Friday night, like
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Speaker 2: I think it was like four thirty. It was after
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Speaker 2: the close. I don't even know exactly when, but that's
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Speaker 2: when people like picked up on this was like, oh,
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Speaker 2: like Saturday morning, you had all of the wires going out,
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Speaker 2: like oh, here's you know, like what's going on. Sunday
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Speaker 2: you have Howard Lutnik, the US Commerce Secretary, on a
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Speaker 2: couple of the morning shows and he basically says this
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Speaker 2: is temporary, We're actually going to impose tariffs on these things.
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Speaker 2: But we just needed to get our ducks in a
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Speaker 2: row before we impose sector specific tariffs on these. But
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Speaker 2: we are going to tariff these, so don't think that
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Speaker 2: this is permanent.
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Speaker 3: Right.
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Speaker 2: The President then posts to truth Social basically something to
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Speaker 2: the same effect saying, yes, like these, you know this
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Speaker 2: is not how it's going to be. We are going
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Speaker 2: to have you know, a permanent tariff in place on
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Speaker 2: semiconductors and computers going forward. So you kind of look
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Speaker 2: at you like, okay, so which one is it going
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Speaker 2: to be? And and and specifically the place where you
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Speaker 2: run into problems on this is again, if you're a
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Speaker 2: company that's in this space, you kind of sit here
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Speaker 2: and you go, what am I going to actually do?
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Speaker 2: And there's some that obviously in certain areas. Look, you've
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Speaker 2: already had you know, you know, some on shoring of
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Speaker 2: semiconductors with all our fabs that have been going up
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Speaker 2: the last few years.
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Speaker 3: Yeah, the Chips Act last year, which was more of
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Speaker 3: a carrot than a stick.
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Speaker 2: But we've talked a lot about how Look, if you're
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Speaker 2: trying to bring semiconductive production back to the US, it's
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Speaker 2: a ten year process from start to finish of planning, design, approval,
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Speaker 2: and building an operation of a fab. You don't just
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Speaker 2: go from start to finish in you know, six months.
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Speaker 2: It's a long process to get there. So I think
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Speaker 2: the when we look at this, it's it's once again
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Speaker 2: trying to figure out, Hey, how long are these policies
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Speaker 2: going to be in place, and what is the incentive
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Speaker 2: structure and is that incentive structure enough to cause companies
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Speaker 2: to shift their CAPEX plans to more US development versus
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Speaker 2: the status quo.
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Speaker 4: Yeah, and I don't want to spend too much time
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Speaker 4: pondering what maybe announcement that could come as soon as
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Speaker 4: this week on these types of products, but it would
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Speaker 4: seem to me that it would make some sense to
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Speaker 4: follow a path that best and had kind of paved
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Speaker 4: during I think the early stage of the administration or
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Speaker 4: may or maybe earlier on than that, during the campaign trail,
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Speaker 4: which was hey for some of these industries where it
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Speaker 4: is not an overnight snap your fingers and you know,
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Speaker 4: jobs can return. Having an escalating schedule of tariffs that
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Speaker 4: are put into place well ahead of time to give
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Speaker 4: companies at least a playbook to say, okay, I know
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Speaker 4: what my import rate is going to be today, a
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Speaker 4: year from now, in five years from now, And I
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Speaker 4: also think that that would be much tougher for another president,
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Speaker 4: you know, whoever is in the White House next to say, hey,
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Speaker 4: we're walking this back if it was put together intelligently
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Speaker 4: and organized in a fashion which you say, Okay, we're
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Speaker 4: giving businesses a real incentive here to return that manufacturing
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Speaker 4: to the United States. Don't know that's what we're gonna get,
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Speaker 4: but it kind of falls into that category. It also
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Speaker 4: would hint to me that if that is how it goes,
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Speaker 4: there are probably other industries that fall into a similar
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Speaker 4: category that might have a compelling argument. Right, you don't
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Speaker 4: need three years in advance to set up a sock
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Speaker 4: manufacturer in the United States.
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Speaker 3: How much do you need? Probably not that much.
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Speaker 4: I don't know, but I'm probably I'm guessing a fraction
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Speaker 4: of the time required to set up semiconductor manufacturing is
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Speaker 4: the answer. But each industry, each type of product that
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Speaker 4: you might want built here in the United States, follows
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Speaker 4: a different schedule there, and this might be a precursor
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Speaker 4: to several different industry specific tariffs that could be ruled out.
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Speaker 4: I'm completely guessing at this stage though, so I don't
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Speaker 4: think it's worth going beyond that.
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Speaker 2: I asked chat GPT how long it takes to build
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Speaker 2: a sock factory, just because, you know, wondering about it.
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Speaker 2: This is what it kicked back to me. The planning
11:13
Speaker 2: and design phase is typically two to six months, construction
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Speaker 2: another six to twelve and that is for a mid
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Speaker 2: size factory of somewhere, you know, ten thousand to fifty
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Speaker 2: thousand square feet of socks.
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Speaker 3: So it sounds like I'm looking like eighteen months minimum.
11:26
Speaker 2: Take equipment installation and testing, two to four months, hiring
11:29
Speaker 2: and training workers another one to three months. So nine
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Speaker 2: to eighteen months is kind of what we're looking at
11:34
Speaker 2: in terms of building a sock factory.
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Speaker 4: Yeah, whereas I think TSMC's plans in Arizona are part
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Speaker 4: of like a seven to ten year seven to ten
11:43
Speaker 4: year plan.
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Speaker 2: Yeah, let's take a quick break. Obviously, with the news
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Speaker 2: about computers and semis over the weekend, everyone you know,
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Speaker 2: wanted to talk about one company and one company only,
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Speaker 2: So we're going to do just that. Right after this,
11:55
Speaker 2: we're talking Apple. When we return.
11:58
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Speaker 2: All right, So, Oplay, otherwise known as Apple, is a
13:01
Speaker 2: company that makes stuff, and most of that stuff is
13:06
Speaker 2: imported from China, about eighty percent of it. And before
13:11
Speaker 2: the announcement or the posting of the exemptions on Friday,
13:15
Speaker 2: you're kind of sitting around like, Hey, how are you
13:18
Speaker 2: gonna sell your stuff with these kinds of tariffs? Given
13:22
Speaker 2: that you were talking about one hundred and forty five
13:24
Speaker 2: percent tariffs from China. It was kind of a problem.
13:27
Speaker 3: Yeah, a lot of.
13:27
Speaker 4: People were doing some pretty complicated mapic. All right, so
13:30
Speaker 4: what portion of these things are sold in the United States?
13:32
Speaker 4: What portion is made in India? Can they get around
13:35
Speaker 4: any of this for any significant period of time? The
13:36
Speaker 4: answer seemed to be.
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Speaker 2: Not really no. So now that you have these exemptions
13:41
Speaker 2: in place, a couple things become clear well clearer. The
13:46
Speaker 2: first is that you still have the baseline twenty percent
13:50
Speaker 2: tariffs on Chinese imports that are in place. That is
13:53
Speaker 2: something that the President specified over the weekend is that
13:57
Speaker 2: this was simply an exemption from the reciprocal matters, not
14:01
Speaker 2: from the baselines that are already out there. Okay, other things.
14:07
Speaker 2: You immediately had a whole bunch of people talking all
14:10
Speaker 2: over social media about, Hey, this is you know, because
14:14
Speaker 2: Apple can lobby and they get exemptions that smaller companies
14:17
Speaker 2: are not going to be able to get, and so
14:20
Speaker 2: small companies in other areas are just gonna get absolutely punished,
14:23
Speaker 2: and large companies like Apple are gonna benefit. You're gonna
14:25
Speaker 2: see more consolidation and a bunch of problems with small business.
14:28
Speaker 2: I can buy that entirely. I can buy that entirely
14:31
Speaker 2: as a piece. Now.
14:33
Speaker 4: I think it's also fair to say that there's no
14:34
Speaker 4: small smartphone makers out there trying to compete with Apple
14:37
Speaker 4: right now, but it doesn't really matter, not.
14:38
Speaker 2: So much consolidation within this space, but much more just Hey,
14:42
Speaker 2: if you have one hundred and forty five percent tariffs
14:44
Speaker 2: that are still in place on imports of Chinese socks,
14:46
Speaker 2: board games, this, that, and everything, a lot of potential
14:49
Speaker 2: for small businesses to get decimated, yeap, other things that
14:53
Speaker 2: are just interesting to consider on this. And again I'm
14:56
Speaker 2: not saying that this will happen, but I start like
14:59
Speaker 2: playing through a Hey, what are potential scenarios on this?
15:02
Speaker 2: Number one, Remember Apple's business is two pieces in China.
15:06
Speaker 2: The first is making the stuff. The second is they
15:10
Speaker 2: do sell a good deal of smartphones in China as well.
15:13
Speaker 4: Yeah, less than they did a decade ago, but yeah, yeah.
15:17
Speaker 2: Number one, what kind of anti Apple sentiment builds up
15:21
Speaker 2: an Apple because they just announced I think it was
15:22
Speaker 2: like recently that hey, they were starting to see some
15:24
Speaker 2: positive momentum on Apple sales in China. Do you get
15:28
Speaker 2: a whole bunch of Chinese citizens that say, Nope, We're
15:31
Speaker 2: not buying these these phones out of support for you know,
15:35
Speaker 2: the Chinese government. Very possible. The other thing that is
15:39
Speaker 2: just interesting to consider is and again I'm not saying
15:43
Speaker 2: this will happen, but you you know, just kind of
15:45
Speaker 2: go through you head like, okay, like, how do you
15:47
Speaker 2: know how did China and the US try to leverage
15:49
Speaker 2: each other and create pain points for each other. And
15:52
Speaker 2: the interesting thought that I had had was what if
15:57
Speaker 2: the Chinese government says, Okay, you're gonna you know, lower
16:00
Speaker 2: tariffs on these goods that you know you're exporting. The
16:04
Speaker 2: Chinese government comes out and it's just like, fine, we're
16:06
Speaker 2: not going to allow the.
16:07
Speaker 3: Export of them export controls.
16:11
Speaker 4: So not unprecedented, but no, not unprecedented when it comes
16:14
Speaker 4: to the Chinese government in fact, over the weekend, and
16:18
Speaker 4: we'll have to dive into this more, but they set
16:20
Speaker 4: up brand new rules over the weekend for the export
16:23
Speaker 4: of any rare earth material.
16:25
Speaker 2: They literally just did it with another good exactly, so
16:27
Speaker 2: like they can very easily set this process up that
16:32
Speaker 2: rare earth materials is something left to dive into because
16:34
Speaker 2: it's it's going to take a little while to get through.
16:37
Speaker 3: But yeah, I mean hypothetically that could happen.
16:40
Speaker 2: Other things that I was thinking. I'm just thinking of
16:42
Speaker 2: like ways that this could potentially not work out as
16:46
Speaker 2: smoothly as everyone is thinking this morning, because my mind
16:48
Speaker 2: just goes to, like, hey, what could go wrong? Because
16:51
Speaker 2: you know, like it does that sometimes other things. So
16:57
Speaker 2: when you think about how Apple ships its phone they
17:00
Speaker 2: don't load them onto airplanes and send them. They send
17:04
Speaker 2: them on big old container ships. Yeah, Mike, are you
17:09
Speaker 2: ever going to have an entire container ship loaded up
17:12
Speaker 2: with iPhones?
17:14
Speaker 3: Probably not.
17:15
Speaker 2: No, that's too many iPhones. Seems like that, that's too
17:18
Speaker 2: many iPhones. You might have, I don't know, twenty containers
17:22
Speaker 2: on a ship maybe for I have no idea how
17:24
Speaker 2: many iPhone containers typically go out on a normal ship.
17:28
Speaker 2: But the point is, if all of the other commerce
17:31
Speaker 2: back and forth between the US and China is kind
17:33
Speaker 2: of slowing to a crawl because no one wants to
17:35
Speaker 2: import at these tariff rates, how much does Apple need
17:38
Speaker 2: to pay in order to bring these phones into the US.
17:42
Speaker 2: Do they have to pay full freight for an entire
17:45
Speaker 2: container ship or do they figure out, Okay, it's cheaper
17:48
Speaker 2: for us to send them on planes, but it's still
17:49
Speaker 2: a fifty percent increase in price relative to shipping normally.
17:53
Speaker 2: What does this do to Apple's margins when they're shipping
17:57
Speaker 2: stuff back to the US. I'm not gonna say that's
18:00
Speaker 2: not a concern I didn't like. It's a lesser concern,
18:04
Speaker 2: but it's still one for Apple where you're like, yeah,
18:06
Speaker 2: what do I do here?
18:07
Speaker 4: It exists because you're right, there are far fewer ships
18:09
Speaker 4: that are going to be taking trips to the United
18:11
Speaker 4: States from China at the moment.
18:12
Speaker 2: But not even far fewer even if you have the
18:14
Speaker 2: same number. Yeap, Okay, that ship is not profitable just
18:17
Speaker 2: sending one container of apple goods.
18:20
Speaker 3: Agreed.
18:23
Speaker 4: Yeah, Look, we won't know exactly what all this is.
18:25
Speaker 4: There's a lot of weird here in another few weeks.
18:28
Speaker 4: And again, I think the biggest piece to all of
18:30
Speaker 4: this that we are just now starting to understand is
18:33
Speaker 4: how China intends to retaliate and asymmetrically asymmetrically, and that
18:39
Speaker 4: rare earth piece is so critically important here because they
18:42
Speaker 4: don't rely on the United States for selling this stuff.
18:45
Speaker 4: There is plenty of demand across the globe for high
18:48
Speaker 4: tech magnet material and all sorts of wild stuff that
18:50
Speaker 4: goes into our missile defense systems and just things that
18:54
Speaker 4: you don't think about and take for granted every day.
18:58
Speaker 4: Plenty of other buyers for that that the Chinese, you know,
19:02
Speaker 4: mining industry does not need the US for. And it's
19:06
Speaker 4: a very interesting asymmetric response to terras.
19:09
Speaker 2: So again, we're still kind of in the early days
19:12
Speaker 2: of figuring out how this is all going to work.
19:14
Speaker 2: I want to We're going to take a quick break here,
19:17
Speaker 2: but when we come back, we have Wall Street Watch,
19:21
Speaker 2: and then I want to read a quote just talking
19:23
Speaker 2: about some of the weirdness that we may see with
19:28
Speaker 2: supply chains again and just some echoes of twenty twenty
19:33
Speaker 2: one out there. Let's take a quick break Wall Street Watch.
19:36
Speaker 2: When we come back.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show. Breaking business news is always first right here
19:49
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:54
Speaker 1: Street Watch, a complete look at what's moving market so
19:57
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: Well after historically volatile week, markets are currently well into
20:05
Speaker 5: the green where the tech sector is seeing a left
20:08
Speaker 5: after President Trump on Friday, set electronics including smartphones, computers,
20:12
Speaker 5: memory chips, and other categories of products will be exempt
20:15
Speaker 5: from tariffs. However, that could be short lived after Trump
20:19
Speaker 5: clarified these products are just moving to a different tariff bucket.
20:23
Speaker 5: At the moment, the Dow is up by just over
20:24
Speaker 5: one percent, or four hundred and twenty seven points, SMP
20:28
Speaker 5: five hundred up nearly one and a half percent, or
20:30
Speaker 5: seventy seven points, and the tech heavy Nasdaq is up
20:34
Speaker 5: one point seven percent. Russell two thousand up by three
20:37
Speaker 5: quarters of a percent, ten year treasure Reel down by
20:40
Speaker 5: eight basis points, now at four point four to one percent,
20:43
Speaker 5: and crude oil up about half a percent higher, trading
20:47
Speaker 5: just below sixty two dollars a barrel. Apple is one
20:50
Speaker 5: of the biggest tech winners are on the day in
20:51
Speaker 5: reaction to Trump's exemption from reciprocal tariffs. For the time being,
20:56
Speaker 5: Apple up by three percent, while other chip makers including Nvidia,
21:00
Speaker 5: AMD and super Microcomputer are also seeing gains. Best Buy
21:04
Speaker 5: up by five percent, in Dell Technologies up by six percent. Meanwhile,
21:10
Speaker 5: Intel shares are up by six percent after Bloomberg reported
21:13
Speaker 5: the chip maker has agreed to sell a fifty one
21:16
Speaker 5: percent stake in its programmable chips unit Alterra to silver
21:21
Speaker 5: Lake Management as the struggling company begins to spin off
21:25
Speaker 5: non central businesses and assets elsewhere. Goldman Sachs reported ahead
21:30
Speaker 5: of the open this morning, beating first quarter expectations on
21:34
Speaker 5: the top and bottom lines. I'm stronger than expected equities
21:38
Speaker 5: trading revenue. Goldman shares up by two percent and Fizer
21:42
Speaker 5: up by one percent after the pharmaceutical giant announced it
21:45
Speaker 5: would halt development of its daily weight loss pill after
21:49
Speaker 5: a patient experience a liver injury possibly caused by the
21:53
Speaker 5: drug during a trial. I'm Tucker Silvan.
21:56
Speaker 1: That's Wall Street Watch.
21:58
Speaker 2: Just as we continue to talk a little bit about
22:00
Speaker 2: supply chains, I come back to this quote that Connorsen
22:06
Speaker 2: brought to not my attention, he put it all over
22:09
Speaker 2: social media, But I think it's just again remembering how
22:12
Speaker 2: things can move unexpectedly when you get into supply chain crises.
22:17
Speaker 2: And this was talking about gelatin. Got it just not
22:22
Speaker 2: something that people think is like a need. But here's
22:24
Speaker 2: the thing I'm gonna quote here. Oddly enough, you told
22:27
Speaker 2: a story about gelatin. They were having a hard time
22:30
Speaker 2: getting gelatin in Mexico, and it's like, well, why can't
22:32
Speaker 2: we Well, they're not slaughtering as many hogs. How come?
22:35
Speaker 2: Because they don't need as many hides from hogs that
22:37
Speaker 2: they used to make cars, And they don't need many
22:39
Speaker 2: as hides, as many hides because they're not making as
22:41
Speaker 2: many cars. Why are they not making as many cars
22:44
Speaker 2: because they can't get the chips from Taiwan. And basically
22:47
Speaker 2: what you end up with is, hey, we can't produce
22:49
Speaker 2: the amount of gummy bears that we want because there's
22:51
Speaker 2: a semiconductor shortage. So when you think about like just
22:57
Speaker 2: the weird stuff that ends up becoming inter twined in this,
23:02
Speaker 2: there's a whole comple if you think about what companies
23:04
Speaker 2: actually do today that sell like anything complex in any way,
23:10
Speaker 2: shape or form. And I'm not saying a gummy bears,
23:12
Speaker 2: but whether it's cars, whether it's semiconductors, whatever it may be,
23:16
Speaker 2: their real expertise is in logistics in supply chain. Like, yes,
23:20
Speaker 2: they're really good at making the actual product. But like
23:24
Speaker 2: you talk to anyone about ASML, the big Dutch semiconductor
23:28
Speaker 2: equipment manufacturer, and what they'll tell you is, hey, they're
23:32
Speaker 2: coordinating like eighty different suppliers for all of these different
23:35
Speaker 2: goods and they need to arrive at the exact precise
23:38
Speaker 2: time so that they can assemble the lithography machines and
23:40
Speaker 2: then send them to where they are same exact thing
23:43
Speaker 2: with Boeing, just as an example, Boeing, Yes, they make
23:46
Speaker 2: seven thirty sevens and you know seven eight sevens and
23:49
Speaker 2: YadA YadA. They don't make all of the parts for them.
23:52
Speaker 2: They've got one hundred plus suppliers for Hey, this company
23:56
Speaker 2: makes the nose. This company makes you know, the thing
23:58
Speaker 2: that goes into the nose. This one makes the wing tip,
24:01
Speaker 2: this one makes the flaps. They have all these different
24:04
Speaker 2: things that they coordinate and bring together. They are logistics
24:08
Speaker 2: experts as much as they are building experts. And so
24:12
Speaker 2: when you think about how this stuff can be disrupted
24:16
Speaker 2: by the imposition of tariffs on different countries at different rates,
24:22
Speaker 2: this is what I continue to come back to, like,
24:24
Speaker 2: we have no idea what we are heading into as
24:27
Speaker 2: far as potential disruptions to supply chains.
24:30
Speaker 4: Once again, now, I think there's been some very valid
24:33
Speaker 4: points and critiques brought up about previous administrations by this
24:36
Speaker 4: administration that I think are valid to acknowledge for a moment, right,
24:40
Speaker 4: Like the delicacy delicacy.
24:45
Speaker 3: If something's delicate, is it delicate?
24:47
Speaker 2: It's not the delicacy, how do you describe how delicate
24:50
Speaker 2: is delicateness?
24:51
Speaker 3: Sure of them?
24:55
Speaker 4: Nope, it's also not delicacy, but it's not in any case.
25:01
Speaker 4: The fragility of the semiconductor supply chain. Accatasy is I
25:07
Speaker 4: think one of the big mistakes of the last twenty
25:11
Speaker 4: to thirty years of US policy.
25:12
Speaker 3: Right we.
25:15
Speaker 4: Have ASML that is manufacturing all of the lithography machines,
25:20
Speaker 4: and we basically gave that technology for some reason to
25:22
Speaker 4: the Dutch to allow it to be done there. Taiwan's
25:25
Speaker 4: semiconductor and the concentration of semiconductors that are built in
25:28
Speaker 4: Taiwan instead of anywhere in the United States, and then
25:32
Speaker 4: you know, the United States effectively needing to provide security
25:35
Speaker 4: guarantees there at least in part because of that. Again,
25:40
Speaker 4: I think bad mistakes on policy and geopolitics that have
25:43
Speaker 4: been made by previous administrations over and over again. But
25:46
Speaker 4: we're about to really test just how fragile some of
25:49
Speaker 4: these things are. And the consequences apparently go all the
25:55
Speaker 4: way to gummy bears, so they know that until today,
25:58
Speaker 4: So thank you for covering that.
26:00
Speaker 2: Let's talk about this piece here from Barons. The bond markets.
26:05
Speaker 2: Route is bad news for the US economy. Very simple.
26:09
Speaker 2: If bond yields go up and it becomes more expensive
26:11
Speaker 2: to lend to the US government, it then becomes more
26:14
Speaker 2: expensive for everyone else to borrow, since everyone else by
26:18
Speaker 2: definition doesn't have their own printing press and can't print
26:21
Speaker 2: money to get out of a situation where they can't
26:24
Speaker 2: pay their bills. And so what we have seen is
26:28
Speaker 2: things like mortgage rates moving back up. The thirty year
26:30
Speaker 2: fixed rate mortgage. On Friday, Mortgage News Daily had it
26:32
Speaker 2: closing its seven point oh seven percent. That's up from
26:35
Speaker 2: six point six percent a few weeks ago, right as
26:39
Speaker 2: you're heading into the spring housing season. And so this
26:42
Speaker 2: is something where hey, when you have you know, people
26:45
Speaker 2: that are on the fence about should I buy a home,
26:47
Speaker 2: I'm a little uncertain about how this is going to
26:49
Speaker 2: play out. And then you add in g now I'm
26:51
Speaker 2: looking at mortgage rates and the sevens instead of the sixes.
26:54
Speaker 2: This creates drag in the US economy and there's no
26:58
Speaker 2: easy fix to that situation either. I mean, obviously you
27:01
Speaker 2: can do what you can to repair situations with your
27:04
Speaker 2: global allies that buy these bonds and keep those interest
27:07
Speaker 2: rates low.
27:08
Speaker 4: But you know, what can the White House do to
27:11
Speaker 4: unilaterally bring down interest rates?
27:15
Speaker 3: Nothing.
27:16
Speaker 4: I mean, they argue they can cut government spending to
27:19
Speaker 4: try and do that, they can bring down deficits in
27:21
Speaker 4: some meaningful way, but there is very little that the
27:25
Speaker 4: White House can do to prevent the thirty year mortgage
27:28
Speaker 4: rate from going higher from here. And in fact, some
27:31
Speaker 4: of the things that they want to do from a
27:32
Speaker 4: policy perspective are in direct opposition that the tax cuts
27:38
Speaker 4: being the biggest one. Right, if you take a look
27:41
Speaker 4: at what's being proposed on the tax side of things,
27:44
Speaker 4: and if you discount the effect of revenue being raised
27:47
Speaker 4: from teriffs because we don't.
27:48
Speaker 3: Know what that looks like yet.
27:49
Speaker 4: Sure, I believe both the House and Senate bills that
27:54
Speaker 4: were proposed at least so far here through those processes
27:58
Speaker 4: raise the ten year deficits by what was it two
28:01
Speaker 4: and a half to four trillion, It was several trillion.
28:03
Speaker 2: I mean, they're still very early on, so we'll have
28:05
Speaker 2: to see, you know, what comes out of that framework.
28:08
Speaker 2: But again it's something where we've talked about this where
28:13
Speaker 2: for the last twenty five years now there has been
28:16
Speaker 2: no credible plan to deal with both annual and cumulative deficits.
28:22
Speaker 2: And that's a stark difference from the nineteen eighties and nineties, where,
28:25
Speaker 2: regardless of part of your ideology in this and that,
28:29
Speaker 2: you had basically every administration out there, Reagan, Bush one,
28:33
Speaker 2: and Clinton all, you know, making tangible progress towards improving
28:38
Speaker 2: the deficit situation, even if in some cases, like Bush one,
28:42
Speaker 2: it may have ended up costing him reelection.
28:44
Speaker 4: Sure, none of that since then, And fortunately for those presidents,
28:49
Speaker 4: since Clinton, I suppose, there hasn't been much in the
28:53
Speaker 4: way of negative feedback because there have been foreign buyers
28:57
Speaker 4: to stop up.
28:58
Speaker 2: You've started to get some of the last few years,
29:00
Speaker 2: Like you started to get some signs in the last
29:02
Speaker 2: two of the Biden administration that like you were looking
29:05
Speaker 2: at and you're like, okay, like now you got I
29:07
Speaker 2: forget when exactly it was. It was sometime last year
29:10
Speaker 2: I think when interest expense uh surpassed federal spending on defense,
29:16
Speaker 2: which you kind of look at you're like, okay, so
29:18
Speaker 2: now we're paying more for the stuff that we've already
29:19
Speaker 2: done than for the actual capacity to defend ourselves. Like
29:22
Speaker 2: that's not a great sign when that starts happening. So Again,
29:27
Speaker 2: it's kind of been this, this train moving in slow
29:30
Speaker 2: motion for the last twenty five years now, but you're
29:32
Speaker 2: starting to see some things that are a little bit
29:35
Speaker 2: concerning that are out there, and they started to pop
29:38
Speaker 2: up in the last year or two, you know, kind
29:40
Speaker 2: of in the last again, last two years of the
29:42
Speaker 2: Biden administration. I'll say, so this gets you to again,
29:48
Speaker 2: it's just a there's no good and easy way out
29:51
Speaker 2: of this. You know, we talk about this a lot.
29:54
Speaker 2: You've gotten to this point through decades of school mismanagement.
30:02
Speaker 2: You are not going to have a painless and easy
30:05
Speaker 2: way out of it where you snap your fingers and
30:10
Speaker 2: hey we all got unicorns. Like it's it's not going
30:15
Speaker 2: to happen. There is going to have to be some
30:19
Speaker 2: pain that we deal with, and we'll see how the
30:22
Speaker 2: Trump administration navigates. Kind of what the next six to
30:25
Speaker 2: nine months of potential pain looks like is they're trying to,
30:28
Speaker 2: you know, kick this this off. Will it end up
30:31
Speaker 2: working the way they I have no idea. We're gonna
30:33
Speaker 2: have to see how not just the next six to
30:35
Speaker 2: nine months play out, but then like the subsequent five
30:38
Speaker 2: seven years, like this is not going to be over
30:41
Speaker 2: in a couple quarters as far as you know how
30:45
Speaker 2: things are trying to be, you know, put onto a
30:47
Speaker 2: more sustainable path. So we'll see what happens. But again,
30:51
Speaker 2: some choppiness that that we're sorting through at the moment.
30:54
Speaker 2: Let's take a quick look when we come back, let's
30:57
Speaker 2: talk about what is a recession? Anyways? Everyone loves to
31:01
Speaker 2: talk about it. Hey, we're heading into recession, Joe Steve,
31:04
Speaker 2: I know there's gonna be a recess. They're gonna let
31:06
Speaker 2: us play on the slide. We'll talk about what a
31:09
Speaker 2: recession actually is after this.
31:12
Speaker 1: Tara Spears continue to grip markets. Get the latest straight
31:16
Speaker 1: from Wall Street right here on the Financial Exchange Radio Network.
31:21
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31:23
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31:27
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31:29
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31:33
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31:36
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31:46
Speaker 2: Good piece in the Wall Street Journal that I think again,
31:50
Speaker 2: sometimes we call different publications after being like, hey, why
31:52
Speaker 2: would you publish this? This one the opposite? What exactly
31:56
Speaker 2: is a recession? Anyway, Yeah, well I'm waiting.
32:02
Speaker 3: Yeah, So the.
32:05
Speaker 4: Mark of a recession is not actually a single technical
32:10
Speaker 4: data series that you can say, hey, with these specific conditions,
32:17
Speaker 4: it's definitely a recession because there is a board of
32:20
Speaker 4: people humans who decide whether or not something is or
32:25
Speaker 4: is not a recession, A board of economists right based
32:29
Speaker 4: right out of here in Cambridge that determine whether or
32:32
Speaker 4: not you actually have a recession. And there's a number
32:35
Speaker 4: of things that generally count towards it, such as GDP
32:42
Speaker 4: such as unemployment, such as even you know, other indicators
32:47
Speaker 4: such as spending in stock market declines factoring into it,
32:51
Speaker 4: but they generally describe it as a overall downturn in
32:56
Speaker 4: economic activity.
32:58
Speaker 2: The big ones that they look at employment, inflation adjusted
33:01
Speaker 2: personal incomes, so like, are are you making more after
33:05
Speaker 2: accounting for inflation? Real consumer spending again real meaning not
33:09
Speaker 2: like real versus fake, but real as inflation adjusted, real
33:13
Speaker 2: manufacturing and trade, industry sales and industrial production. So for
33:17
Speaker 2: example twenty twenty two, you had inflation adjusted incomes going
33:22
Speaker 2: down YEP, because inflation was higher than income growth. You
33:26
Speaker 2: also had to you had orders of GDP decline, you did,
33:30
Speaker 2: but you had employment going up, manufacturing going up, industrial
33:34
Speaker 2: production going up, and so they looked at it and said, yeah,
33:37
Speaker 2: this is and by the way, this is like the
33:38
Speaker 2: same thing we said. We're like, hey, this is a
33:40
Speaker 2: really bad economy.
33:41
Speaker 1: It's not.
33:42
Speaker 2: It's not really a recession because you still have economic
33:47
Speaker 2: an expansion that is happening in terms of economic activity.
33:51
Speaker 2: It's just it feels worse because incomes are not keeping
33:55
Speaker 2: up with inflation, which makes things feel really bad. And
33:59
Speaker 2: GDP PEA growth even was not keeping up with inflation,
34:02
Speaker 2: but it was because there was so much inflation, not
34:05
Speaker 2: because there was so little you know, nominal growth and
34:09
Speaker 2: stuff like that happened.
34:10
Speaker 4: So I think one of the lessons from there is
34:11
Speaker 4: you really need some data unemployment to weaken for it
34:15
Speaker 4: to really be considered a recession in my mind, and
34:18
Speaker 4: just didn't in twenty twenty two. But look, the recession
34:22
Speaker 4: word is frightening because I think for most people when
34:25
Speaker 4: they think about the word recession, they associated at least
34:29
Speaker 4: most you know, most adults these days, associate with one
34:32
Speaker 4: of two events, either two thousand and eight or twenty
34:36
Speaker 4: twenty and twenty twenty one. Also, yeah, I suppose, but
34:42
Speaker 4: again the portion of adults today that are associating one
34:46
Speaker 4: with that it's shrinking just because of aging. And yeah,
34:50
Speaker 4: where everybody was at that point some time, there's fewer
34:54
Speaker 4: people that were, you know, investing a heavily amount a
34:56
Speaker 4: heavy amount back then. And so the point is that
34:59
Speaker 4: no all recessions are equal similar And the other point
35:05
Speaker 4: would be that almost every mainstream or even non mainstream
35:10
Speaker 4: economists out there right now is pointing towards a significantly
35:14
Speaker 4: higher risk of recession this year than they have at
35:17
Speaker 4: any point in the last several.
35:19
Speaker 2: And the other interesting thing is that stocks are not
35:21
Speaker 2: really picking up on that at this point. I mean,
35:22
Speaker 2: we're sitting here in stocks have rallied the last couple
35:25
Speaker 2: days now, and so you've got the S and P
35:27
Speaker 2: five hundred sitting at about fifty four fifty at the moment. Which, again,
35:33
Speaker 2: what happens to stocks in a recession. There's no one
35:35
Speaker 2: thing that definitively happens, but we generally see a couple
35:37
Speaker 2: things that occur. The first is that earnings estimates and
35:42
Speaker 2: actual earnings tend to decline, usually anywhere from like ten
35:46
Speaker 2: to twenty percent. And the second is that multiples how
35:49
Speaker 2: much people are willing to pay for those earnings tends
35:51
Speaker 2: to compress as well. You see, you know, earnings typically
35:54
Speaker 2: stocks typically trading you know, thirteen to sixteen times forward
35:59
Speaker 2: earnings instead of of you know, eighteen plus. So you've
36:03
Speaker 2: got conflicting signals that are being set right now. Where
36:05
Speaker 2: stocks are not really screaming recession. They're screaming, hey, we're
36:09
Speaker 2: concerned about something, but we don't know if it's going
36:11
Speaker 2: to be a recession. And on the other hand, you've
36:14
Speaker 2: got a whole bunch of people in the last week
36:15
Speaker 2: or so that have said, yeah, recession looks a lot
36:17
Speaker 2: more likely. Stock's not really being priced that way.
36:20
Speaker 4: If you're listening, we've been talking about this a lot
36:22
Speaker 4: pretty much all year. But if you are growing concerned
36:26
Speaker 4: about the state of things and wondering how it might
36:28
Speaker 4: affect you in your personal situation, maybe you're on the
36:32
Speaker 4: verge of retirement, maybe you're just getting started on the
36:34
Speaker 4: savings path and trying to figure out how to play
36:37
Speaker 4: into all of this, give the folks at Armstrong Advisory
36:40
Speaker 4: Group a call. We'll sit down with you, assess your
36:42
Speaker 4: own personal portfolio as well as your own personal financial situation,
36:46
Speaker 4: and explain to you how we assess these things and
36:50
Speaker 4: deliver peace of mind to our own clients.
36:52
Speaker 3: At Armstrong Advisory Group. The number is eight hundred three
36:56
Speaker 3: nine three four zero zero one. You can check us
36:59
Speaker 3: out online at our Strong Advisory dot com. Book of
37:01
Speaker 3: time for a callback if you're busy right now. But
37:03
Speaker 3: again that number eight hundred three nine three four zero
37:07
Speaker 3: zero one.
37:08
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
37:11
Speaker 1: registered investment advisor. Nothing in the ad or in any
37:13
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
37:16
Speaker 1: your own financial, tax into state planning advisors before making
37:19
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
37:22
Speaker 1: advisory services.
37:24
Speaker 2: Do we want to talk about Ray Dalio?
37:26
Speaker 3: Sure?
37:27
Speaker 2: Ray Dalio quote, I'm worried about something worse than a recession.
37:30
Speaker 2: Is it a double recession? Ray? No, it's not that. Instead,
37:35
Speaker 2: what he's talking about, I'll quote him, we are going
37:37
Speaker 2: from multilateralism, which is largely an American world order type
37:41
Speaker 2: of thing, to a unilateral world order, and there could
37:44
Speaker 2: be some big disruptions because of that. So basically saying, look,
37:47
Speaker 2: there's a geopolitical realignment that could happen that could kind
37:51
Speaker 2: of rock the very foundations of the financial system and
37:55
Speaker 2: the broader economy possible. Like we've talked about, how you know,
37:59
Speaker 2: the the world is different now than it was twelve
38:02
Speaker 2: days ago before these tariff announcements, But we still have
38:06
Speaker 2: to see how a lot of this ends up playing out, and.
38:09
Speaker 3: Good luck building a portfolio theory around it.
38:11
Speaker 2: Yes, that too. Let's take a quick break here when
38:15
Speaker 2: we return. Well, we got a whole bunch to get
38:18
Speaker 2: to an hour or two, so we'll do that just
38:20
Speaker 2: a bit