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Why investors should be cautious of buy-the-dip strategies. · The Financial Exchange Show

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Speaker 1: Face is the Financial Exchange with Mike Armstrong and Mark Vandetti.
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Speaker 2: Good morning, Happy Friday, Welcome back to the Financial Exchange.
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Speaker 2: We're talking US China trade deals. We're talking S and
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Speaker 2: P five hundred hitting all time hies. Greg McBride from
1:24
Speaker 2: Bank Rate as well as Paul Lamonica from Barons are
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Speaker 2: going to join us later in the show, separately, two
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Speaker 2: different interviews. But before we kick things off, we're heading
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Speaker 2: over to inflation land, because that's what the Federal Reserve
1:37
Speaker 2: has been testifying about for the last couple of days.
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Speaker 2: That's what Joan Powell has been facing questions about. That's
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Speaker 2: ultimately what President Trump's been threatening to remove him over.
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Speaker 2: And so let's dive right into the PCE Price Index
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Speaker 2: and the inflation reading that came out two and a
1:53
Speaker 2: half hours a go. Mark, So headline seemed to be
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Speaker 2: right in line with expectations. Talk to me about what
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Speaker 2: we saw underneath the hood.
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Speaker 3: Well, you don't get a lot of data underneath the
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Speaker 3: hood unfortunately on personal consumption expenditures inflation. So back to you, now,
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Speaker 3: I'm kidding. Well, look, we could discern a little bit
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Speaker 3: from this. You're right, it was pretty it was pretty mild. Headline,
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Speaker 3: much like CPI, the other big inflation report.
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Speaker 2: Consumer Price Index, personal consumption expenditures. We use acronatem too
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Speaker 2: much this industry, but two different readings of inflation, and
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Speaker 2: this one being the Federal Reserves preferred.
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Speaker 3: Yeah, for statistical reasons. They think it better tracks. We
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Speaker 3: talk about trends a lot on the show too, at
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Speaker 3: least when I'm on. Probably not a coincidence, it's really
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Speaker 3: all I know. This better gets at the trend in inflation,
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Speaker 3: which is what the Fed's interested in. How much is
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Speaker 3: the money supply increasing prices year over year and do
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Speaker 3: we need to rein that in or boost it because
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Speaker 3: the economy is sluggish. So it helps the Fed answer
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Speaker 3: a question that's really fundamental to the job that they do.
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Speaker 3: And headline pce e L Now I'll use the acronym
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Speaker 3: if that's okay. Headline PC up one zero point one
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Speaker 3: percent month over a month and two point three percent
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Speaker 3: year over years, So very mild.
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Speaker 4: That seems within the error range.
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Speaker 3: Of as absolutely nobody would complain about a two point
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Speaker 3: three percent inflation rate. The question for the Fed.
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Speaker 4: I know plenty of people that would complain about two
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Speaker 4: point three.
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Speaker 3: Really, oh yeah, would they?
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Speaker 2: Only because they have no idea the context? And yeah,
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Speaker 2: point would be I would zero.
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Speaker 3: I'm in the er. Yeah, there are some researchers and
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Speaker 3: actual monetary economists who like zero, some like five, others
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Speaker 3: are in between. I'm closer to zero just for context,
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Speaker 3: But I can live with two percents consistent with my
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Speaker 3: life experience of inflation not mattering. So I'm going to
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Speaker 3: editorialize little bit and say we should be happy with
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Speaker 3: what inflation has done over the past couple of years,
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Speaker 3: with the caveat that it could easily go off the
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Speaker 3: rails again. We've got tariffs coming down the pike. Even
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Speaker 3: if they are removed, there's still some impulse from those.
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Speaker 3: There's a little bit of pressure building. Yeah, perhaps is
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Speaker 3: maybe the better way to put it. And then there's
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Speaker 3: the fact that the underlying economy seems to be growing
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Speaker 3: at above trend, and there is this relationship between economic
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Speaker 3: growth and its natural limits and the rate of inflation,
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Speaker 3: or more accurately, the rate of change in inflation. So
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Speaker 3: core PCE strips out much like it does in the
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Speaker 3: case of core CPI. Food and energy, because those are
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Speaker 3: the things that can sometimes distort the trend in inflation
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Speaker 3: and make the FED job harder. That came in a
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Speaker 3: little bit higher, not alarmingly so er point two percent
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Speaker 3: month over month. That was due to services, not goods,
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Speaker 3: increasing in price. That's about as granular as you get
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Speaker 3: in this PCE report. Some people pay for data and
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Speaker 3: get more than that, but I think for our purposes
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Speaker 3: that's sufficient. So core tells a slightly different story, as
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Speaker 3: it often does than headline. And again there are reasons
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Speaker 3: to think that the past few months have been influenced
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Speaker 3: by special factors energy prices going down and special statistical
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Speaker 3: fact People in the no keep bringing up the fact
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Speaker 3: that seasonal adjustments may have may have made inflation look
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Speaker 3: too low, and seasonal adjustments is a fancy way of
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Speaker 3: thinking about. Well, you wouldn't get excited about retail retail
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Speaker 3: sales jumping in December because it's Christmas, so a seasonal
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Speaker 3: adjustment would shave that a little bit. Similarly with inflation,
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Speaker 3: some months are characterized by more price increases or decreases.
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Speaker 3: Price changes.
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Speaker 4: Firework inflation in June in late June.
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Speaker 3: Is that would have never come to mind for me,
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Speaker 3: But sure yeah for those in states where it is legal. Yes,
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Speaker 3: the rest of us don't care about that component of inflation.
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Speaker 3: So Mike a temperate story thus far, and a seemingly
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Speaker 3: a quiescent rate of inflation over the past few months.
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Speaker 3: But there's reason to not think that this is sustainable,
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Speaker 3: and thus that it might be premature to think that
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Speaker 3: the Fed has a green light to aggressively goose demand
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Speaker 3: like some politicians want. That would probably be a mistake,
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Speaker 3: maybe a very big one.
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Speaker 2: I tend to agree, but let's let's go with that
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Speaker 2: argument for a moment. The Federal Reserve is trying to
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Speaker 2: read the tea leaves on what is coming in the
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Speaker 2: second half of this year. Is it a growth slow
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Speaker 2: down that would necessitate a rate cut. Is it an
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Speaker 2: inflation pickup which might necessitate rates staying where they.
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Speaker 4: Are or even going higher.
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Speaker 2: The other part of this report that came out at
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Speaker 2: eight thirty has to do with incomes as well as expenditures.
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Speaker 2: So the price side doesn't seem to be of concern
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Speaker 2: for us today. That can change in the future. Talk
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Speaker 2: to us about what we actually saw in terms of
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Speaker 2: disposable incomes and where, where and if people are spending
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Speaker 2: those in Yeah.
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Speaker 3: Well, this is grist for the mill of people who
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Speaker 3: think we ought to be cutting because PC personal consumption
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Speaker 3: expenditures is as it suggests, a measure of what people
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Speaker 3: are spending so month over month down point four percent
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Speaker 3: in real terms, down point three percent because you subtract
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Speaker 3: the rate of inflation from that, and inflation was minus
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Speaker 3: point one.
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Speaker 4: So compared to last month, we spent fair bit less than.
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Speaker 3: Yeah, no matter how you measure it, with or without inflation,
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Speaker 3: And the calculation in the first several months of the
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Speaker 3: year real PCE PCE after stripping out inflation, which is
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Speaker 3: a correct way to look at it from a standard
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Speaker 3: of living measurement point of view, real PCE is actually
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Speaker 3: down in the last several months, so people are spending
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Speaker 3: less than they were at the end of twenty twenty four,
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Speaker 3: and that I think summarizes the case for being concerned
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Speaker 3: about the growth outlook because consumption is such an important
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Speaker 3: component to GDP in an accounting.
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Speaker 4: Sense, and falls in line with some other survey does
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Speaker 4: that we've heard about.
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Speaker 3: It. It invalidates some of the soft stuff that said
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Speaker 3: people don't feel good about the economy YEP.
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Speaker 2: Whether it's the Michigan Sentiment Survey, whether it is I
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Speaker 2: think we did an interview with somebody maybe from Bankage,
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Speaker 2: just a couple of weeks ago about spending surveys and
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Speaker 2: what people's outlook was, and it was generally that a
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Speaker 2: people are saving a little bit more right now, which
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Speaker 2: I'm proud of Americans who can save a little bit.
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Speaker 4: And we didn't say more.
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Speaker 3: Did you notice that though we're not because we spent
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Speaker 3: more in rate of change terms, spent more than income
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Speaker 3: went down, so savings rate went this sid like I
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Speaker 3: know you were trying to.
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Speaker 2: You here, but so our income's got and we spent less,
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Speaker 2: so not as good.
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Speaker 3: Savings rate went. It's still higher than it was six
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Speaker 3: months ago, but savings rate unfortunately went down. So this
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Speaker 3: is it's not a great report because we didn't really
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Speaker 3: learn anything about inflation. But what we did learn on
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Speaker 3: the growth side is not good news, right, So that
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Speaker 3: is that.
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Speaker 4: Where you were.
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Speaker 2: I think that's where I would summarize this. Yes, is
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Speaker 2: the inflation. I guess I wouldn't say we didn't arn anything.
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Speaker 2: We learned that inflation did not We got reconfirmed that
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Speaker 2: inflation did not uptick in the month of May. That's
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Speaker 2: all we learned here. That was already confirmed by CPI.
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Speaker 2: This reconfirmed it. Uh, there are some continuing signals now
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Speaker 2: of I think what could be described as a growth
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Speaker 2: slowdown starting to pick up here? Does it take shape?
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Speaker 2: Does it actually hold? We will see it's not dramatically
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Speaker 2: influencing the likelihood of a rate cut come late July,
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Speaker 2: which is the next fed FED meeting in about four
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Speaker 2: or five weeks. July thirtieth is the next one. There's,
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Speaker 2: according to the Chicago Mercantile Exchange, about a one in
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Speaker 2: five chance of a rate cut at that meeting, which
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Speaker 2: is higher than it was a month ago. I guess
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Speaker 2: I'll put it that way, but still relatively unlikely where
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Speaker 2: we stand now that that rate cut still seems to
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Speaker 2: be more likely when you get out to the fall
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Speaker 2: time period. Anything to add on PCE or what we
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Speaker 2: got in economic data this morning, I'm good. Let's take
9:39
Speaker 2: a quick break when we come back. News of a
9:41
Speaker 2: signed trade deal with China? What's in it? What does
9:45
Speaker 2: it mean for manufacturers? Here?
9:46
Speaker 4: And others? Quick break that's next on the Financial Exchange.
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10:29
Speaker 2: Shina's Commerce Ministry and a written statement which was then
10:32
Speaker 2: carried by state media appears to confirm details of a
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Speaker 2: deal that President Trump alluded to earlier, and it promises
10:41
Speaker 2: to review and approve eligible export applications and controlled items
10:45
Speaker 2: in accordance with the law. So just today we've been
10:48
Speaker 2: hearing the news of this newly inked trade deal. Howard
10:52
Speaker 2: Lutnick said that the US China trade truth was signed.
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Speaker 2: Ten other country deals are imminent apparently, and the details
11:02
Speaker 2: here are, you know, sparse, but the one thing remains
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Speaker 2: pretty clear. The US is looking for rare earth materials,
11:10
Speaker 2: and according to Lutnik in an interview with Bloomberg News, quote,
11:14
Speaker 2: they're going to deliver rare earth to US and once
11:17
Speaker 2: they do, that will take down our countermeasures. So I
11:21
Speaker 2: guess my answer is we don't have to wait terribly long, right,
11:24
Speaker 2: I don't need to know what's in this.
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Speaker 3: So how is this different? From six months ago.
11:28
Speaker 2: It's not it's exactly. It's a lot of dancing around.
11:31
Speaker 2: But we're in the same spot, correct, But it hasn't
11:35
Speaker 2: escalated further. And I'm going to take that as good news.
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Speaker 3: Well, sure, but we've accomplished what in the past six months,
11:44
Speaker 3: all this acrimony has gotten us. Where we put the
11:48
Speaker 3: ten percent tariffs on everybody, and they are raising some revenue,
11:53
Speaker 3: but that's eventually either going to come off company profits
11:55
Speaker 3: or out of your pocket. And mind one or the other.
11:57
Speaker 3: Either it's lower stock prices or higher inflation. You can't
12:00
Speaker 3: have neither of those two things if tariffs are left.
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Speaker 2: Let's actually let's actually focus on this for a little bit,
12:05
Speaker 2: so before we move on from the China deal. It
12:07
Speaker 2: appears that there's something now written and signed that is
12:10
Speaker 2: going to result in American companies getting the magnets that
12:13
Speaker 2: they require.
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Speaker 4: I have some serious doubts about that.
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Speaker 2: I don't think that China is going to suddenly just
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Speaker 2: open the floodgates when it comes to these things, because
12:20
Speaker 2: they had a pretty good strategy that was working for
12:22
Speaker 2: them of saying we'll get you what you need, but
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Speaker 2: we're not going to let you stockpile. So wait and
12:27
Speaker 2: see approach I think is the appropriate measure here, But
12:30
Speaker 2: something is apparently signed. I want to go back to
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Speaker 2: the terriffs because it sounds to me they're being talked
12:38
Speaker 2: about more and more as though the purpose that you
12:43
Speaker 2: mentioned of revenue raising maybe the real underlying push here.
12:50
Speaker 2: Whenever they talk about the tax bill, now they're talking
12:53
Speaker 2: about the revenue that's going to be raised via tariffs
12:56
Speaker 2: to offset the taxes. They are speaking, as far as
13:00
Speaker 2: I can tell, less and less about punishing unfair trade.
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Speaker 2: They're speaking less and less about bringing manufacturing of certain
13:09
Speaker 2: things back to the United States other than you know,
13:12
Speaker 2: stealing aluminum and cars is still a focus.
13:14
Speaker 4: But you know, I.
13:15
Speaker 2: Don't hear people pushing for us to, you know, kill
13:20
Speaker 2: the Chinese manufacturing of shoes industry. And so where I'm
13:25
Speaker 2: landing is that I do think that this president in
13:28
Speaker 2: this Congress is looking more and more at tariffs as
13:30
Speaker 2: a more permanent way of driving revenue.
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Speaker 3: That's fine, but then you can't use them as levers
13:37
Speaker 3: to open up foreign markets, agreed, Because we need it now.
13:41
Speaker 3: And by the way, that's a that's a that's the
13:43
Speaker 3: original use of of tariffs. And that's that's a legitimate
13:46
Speaker 3: use of tariffs. It could also be protectionist in that
13:49
Speaker 3: it makes what would otherwise be uncompetitive domestic industries more competitive,
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Speaker 3: giving them more of a cheat. Now we're paying more
13:56
Speaker 3: for that that So if that isn't objective, that's potentially
13:59
Speaker 3: a cheap. But you can't have all of those objectives
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Speaker 3: while keeping prices constant, or keeping the rate of inflation constant,
14:10
Speaker 3: or keep it And I'm throwing a lot of oars
14:12
Speaker 3: in here, but I think this is all consistent. Or
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Speaker 3: have company profits, profit growth as was previously expected. Because
14:19
Speaker 3: if Nike we're going to talk about Nike later. I yes,
14:22
Speaker 3: maybe if they've said they ate, they ate a billion dollars, right,
14:27
Speaker 3: it was the past few months. I don't think it
14:29
Speaker 3: lines up neatly with a quarter. So they haven't passed
14:31
Speaker 3: on a billion dollars in tariff costs already, So that
14:34
Speaker 3: comes out of what would be a shareholder. I'll just
14:37
Speaker 3: say distribution, even though it could be used for lots
14:39
Speaker 3: of different things. You can't have your cake and eat
14:41
Speaker 3: it too, said differently.
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Speaker 4: Yeah, I guess it comes to me is it worth
14:48
Speaker 4: the trade off? Right?
14:49
Speaker 2: So let's assume that you're going to look at tariffs
14:51
Speaker 2: as purely a revenue raiser and you're using it to
14:56
Speaker 2: offset tax cuts and spending increases on defense.
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Speaker 4: That's kind of.
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Speaker 2: The bid that this administration is making, is, Hey, we
15:03
Speaker 2: are going to tax consumption in order to lower income
15:08
Speaker 2: taxes and increase spending on defense.
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Speaker 4: Is that? Am I overstating it? You You just stayed.
15:13
Speaker 3: You stated it way too coherently. If that were the
15:15
Speaker 3: argument from day one, I think we'd all be a
15:17
Speaker 3: lot more comfortable with where we are right now. The
15:20
Speaker 3: irrationale keeps shifting. First it was fentanyl. We're still under
15:23
Speaker 3: a tarer for emergency. We're under like five emergencies by
15:26
Speaker 3: the way as a country, yep, if you count the
15:29
Speaker 3: involvement in the Middle Eastern War as an emergency. So
15:31
Speaker 3: there's so many emergencies. I can't keep driving. But the
15:33
Speaker 3: original premise of the tariff emergency was that there were
15:37
Speaker 3: fentyl flows and we've got to we've got to punish
15:40
Speaker 3: countries who could be doing more to help stem those.
15:42
Speaker 3: And then other irrationales have been so the rationales are shifting.
15:46
Speaker 2: I agree, and I think that's the biggest problem with
15:48
Speaker 2: all these is one day. It's about bring manufacturing back,
15:52
Speaker 2: which we've said, hey, if you're going to bring manufacturing back,
15:54
Speaker 2: you need high tariffs permanently for that to actually work.
15:58
Speaker 2: And then if you do those high tears permanently, you're
16:01
Speaker 2: going to have a hit to importers and you are
16:05
Speaker 2: not going to be able to permanently raise the revenue.
16:07
Speaker 2: Was how we kind of landed on. It's like, hey,
16:09
Speaker 2: that's that's directly contradictory. You can't both have a fifty
16:12
Speaker 2: percent tariff that's going to bring manufacturing back to the
16:14
Speaker 2: US and then have a bunch of revenue that's going
16:16
Speaker 2: to offset tax cuts, because bring the manufacturing back will
16:21
Speaker 2: kill the tariff. Where I'm landing is I think they
16:25
Speaker 2: care a little bit less about that manufacturing side now.
16:28
Speaker 2: I think they've thrown everything against the wall and said,
16:30
Speaker 2: let's see what sticks here, And what seems to be
16:32
Speaker 2: sticking is teriff rates somewhere between ten and thirty percent
16:36
Speaker 2: that are going to be there for the long term
16:38
Speaker 2: and are going to raise revenue to offset ever growing
16:42
Speaker 2: tax concerns.
16:44
Speaker 3: Yeah, this sticking to today's news. I don't see how
16:48
Speaker 3: this is different. This new status quo will be different
16:51
Speaker 3: than the status quo before we started trade wars with
16:54
Speaker 3: everybody other than the baseline ten percent tariff that we're applying.
16:58
Speaker 2: To with China especially. Yeah, thing different from where we
17:01
Speaker 2: were pre Trump.
17:02
Speaker 3: Which is why stocks are back up to where they
17:05
Speaker 3: were market. It's sort of priced in this normalization. As
17:10
Speaker 3: frustrating as it's been to try to follow the bewildering
17:13
Speaker 3: updates on this topic, and as difficult as it is
17:17
Speaker 3: to differentiate truth from the overhype, that is pretty characteristic
17:24
Speaker 3: of these folks. So this is the greatest deal ever.
17:25
Speaker 3: This is going to make us so much. We're all
17:26
Speaker 3: going to get rich in Lutnik today. Characteristic hyperbole and
17:30
Speaker 3: stuff like that. Not a lot of specifics, just a
17:32
Speaker 3: lot of hyperbole. We'll get to the specifics hopefully. So
17:35
Speaker 3: it's hard to say, Michael.
17:37
Speaker 2: Yeah, at this stage, what we can only say about
17:40
Speaker 2: this trade deal is that it seems to involve us
17:43
Speaker 2: returning to pre twenty twenty five teriff rates with China
17:49
Speaker 2: maybe and rare earth flowing back into the United States,
17:52
Speaker 2: which is exactly where we were.
17:54
Speaker 3: At the end of last year.
17:55
Speaker 4: Yeah.
17:56
Speaker 2: Now, maybe there's something else in here in terms of improvement,
17:59
Speaker 2: but the big things that we have talked about in
18:01
Speaker 2: terms of concerns of trade with China have been Hey,
18:05
Speaker 2: how are we going to stop them from ripping off
18:07
Speaker 2: our intellectual property? How are we going to stop them
18:10
Speaker 2: from corporate espionage here in the United States? Those are
18:13
Speaker 2: the big things that I've cared about. How do you
18:16
Speaker 2: get them to stop, you know, flooding markets with steel
18:21
Speaker 2: and cars that they subsidize.
18:24
Speaker 4: So that's the meat on the bone.
18:25
Speaker 2: If you're going to call this a fantastic trade deal
18:28
Speaker 2: with China, show me that there's been some progress in
18:31
Speaker 2: any of those issues, and I will agree with you.
18:34
Speaker 3: How would you measure progress here like inn a year
18:36
Speaker 3: from now? How would you measure the success of this?
18:39
Speaker 3: I'm going to call it helter skelter. There are a
18:40
Speaker 3: lot of people who are going to gringe at that
18:42
Speaker 3: and say, no, no, it's the art of the deal.
18:43
Speaker 3: He's a genius. But it seems pretty ad hoc and
18:46
Speaker 3: winging it from day to day to me. How would
18:48
Speaker 3: supporters of this, either you, Mike, or if somebody wants
18:51
Speaker 3: to text us in, how would you measure the success
18:53
Speaker 3: of this trade policy? A reduced trade deficit, evidence that
18:57
Speaker 3: manufacturing job growth has picked up relative to the average
19:00
Speaker 3: of the past few years. How exactly am I supposed
19:03
Speaker 3: to measure success here?
19:04
Speaker 4: Yeah, I don't have I don't know, kind of rhetorical.
19:10
Speaker 3: Yeah, it would be nice if somebody provided a metric.
19:13
Speaker 2: Markets remain in positive territory, still sitting around all time highs.
19:18
Speaker 2: We will see if we end up closing there. We're
19:20
Speaker 2: going to have a full market recap when we return
19:24
Speaker 2: with Wall Street Watch.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: DFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch a complete look at what's moving market so
19:56
Speaker 1: far today right here on the Financial Exchange Radio ne.
20:00
Speaker 5: Markets in positive territory again today with the SMP five
20:04
Speaker 5: hundred to hang a fresh record high as traders are
20:07
Speaker 5: reacting to news on the trade front. After Commerce Secretary
20:11
Speaker 5: Howard Lutnik told Bloomberg that a framework between China and
20:15
Speaker 5: the US on trade had been finalized. China's Ministry of
20:19
Speaker 5: Commerce also confirmed it in a statement on top of
20:22
Speaker 5: all that the Personal Consumption Expenditures Price Index, the fed's
20:26
Speaker 5: primary inflation reading, ROSE is seasonally adjusted zero point one
20:30
Speaker 5: percent for the month, putting the annual inflation rate at
20:34
Speaker 5: two point three percent. Right now, the Dow is up
20:37
Speaker 5: by seven tenths of one percent, or three hundred and
20:40
Speaker 5: twelve points. SMP five hundred is up half a percent higher,
20:43
Speaker 5: thirty one points in the Nasdaq also up by half
20:46
Speaker 5: a percent. Russell two thousand is up by three tenths
20:49
Speaker 5: of one percent, Tenure Treasure reeled up by two basis
20:52
Speaker 5: points at four point two seven percent, and Crew to
20:55
Speaker 5: Oil up another one percent today trading just below sixty
20:59
Speaker 5: six dollars a Nike surging by over fourteen percent after
21:03
Speaker 5: the sneaker and an athletic apparel maker reported fiscal fourth
21:07
Speaker 5: quarter earnings that beat expectations and said it expects profits
21:11
Speaker 5: and sales declines to moderate in the future. Nike also
21:15
Speaker 5: said it expects tariffs to raise annual costs by one
21:18
Speaker 5: billion dollars this fiscal year. Mike and Mark will have
21:21
Speaker 5: more and Nike coming up here in a matter of moments. Meanwhile,
21:24
Speaker 5: bitcoin minor Core Scientific is pulling back slightly from its
21:28
Speaker 5: recent rally. The recent run up was driven by a
21:31
Speaker 5: report from The Wall Street Journal that the company is
21:33
Speaker 5: in discussions to be acquired by AI player. Core weave,
21:37
Speaker 5: and The New York Times is reporting Uber is in
21:40
Speaker 5: talks with Travis Khalanik, the company's co founder who was
21:43
Speaker 5: forced out eight years ago to help fund his acquisition
21:47
Speaker 5: of the US subsidiary of a Chinese autonomous vehicle company,
21:51
Speaker 5: Pony dot Ai. I'm Tucker Silva, and that is Wallstreet Watch.
21:56
Speaker 2: Did either of you actually watch the Faith Kitpie gun
22:00
Speaker 2: mile thing?
22:01
Speaker 4: Did you heard about what this was?
22:02
Speaker 2: I probably wouldn't have outside of my wife being a
22:04
Speaker 2: huge running fan. Did either of you pay attention to it?
22:06
Speaker 1: What were you talking?
22:07
Speaker 3: First time I've heard that name?
22:09
Speaker 2: Okay, So faith Kpiagun is the fastest mile runner in
22:11
Speaker 2: the world, and so Nike set up this whole thing
22:15
Speaker 2: in Paris where they made a special suit, special shoes,
22:20
Speaker 2: as well as put together a team of people that
22:22
Speaker 2: would run alongside her to like block wind, because they
22:25
Speaker 2: wanted to see if she could be the first woman
22:27
Speaker 2: in the world to run a sub four minute mile, which,
22:30
Speaker 2: again just to give you a sense for that, like,
22:32
Speaker 2: I'm fairly certain none of the three of us could
22:34
Speaker 2: run one hundred meters in the pace that she runs
22:37
Speaker 2: a mile, so it's impressive she.
22:41
Speaker 3: Did not have to dump on us to make your point.
22:43
Speaker 4: But I'm dumbly on myself here too, and I.
22:46
Speaker 3: Don't claim to be sprinters.
22:48
Speaker 2: Okay, well again, I'm just trying to set it goes
22:51
Speaker 2: really fast. It both goes back to my wishes. It
22:54
Speaker 2: goes back to my wishes that at every US or
22:56
Speaker 2: at every Olympics they just had a regular.
22:59
Speaker 4: Old guy or girl doing the challenge.
23:02
Speaker 2: So like, all right, if we're gonna just give me
23:04
Speaker 2: a sense for like, you know, how does Bob from
23:06
Speaker 2: accounting throw the javelin? Just to give a sense of
23:08
Speaker 2: how good these people are, I think would be generally helpful.
23:11
Speaker 3: Just like, bring an average guy, just.
23:13
Speaker 2: An average guy into just do the same, the same
23:15
Speaker 2: task that has never done it before, just so you
23:17
Speaker 2: can see how impressive these athletes.
23:19
Speaker 3: A whole range. Now, a fat guy.
23:21
Speaker 4: Yeah, I think it would be a fantastic addition with it.
23:25
Speaker 3: That's an interesting take on the Olympics.
23:27
Speaker 4: Just you know, just.
23:30
Speaker 2: George that works construction ripping a cigarette before throwing a
23:33
Speaker 2: shot put just I think would be really good.
23:35
Speaker 3: Yeah, I bet a guy in the construction trades could
23:37
Speaker 3: do pretty well, didn't Sehn Belue?
23:39
Speaker 5: She do a sketch like that ripping a cigarette he
23:42
Speaker 5: was the Olympics.
23:43
Speaker 3: Yes he did.
23:44
Speaker 4: I'm pretty sure it's a Friday.
23:46
Speaker 2: We've gone off the deep end in any case, Nike sponsor, Yeah.
23:51
Speaker 4: It was really cool. She did not manage to do it.
23:53
Speaker 2: She ran it in four minutes and six seconds, which
23:56
Speaker 2: is still a world record, but nonetheless it did not
23:59
Speaker 2: work out the way Nike was hoping. But Nike, aside
24:04
Speaker 2: from not being able to find a female athlete to
24:07
Speaker 2: run sub four minute mile, which again is unbelievably impressed.
24:12
Speaker 3: Interested in being CEO of Nike has they had some
24:15
Speaker 3: trouble in that department.
24:16
Speaker 2: They did have some trouble in that department. So to recap,
24:19
Speaker 2: over the last few years, Nike's had just a few
24:21
Speaker 2: weird missteps. One, they're facing more challenges from upstart shoe companies,
24:26
Speaker 2: so on running Big one Hokahs another of these shoe
24:32
Speaker 2: companies that are getting more of the fashion brand.
24:35
Speaker 3: And Chinese imports too, so you think tariffs would help them,
24:37
Speaker 3: but they also they import, like many companies, to all
24:39
Speaker 3: their intermediate goods. So that's the billion dollar charge that
24:44
Speaker 3: we talked to.
24:45
Speaker 2: They have faced a billion dollars in tariffs in recent months.
24:48
Speaker 2: They have charge, they have attempted and then failed to
24:53
Speaker 2: manufacture some shoes in the United States. They did try
24:56
Speaker 2: this out alongside under Armour, and both of them couldn't
24:59
Speaker 2: figure out how to do it. And then Nike famously
25:02
Speaker 2: during COVID pulled all their products from third party seller websites,
25:07
Speaker 2: trying to drive all the traffic to Nike dot Com,
25:09
Speaker 2: which failed miserably. Apparently, in any case, the new CEO
25:13
Speaker 2: has been attempting to turn around here, and investors are
25:15
Speaker 2: at least excited about it. This morning with the stock
25:17
Speaker 2: up now fourteen and a half percent, basically on news
25:21
Speaker 2: that sales weren't as bad as everybody anticipated.
25:24
Speaker 3: Yeah, well, could be a turning point. I guess that's
25:26
Speaker 3: the hope, right.
25:26
Speaker 2: That is the hope is, Hey, you know, your sales
25:30
Speaker 2: still declined eleven percent, but we were expecting a lot worse,
25:32
Speaker 2: and so maybe you're finally turning the corner on this business.
25:36
Speaker 2: But focusing on the tariffs here for a moment, because
25:40
Speaker 2: this is one of those businesses that I was referring
25:43
Speaker 2: to of companies that are very unlikely, absent massive tariffs,
25:49
Speaker 2: to ever manufacture goods in the United States. I would
25:52
Speaker 2: throw televisions, shoes, all sorts of clothing items in the
25:58
Speaker 2: same bucket here as unless we're going to slap fifty
26:01
Speaker 2: percent tariffs on every shoe coming into the United States,
26:04
Speaker 2: there's just no way it's going to get done here
26:06
Speaker 2: in the United States. And so how is Nike to
26:08
Speaker 2: navigate this path and where are they.
26:10
Speaker 4: Likely to go?
26:12
Speaker 2: So far, the answer has just been on Nike's part,
26:15
Speaker 2: we've absorbed the cost of these tariffs without being able
26:17
Speaker 2: to pass it along to consumers, right.
26:20
Speaker 3: I guess, yeah, Well, many companies are in that boat.
26:24
Speaker 3: I guess Nike's challenges are somewhat unique.
26:27
Speaker 2: But yeah, I think that's been the answer so far.
26:30
Speaker 2: And that's the question that kind of drives all of
26:33
Speaker 2: this for the future too, is many companies have just
26:37
Speaker 2: said we're eating the tariffs, we're not able to pass
26:39
Speaker 2: them along. Nike's able to do that, Walmart's able to
26:42
Speaker 2: do that. How long does that attitude last? Is it
26:45
Speaker 2: end up hitting profits or does it end up showing
26:48
Speaker 2: up elsewhere? Because as we've talked about, it's not definite
26:51
Speaker 2: that tariffs will show up directly in consumers pockets via inflation.
26:57
Speaker 2: It could show up elsewhere.
26:59
Speaker 3: No, it helps to think about how firms set prices
27:03
Speaker 3: and they don't change their prices that frequently, on average,
27:07
Speaker 3: about once a year. People have looked at this because
27:09
Speaker 3: it helps answer the question why does monetary policy work
27:12
Speaker 3: When the FED dumps a bunch of money into the economy.
27:14
Speaker 3: Why don't prices just go up? Why do relative prices change?
27:18
Speaker 3: People know the Fed's dumping a bunch of money into
27:20
Speaker 3: the economy, and the short answer is most economists and
27:24
Speaker 3: by this I mean we're probably greater than eighty ninety percent,
27:26
Speaker 3: would say it's because of price stickiness. More technically, they
27:30
Speaker 3: call it nominal rigidities. I'll use a technical term because
27:34
Speaker 3: this is an educated audience, and that's the way economists
27:36
Speaker 3: talk about it. And that's why monetary policy works. The
27:39
Speaker 3: FED can dump a bunch of money and it goes
27:41
Speaker 3: to demand. First, everybody gets excited and goes out and spends,
27:44
Speaker 3: and then eventually it pushes prices up. And that's one
27:47
Speaker 3: of the reasons why inflation can become persistent and embedded
27:50
Speaker 3: and is very costly to reduce. And we're seeing the
27:53
Speaker 3: same thing with respect to tariffs. Firms are eating them,
27:56
Speaker 3: which is another way of saying their prices are sticky
27:59
Speaker 3: in the short term, which is a well known phenomenon. Eventually,
28:02
Speaker 3: if the tariffs stick to continue with that term, their
28:07
Speaker 3: prices will go up. We've already seen it entering inflation
28:11
Speaker 3: dynamics through expectations. People know it's coming.
28:14
Speaker 2: Let's take a quick break. When we come back, Financial
28:17
Speaker 2: Times reporting why investors should be cautious of buy the
28:21
Speaker 2: dep strategies. We'll be covered that next on The Financial Exchange.
28:25
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29:18
Speaker 2: Mark The Financial Times has a piece this morning why
29:21
Speaker 2: investors should be cautious of buy the dip strategies, and
29:27
Speaker 2: they do a bunch of analysis to basically conclude that
29:31
Speaker 2: quote unquote sometimes stocks go down and then bounce back,
29:34
Speaker 2: and then sometimes they don't. WHOA, that's what you need
29:38
Speaker 2: to that's I guess what you need to. Yeah, I
29:41
Speaker 2: think there are some silly there.
29:43
Speaker 4: Are some good lessons to take from longer term history.
29:46
Speaker 2: Because if you started investing in twenty nineteen, then every
29:51
Speaker 2: time the stock market dropped by ten percent, it bounced
29:54
Speaker 2: back within like a few months, right, every time that's
29:57
Speaker 2: happened in the last six years.
29:59
Speaker 3: That's why we talk about it. By the way, a
30:01
Speaker 3: statistician would say, that's sample biased, that's survivor bias, right,
30:04
Speaker 3: bifically the only reason we're doing the show.
30:06
Speaker 2: Whereas you know, in two thousand and eight, if you
30:08
Speaker 2: bought socks when they dipped by ten percent, then you
30:11
Speaker 2: lost another forty and maybe your house.
30:13
Speaker 4: And so I think the conclusion.
30:16
Speaker 2: About all of this is one what they looked at
30:20
Speaker 2: here is the V shaped reversals, which they defined as
30:24
Speaker 2: I think a drop and then recovery of five percent
30:27
Speaker 2: or more. They're not happening any more frequently right now
30:31
Speaker 2: than they did in the past. It's just been a
30:32
Speaker 2: while since we've had a deep, long market draw down,
30:36
Speaker 2: and so I mean quite literally, there are many many
30:39
Speaker 2: investors in the universe today that have not lived for
30:42
Speaker 2: lived through a twenty percent equity market draw down that
30:45
Speaker 2: lasts for more than a year.
30:47
Speaker 3: Well, the only reason, the only reason you get the
30:50
Speaker 3: results you do is that stocks did survive, and we're
30:53
Speaker 3: here to talk about them again. It's survivor. It's kind
30:55
Speaker 3: of subtle, but if you look at any measure of
31:01
Speaker 3: US stock market performance, it's going to be very favorable.
31:05
Speaker 3: That's why we're here talking about it. They don't have
31:07
Speaker 3: this show in the Democratic Republic of the Congo. There's
31:10
Speaker 3: no financial exchange there, no because their stock market routinely
31:14
Speaker 3: goes to zero and nobody can trust it. I'm sorry,
31:17
Speaker 3: I'm picking on the Congo.
31:19
Speaker 4: I don't know, there are a few other countries you
31:20
Speaker 4: could pick up.
31:21
Speaker 3: Yeah, you just insert your basic you know, your poorly
31:24
Speaker 3: run developing world country. Of course, stocks have always recovered.
31:29
Speaker 3: That's why we're here talking about them. The discussion is
31:33
Speaker 3: biased based on the sample that we chose. I'm not
31:35
Speaker 3: saying stocks won't continue to go up. We talk about
31:37
Speaker 3: this internally an Armstrong advisory group, a lot stock growth,
31:41
Speaker 3: earnings growth, GDP growth. They all have a common trend.
31:45
Speaker 3: So if you think that the structure of the economy
31:47
Speaker 3: will evolve slowly but positively, and standards of living will
31:50
Speaker 3: continue to go up, publicly traded companies should participate in that. Like,
31:54
Speaker 3: it's not really a profound concept.
31:56
Speaker 4: Yeah, I think.
31:57
Speaker 2: I think the bigger danger that I see with the
32:00
Speaker 2: the dip strategy is not the fact that sometimes stocks
32:02
Speaker 2: go down and then go down further.
32:04
Speaker 4: That ye don't happens a lot.
32:05
Speaker 2: Yeah, The biggest risk that I see people employing when
32:09
Speaker 2: they talk about the buy the dip strategy is the
32:12
Speaker 2: fact that stocks don't often dip. Oftentimes, what I hear
32:17
Speaker 2: from people is, well, I've been sitting on the sideline
32:19
Speaker 2: for the last six years because I've been waiting for
32:21
Speaker 2: the dip. And it's like, oh, got it. So you
32:24
Speaker 2: have chosen to miss out on six years of some
32:27
Speaker 2: of the best equity markets in the world because you
32:30
Speaker 2: were waiting for them to fall apart. And so the
32:34
Speaker 2: bigger lesson for probably ninety percent of investors is rather
32:37
Speaker 2: than trying to time a stock market dip and then
32:40
Speaker 2: deploy your safe cash or whatever it is you have,
32:44
Speaker 2: it's oftentimes a much better strategy is to just stay invested.
32:48
Speaker 3: Oh yeah, oh it is absolutely empirically and by that
32:51
Speaker 3: I mean all the data show that is superior. A
32:54
Speaker 3: second best strategy is opposed to not being in equities
32:56
Speaker 3: at all, would be to buy the dip, though, but
32:57
Speaker 3: if you believe the stocks are going to go back
32:59
Speaker 3: to their old trend, but the danger is that you
33:01
Speaker 3: you can miss out on a lot of the recovery,
33:03
Speaker 3: which is where the real money's made in the first
33:05
Speaker 3: couple of months after a big.
33:08
Speaker 2: And you know, we're sitting at all time highs in
33:10
Speaker 2: the stock market right now, right as we speak, A
33:12
Speaker 2: S and P five hundred is sitting at the highest
33:14
Speaker 2: it has ever been, and so I think the temptation
33:17
Speaker 2: that a lot of people are going to be sitting
33:18
Speaker 2: there saying is oh, gotta wait to buy the dip mark.
33:21
Speaker 2: What happens most of the time when equity markets reach
33:23
Speaker 2: new all time highs, they pull back a little, they do,
33:27
Speaker 2: but then soon after I mean, well, if you're trying
33:30
Speaker 2: to figure out what's.
33:30
Speaker 3: A high definition when something reaches go ahead. Sorry, you're right.
33:34
Speaker 4: They do end up pulling back a little bit.
33:35
Speaker 2: But usually when an equity market reaches an all time high,
33:38
Speaker 2: what it does next is reach a new all time high.
33:40
Speaker 2: Because if you're trying to figure out what happened next week, markets,
33:43
Speaker 2: the most is what happened recently.
33:47
Speaker 3: Thraw that in. Yeah, I see what you're getting at. Look,
33:50
Speaker 3: don't bet against an inexorable upward moving trend unless you
33:55
Speaker 3: have Don't bet against us GDP, don't bet against company earnings.
33:59
Speaker 3: Don't bet again. If you're a long term investor and
34:01
Speaker 3: you have the wherewithal to tolerate the occasional twenty thirty,
34:05
Speaker 3: even fifty percent pullback in equity prices, that is a
34:08
Speaker 3: good time. If your dollar cost averaging in as four
34:11
Speaker 3: one K investors are those processes more or less automatic
34:14
Speaker 3: these days, Stick with it that. That's how you get
34:18
Speaker 3: the wealth generating power of stocks to work for you.
34:20
Speaker 3: Not trying to time these these more severe wiggles. I
34:25
Speaker 3: get that that's tempting because if you just shave the
34:28
Speaker 3: troughs off of the market cheese, you could double your return.
34:31
Speaker 3: But nobody can do that.
34:32
Speaker 4: Consistently, nobody. I know.
34:36
Speaker 2: There are a lot of folks, there are probably a
34:38
Speaker 2: lot of folks listening that are doing exactly what we're
34:40
Speaker 2: describing the dollar cost average in their four to one
34:42
Speaker 2: k and they try and ignore it as much as possible.
34:45
Speaker 2: I know there are also others who are out there
34:48
Speaker 2: sitting on stockpiles of cash doing exactly what we just described,
34:51
Speaker 2: which is waiting for that opportunity, and it's tempting to
34:55
Speaker 2: do so right now too, because hey, I can earn
34:57
Speaker 2: four percent on my cash depending on what type of
34:59
Speaker 2: thing I'm putting it in in places that weren't previously available.
35:05
Speaker 2: There is a lot of I think, frustration as well
35:09
Speaker 2: as concern when people talk about, hey, how do I
35:12
Speaker 2: deploy this bucket of cash that I am sitting on?
35:16
Speaker 2: What do I do with it? And how do I
35:17
Speaker 2: make sure I am protecting myself? Does it belong in
35:20
Speaker 2: the stock market, does it not? How do I evaluate that?
35:23
Speaker 2: How do I judge it? Because it is customized and
35:26
Speaker 2: particular to me, not my neighbor next door, not my
35:30
Speaker 2: cousin's kid, who's betting on this, that or the other.
35:32
Speaker 2: It's custom to me if you have questions along those lines,
35:36
Speaker 2: you are sitting on that stockpile of dry powder that
35:38
Speaker 2: you've been waiting to deploy, or maybe you're just trying
35:41
Speaker 2: to take a look at what you're already doing and
35:44
Speaker 2: check the box to make sure it actually lines up
35:46
Speaker 2: with what your goals are. Please give us a ring
35:48
Speaker 2: at Armstrong Advisory Group. We work with our clients to
35:51
Speaker 2: answer these types of questions. The numbers eight hundred three
35:55
Speaker 2: nine three four zero zero one. We have offices all
35:58
Speaker 2: over New England where we'd love to sit, but we
36:00
Speaker 2: can talk to you over the phone. We can do
36:01
Speaker 2: a zoom meeting, whatever works for you and your family.
36:04
Speaker 2: The number once again, eight hundred three nine three four
36:08
Speaker 2: zero zero one.
36:09
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
36:12
Speaker 1: registered investment advisor. Nothing in the ad or in any
36:14
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
36:17
Speaker 1: your own financial tax into state planning advisors before making
36:20
Speaker 1: any investment decisions. Armstrong make contact you to offer investment
36:23
Speaker 1: advisory services.
36:25
Speaker 2: Tucker, this is I'm gonna ask you a question. Because Mark,
36:28
Speaker 2: you weren't doing the show with us seven years ago.
36:31
Speaker 2: But do you remember a while ago when Tesla was
36:34
Speaker 2: in that crisis mode, they were needing to hit their
36:36
Speaker 2: vehicle deliveries or they were going to fall apart. And
36:38
Speaker 2: I remember at that time something like their chief accounting
36:41
Speaker 2: officer or their CFO departed the company. We just looked
36:44
Speaker 2: at that and said, wow, that just can't unexpectedly left.
36:48
Speaker 2: And you just said, you can't look at that as
36:49
Speaker 2: anything but concerning news. And it didn't end up being
36:53
Speaker 2: a problem. They hit their delivery targets, they turned around,
36:56
Speaker 2: they've had an incredibly successful several years afterwards. And it's
37:01
Speaker 2: also why I'm hesitant to say that this is anything
37:04
Speaker 2: but something similar to that. But what we have happened
37:08
Speaker 2: have had happened over the last couple of days is
37:10
Speaker 2: one long time Elon musk Aid and fixer Ohmed f
37:14
Speaker 2: Shaher has left Tesla as well as the company's director
37:18
Speaker 2: of human resources for North America. Not as important roles
37:22
Speaker 2: as the chief financial officer or the chief accounting officer.
37:25
Speaker 2: But whenever we have a company that is I don't
37:30
Speaker 2: know that we would call Tesla in crisis mode. They
37:33
Speaker 2: are very much struggling with sales. For any other company,
37:36
Speaker 2: it would probably be described as a as a crisis.
37:39
Speaker 2: For Tesla, they get breaks on some of this stuff
37:41
Speaker 2: and aren't treated the same way as others. Whenever we
37:44
Speaker 2: see a company facing pressures that Tesla is and you
37:47
Speaker 2: suddenly have executives fleeing, you just take a pause and
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Speaker 2: kind of think about, right, what if this were a
37:57
Speaker 2: normal company, What if this were Ford? What would you
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Speaker 2: say if it was one of those companies? And I
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Speaker 2: think it's important to apply that to even companies that
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Speaker 2: people tend to give a break. Let's take a quick
38:08
Speaker 2: break from the Financial Exchange. When we come back, second
38:10
Speaker 2: hour a lot more, including interviews with Paula Monica.
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Speaker 4: We'll be right back here on the Financial Exchange.