Latest / The Financial Exchange Show / Trump says a recession might be worth the cost. Is he right?

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Trump says a recession might be worth the cost. Is he right? · The Financial Exchange Show

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Speaker 2: Good morning, Happy Tuesday, Welcome back to the Financial Exchange.
1:12
Speaker 2: We've got markets that are back in flip flop mode
1:15
Speaker 2: after two days of solid games Friday of last week
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Speaker 2: and Monday of this week. We've got all three major
1:21
Speaker 2: indices selling off, with the NASDAC off the worst about
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Speaker 2: one and three quarters percent. We've got Google's parent company,
1:27
Speaker 2: Alphabet in the news, potentially making its largest acquisition ever.
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Speaker 2: Apparent innovations and movement being made on the electric battery
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Speaker 2: side out of China. Will be covering that as well.
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Speaker 2: But the first story we've got to dig into here
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Speaker 2: on a Tuesday morning is tomorrow's Federal Reserve meeting. Jay
1:46
Speaker 2: Powell will be taking the stage at two thirty pm
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Speaker 2: to answer questions about what the FIT is thinking about
1:52
Speaker 2: this economy, and for probably the first time in two
1:57
Speaker 2: or three years, I don't think investors are going to
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Speaker 2: be hanging on his every word in the same way
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Speaker 2: that they have been for this period of high inflation.
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Speaker 2: Not that people will be ignoring it, but frankly, what's
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Speaker 2: coming out of the White House right now is far
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Speaker 2: more relevant to the stock market and its performance recently.
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Speaker 3: I would say that this is probably the last two
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Speaker 3: the last couple months. Right, this meeting is certainly one
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Speaker 3: that there won't be a tremendous amount of attention paid
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Speaker 3: to it. And I believe when was our last one?
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Speaker 3: Was it six weeks prior?
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Speaker 4: I guess right, Yeah, so six weeks right around beginning
2:33
Speaker 4: of the year.
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Speaker 3: Yeah, I think similar sort of sentiment there. But I
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Speaker 3: agree with you the overall takeaway is that this used
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Speaker 3: to be sort of our headline event for our show.
2:42
Speaker 3: Is the focus on what the results of the Federal
2:45
Speaker 3: Reserve meeting will be for Thursday. It will be something
2:48
Speaker 3: that of course will cover and we will be parsing
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Speaker 3: through to look at any sort of commentary that the
2:53
Speaker 3: Fed may have on the economy and thoughts. But ultimately,
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Speaker 3: what I would anticipate is very what incentive do they
3:02
Speaker 3: have to really show much of their hand. They should
3:05
Speaker 3: keep it tight lipped and keep it as very fluid.
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Speaker 3: From a policy perspective, I don't really see any reason
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Speaker 3: for the Fed to make waves. We're battling enough waves
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Speaker 3: economically as it is, with the uncertainty on tariffs and
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Speaker 3: other fronts. There's no reason for the Fed to really
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Speaker 3: rock the boat and not stick to sort of the
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Speaker 3: party line of we'll see as more data comes out.
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Speaker 2: Yeah, and I do expect that to mainly dominate the conversation.
3:30
Speaker 2: The Fed is widely anticipated to be keeping interest rates
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Speaker 2: at the current four and a quarter to four and
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Speaker 2: a half percent, led by Scott Bessens from the White House.
3:39
Speaker 2: It seems that they are not facing immense pressure today
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Speaker 2: to move that. Scott Besson's Treasury Secretary for the Trump administration,
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Speaker 2: has been much more focused on that ten year treasury yield,
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Speaker 2: which the Federal Reserve.
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Speaker 4: Does not control, does not move.
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Speaker 2: And the reason he's focused there is because he wants
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Speaker 2: to see frankly, borrowing costs for average Americans improve. He
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Speaker 2: cares a little bit less about borrowing costs for banks,
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Speaker 2: which is what the FED really moves around here when
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Speaker 2: we talk about things the short end of the curve.
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Speaker 2: Far more influential when it comes to asset prices like
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Speaker 2: the stock market, far less influential when it comes to
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Speaker 2: housing affordability, car affordability, things along those lines. And so
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Speaker 2: I think the White House has appropriately focused in on
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Speaker 2: that type of interest rate instead of the FED funds rate.
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Speaker 2: I don't think that will allow the FED to escape
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Speaker 2: blame should this economy start turning into recession. Right, they
4:29
Speaker 2: are an easy scapegoat, and President Trump has a history
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Speaker 2: of blaming the FED when things are not going his way,
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Speaker 2: so I would anticipate that they could face some of that,
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Speaker 2: but they are largely not today.
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Speaker 4: I think one of.
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Speaker 2: The questions that I'll be interested to hear an answer
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Speaker 2: on is they always get asked the question of you know,
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Speaker 2: where do you put the balance of risks to the
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Speaker 2: economy today? And for the last several years it has
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Speaker 2: been more of a risk of inflation than higher unemployment,
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Speaker 2: and that's slowly been and most recently they've called those
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Speaker 2: equally weighted risks. Right, they're as concerned about an uptick
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Speaker 2: in unemployment and a recession as they are about a
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Speaker 2: resurgence and inflation.
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Speaker 4: And my question would be, where are you now, right?
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Speaker 2: I mean, I don't think that anybody should assume that
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Speaker 2: inflation is done with, especially in the face of rising tariffs.
5:21
Speaker 2: But quite honestly, I'm personally a fair bit more concerned
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Speaker 2: about unemployment. And you know where business uncertainty has been
5:28
Speaker 2: going in terms of polls that you see from CEOs,
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Speaker 2: and they're hiring plans and so does the Federal Reserve
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Speaker 2: view one of those as a more significant risk, because
5:37
Speaker 2: that's likely to drive their next decision when it comes
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Speaker 2: to policy. Right, they're not doing anything today, But I
5:45
Speaker 2: think this economy is anything but stagnant.
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Speaker 4: Right. It is certainly moving quite rapidly.
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Speaker 2: And I suspect that we will see changes to the
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Speaker 2: state of both inflation and unemployment over the course of
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Speaker 2: the next several months should it continue this way.
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Speaker 3: Just such a awful job to have Mike every time
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Speaker 3: we do, every time we do these segments, I'm like,
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Speaker 3: I'm so glad I don't have a job at the
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Speaker 3: Federal Reserve. Not like I have anywhere near that the
6:09
Speaker 3: qualifications for it, but it's just so challenging. I have
6:12
Speaker 3: to give them credit. They did a really great job
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Speaker 3: last year in terms of navigating the inflationary environment that
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Speaker 3: we saw in twenty twenty two and twenty twenty three.
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Speaker 3: You can absolutely beat them up for being late to
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Speaker 3: the game to react to the inflationary pressures that we
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Speaker 3: saw in twenty two and leaving their quantity of easing
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Speaker 3: programs in for too long. But last year we were
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Speaker 3: complementary of the efforts that they had to navigate a
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Speaker 3: difficult environment, but the challenges are only picking up in
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Speaker 3: twenty twenty five, making things more difficult because it's just
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Speaker 3: it's going to be so hard to determine if you
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Speaker 3: were to see inflationary price increases and a shock to
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Speaker 3: the system, is that going to be something to bring
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Speaker 3: up their favorite phrase that they got beat up on
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Speaker 3: big time transitory, which is what they used of the
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Speaker 3: supply shocks in twenty twenty two that turned out to
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Speaker 3: not be so transitory. Or is it going to be
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Speaker 3: something that's a longer term problem. You also have the
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Speaker 3: fears of economic growth potentially slowing too. It's just a
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Speaker 3: really challenging environment to navigate. It's just the level of
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Speaker 3: difficulty it seems like, just gets more and more increase
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Speaker 3: for these Federal Reserve members.
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Speaker 2: As I said, fortunately, I have not seen much talk
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Speaker 2: of the Federal Reserve from the White House, and I
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Speaker 2: suspect that that may continue for a period of time.
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Speaker 2: But I do want to talk about the Federal Reserves
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Speaker 2: independence because every single meeting they've had since the election
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Speaker 2: of Donald Trump has been focused on the Fed's independence
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Speaker 2: and how they are going to go about maintaining it,
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Speaker 2: and so The question is why does that matter, right, why.
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Speaker 4: Do we need an independent FED?
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Speaker 2: And the answer the easy answers go look at a
7:48
Speaker 2: few countries that don't have an independent FEDS, such as China,
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Speaker 2: such as Turkey, and how their policies shape out and
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Speaker 2: what works and what doesn't work there. But the general
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Speaker 2: answer is that the Federal Reserve controls the money supply,
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Speaker 2: and when the money supply goes up, asset prices go up.
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Speaker 2: Go take a look at twenty twenty. You pour a
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Speaker 2: whole bunch of money into the economy, which Congress did,
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Speaker 2: which the Federal Reserve allowed to happen, and asset prices
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Speaker 2: went through the roof. You didn't immediately have inflation, right.
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Speaker 2: We weren't talking about huge inflation numbers in twenty twenty
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Speaker 2: when the money supply went up, But it did eventually
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Speaker 2: contribute to a whole degree of art higher inflation. And
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Speaker 2: maybe that was purely result of COVID, maybe a supply
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Speaker 2: chain related, but probably a mixture of all mixture of
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Speaker 2: all of those things. The problem is that in the
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Speaker 2: very short term, the Fed's actions don't really control much
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Speaker 2: on the way of inflation.
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Speaker 3: Right.
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Speaker 2: We talk about these very technical details but when you
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Speaker 2: go take a look at the actual results, they're much
8:47
Speaker 2: more in control over inflation over a ten year time period.
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Speaker 2: Right when you look at how they influence the money
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Speaker 2: supply and the direction of things. Ten years later, you
8:56
Speaker 2: start to see the picture shape out where you say, oh, yeah, yeah,
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Speaker 2: a money supply increased here, and look how much higher
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Speaker 2: inflation was over that course of the next ten years.
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Speaker 2: And therefore you have a central bank that's independent because
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Speaker 2: in the short term, what the Federal Reserve does does
9:14
Speaker 2: impact the economy. It drives a surprises up, it drives
9:17
Speaker 2: a stock market up. Historically, you have a lot of
9:20
Speaker 2: influence over what can happen in things that might get
9:22
Speaker 2: you reelected. But the tail risk of that, as we've
9:26
Speaker 2: experienced here of the last few years, could be really
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Speaker 2: burden some inflation. And if you are an elected official
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Speaker 2: seeking reelection, you care a little bit less about what
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Speaker 2: inflation looks like a decade from now and a lot
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Speaker 2: more about what the stock market looks like over the
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Speaker 2: next two years, for example.
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Speaker 3: And on the other end, the Fed sometimes has to
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Speaker 3: be the bad guy. They have to take away the
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Speaker 3: punch bowl exactly. Yeah, they have to come in and
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Speaker 3: that really, if you think about the last presidential term,
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Speaker 3: the mismanagement of inflation under President Biden likely was the
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Speaker 3: major factor that led to him not get being re elected.
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Speaker 3: And as a result of that, you had the Federal
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Speaker 3: Reserve sort of as part of that equation because they
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Speaker 3: were the ones going in there and saying we need
10:09
Speaker 3: to raise rates to bring down inflation. Now they were
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Speaker 3: the bad guy doing that. No one likes to see
10:14
Speaker 3: variable lines of credit increase for borrows out there, and
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Speaker 3: we've seen the impact on the housing market too, where
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Speaker 3: a mortgage sits at maybe six and a half seven
10:23
Speaker 3: percent for a thirty year fixed mortgage. If you still
10:26
Speaker 3: had the same levels of three or four percent that
10:28
Speaker 3: we were sitting at previously and Fed funds rate near zero,
10:31
Speaker 3: we would be in a runaway inflation environment. They have
10:34
Speaker 3: to be the bad because of that. So that is
10:35
Speaker 3: another aspect of it that is so important to keep
10:39
Speaker 3: them a political because if you're going to have to
10:41
Speaker 3: serve as a you know, takeer away of the punch bowl,
10:45
Speaker 3: then it is better to keep that separate from a
10:47
Speaker 3: president who wants to be re elected or wants to
10:50
Speaker 3: be viewed in a favorable manner by its constituents.
10:53
Speaker 4: Let's take a quick break. When we come back.
10:57
Speaker 2: White House officials can't stop talking about recessions, so we're
10:59
Speaker 2: going to talk about it as well. Peace from the
11:02
Speaker 2: New York Times here on recession maybe being worth the cost?
11:06
Speaker 2: What do they mean when they say that? And what
11:08
Speaker 2: would it mean for you? That's next year on the
11:10
Speaker 2: Financial Exchange.
11:12
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12:04
Speaker 2: If I think about the economic policies of the Trump
12:08
Speaker 2: administration so far, and let's let's caveat all this with
12:12
Speaker 2: it hasn't even been two months yet, fewer than two months,
12:18
Speaker 2: and we are still trying to sort this out. But
12:22
Speaker 2: if I think them through, the two major things that
12:24
Speaker 2: I think of AAR tariffs and b our government reforms
12:31
Speaker 2: focused on spending in taxes, right, that's where it comes
12:34
Speaker 2: down to. I think a lot of it's about efficiency,
12:36
Speaker 2: and plenty more about DEI and other focuses of the administration,
12:40
Speaker 2: but that that's not economics. Like I'm focused on these two,
12:43
Speaker 2: and the administration has been making an argument Scott Bessen
12:47
Speaker 2: has been making at President Trump has been making it,
12:49
Speaker 2: many others have been as well, that when laid out concisely,
12:53
Speaker 2: I think makes.
12:54
Speaker 4: A lot of sense.
12:55
Speaker 2: And so I'm going to attempt to lay out the
12:59
Speaker 2: economic reform and government reform side of that equation. Put simply,
13:05
Speaker 2: the United States government, over the course of the last
13:09
Speaker 2: thirty years, but especially over the course of the last
13:12
Speaker 2: few has been spending like it is going out of style.
13:17
Speaker 2: If you take a look at government spending deficits as
13:20
Speaker 2: a percentage of GDP over the course of the last
13:22
Speaker 2: few years, they've been averaging somewhere around three percent, which
13:26
Speaker 2: many would have said years ago was unsustainable, but over
13:28
Speaker 2: the course of the post COVID period accelerated to something
13:31
Speaker 2: like six percent. And so, in my opinion, at least,
13:36
Speaker 2: you know, an economy that might have faced recession in
13:39
Speaker 2: twenty twenty two, twenty three, twenty twenty four, that was
13:42
Speaker 2: largely sidestepped because frankly, it's tough to have a downturn
13:46
Speaker 2: and unemployment in the market when there is so much
13:49
Speaker 2: government spending pouring into the economy. Still, right, it didn't
13:52
Speaker 2: take in twenty twenty three and four, might not have
13:54
Speaker 2: taken the form of stimulus payments, but you know, you
13:58
Speaker 2: had the Giant Chips Act, you had the Inflation Reduction Act,
14:04
Speaker 2: and all of these things led to big, big US
14:07
Speaker 2: government deficits. And the incoming administration has said, look, that
14:11
Speaker 2: is not a sustainable path.
14:12
Speaker 4: To be on.
14:13
Speaker 2: Right, if you are worried about the full faith and
14:17
Speaker 2: credit of the United States government, if you are concerned
14:20
Speaker 2: about you know, long term inflation that needs to be
14:23
Speaker 2: rained in. And I have to say I agree on
14:26
Speaker 2: that entirely, and I don't know if you do it
14:28
Speaker 2: by cutting government spending by raising taxes, but the net
14:32
Speaker 2: deficit right, the spending number from the United States government
14:36
Speaker 2: probably should not be sustained at six percent a year
14:39
Speaker 2: because I think ultimately it leads to a crisis at
14:42
Speaker 2: some point in the future.
14:44
Speaker 4: No idea what that looks like.
14:45
Speaker 2: I think better trained people than I am would have
14:48
Speaker 2: a better idea of it than I would, And in
14:51
Speaker 2: my opinion, it may even be worth going through a
14:53
Speaker 2: recession in order to deal with that problem.
14:56
Speaker 3: I would agree. I would agree with all those facts.
14:59
Speaker 2: There Again, the problem with what you're describing here is
15:04
Speaker 2: if it were to continue at that pace, someday it
15:07
Speaker 2: might lead to a much larger disruption. And I think
15:10
Speaker 2: that's what Scott Besint has pointed out, is, Hey, you know,
15:13
Speaker 2: I'd rather deal with a short term recession to get
15:15
Speaker 2: government spending under control than fifteen years from now have
15:20
Speaker 2: a bunch of nations that no longer want to buy
15:21
Speaker 2: US debt because it's not as powerful and strong as
15:24
Speaker 2: it once was.
15:25
Speaker 4: It's no longer the reserve currency.
15:27
Speaker 2: And that's the fight that we are trying to head
15:29
Speaker 2: off with our changes to government policy.
15:32
Speaker 4: When it comes to deficis agreed.
15:33
Speaker 3: The problem which you probably were getting to, is this
15:35
Speaker 3: idea that while that in its essence, I couldn't be
15:40
Speaker 3: more in agreement with this idea that we need to
15:42
Speaker 3: get the depth cent under control, that we have way
15:44
Speaker 3: too much does the country. I think many people would
15:46
Speaker 3: agree to that. There's very few people who would disagree
15:49
Speaker 3: with the levels of debt right now being tenable.
15:51
Speaker 2: Whether people are willing to go through a recession to
15:53
Speaker 2: deal with that problem, that's that's a different question. But
15:55
Speaker 2: I think most people would agree with that fundamental piece
15:58
Speaker 2: of Hey, I wouldn't manage my head household this way,
16:00
Speaker 2: you probably shouldn't manage a country this way, and it needs.
16:04
Speaker 4: To be addressed.
16:05
Speaker 3: But from a policy perspective, what you've seen, and again
16:08
Speaker 3: you're right, it has been a very short span of
16:10
Speaker 3: time here, but the efforts of the Department of Government
16:13
Speaker 3: efficiency the areas that they are targeting. While the message
16:18
Speaker 3: and the idea behind it, many of or at least
16:21
Speaker 3: you and I agree with this idea cutting down government spending.
16:23
Speaker 3: I'm behind that. But the items that you have to
16:26
Speaker 3: go after, our big ticket items that no one really
16:28
Speaker 3: feels comfortable going with. From a political perspective, that social
16:31
Speaker 3: security medicare, Medicaid has been one that's been bantered about,
16:35
Speaker 3: and defense spending. Those are four of the biggest areas
16:38
Speaker 3: that you'd need to target. Those have not been touched.
16:40
Speaker 3: They're very difficult to touch. And then you combine that
16:43
Speaker 3: with this idea that we're coming up on the looming
16:46
Speaker 3: deadline for the twenty seventeen tax cuts. All of us
16:49
Speaker 3: have collectively benefited from lower tax rates over the course
16:53
Speaker 3: of the last eight years or so. Those are set
16:55
Speaker 3: to sunset at the end of twenty twenty five. Yeah,
16:58
Speaker 3: if nothing were to happen, they were to revert back
17:00
Speaker 3: to their prior levels. However, a lot of the discussion
17:04
Speaker 3: around this administration coming in is keeping those in and
17:07
Speaker 3: reinstituting them for a longer period of time. Just doing that,
17:11
Speaker 3: just the signature of instituting the those in for a
17:14
Speaker 3: longer period of time. As much as you and I
17:16
Speaker 3: would benefit and I would love to see the rates
17:18
Speaker 3: where they are because they've been really low relative to
17:21
Speaker 3: historical norms, it's gonna add trillions of dollars to the deficits.
17:24
Speaker 3: So in one end, you have actions being taken to
17:27
Speaker 3: cut down on the deficit by cutting out some areas
17:31
Speaker 3: of the government that they're probably is excess spending. But
17:34
Speaker 3: that's like looking at your household budget and let's say
17:37
Speaker 3: someone spends the one hundred grand and you're starting to
17:39
Speaker 3: target well maybe here or there.
17:41
Speaker 4: You know, I won't go after it, cut out the
17:43
Speaker 4: avocado toasts.
17:44
Speaker 3: I won't you know, get coffee, you know, twice a week.
17:48
Speaker 3: But instead of ignoring, you know, your mortgage payment and
17:51
Speaker 3: your car payment. It's like, that's kind of the efforts
17:53
Speaker 3: that we've seen recently, particularly if you're going to reinstitute
17:57
Speaker 3: the tax cuts.
17:58
Speaker 2: I'm gonna reown. I'm gonna rain open minded. Right, I'll
18:01
Speaker 2: judge this in a few years when we see where
18:03
Speaker 2: it goes. I agree with you to this point, Like
18:05
Speaker 2: you know, you cut ten thousand employees from Social Security. Yeah,
18:09
Speaker 2: I mean that's not going to do the same thing
18:11
Speaker 2: as making giant cuts to Medicare and the program of
18:13
Speaker 2: Social Security itself.
18:14
Speaker 4: And so is it actually meaningful. We'll have to wait
18:17
Speaker 4: and see.
18:18
Speaker 2: The problem that you've seen in markets has not been
18:21
Speaker 2: related to that to this point, right, you have not
18:24
Speaker 2: seen a big uptake in unemployment to this point in
18:26
Speaker 2: reaction to that. The problem that you have seen in
18:28
Speaker 2: markets has everything to do with tariffs.
18:30
Speaker 4: And when you when you.
18:31
Speaker 2: Layer on that side of the equation, that's where I
18:34
Speaker 2: start to get lost, and that's where I think American
18:37
Speaker 2: CEOs and others are starting to get lost as well.
18:39
Speaker 2: Is what do tariffs? What role do tariffs play in
18:44
Speaker 2: this overall new view of the economy. Is it that
18:49
Speaker 2: they are there to reduce the deficits? Further, is that
18:53
Speaker 2: is it that they are there to drive a better
18:55
Speaker 2: bargain on trade because we've been getting screwed over on
18:59
Speaker 2: trade by our global partners for the last you know,
19:02
Speaker 2: thirty years, fifty years. Is it to bring jobs back
19:05
Speaker 2: to the United States? And what will that do to
19:08
Speaker 2: help with deficits and economic growth over the long term? Those,
19:12
Speaker 2: I think are the open questions that just has a
19:15
Speaker 2: lot of people and clearly a lot of market participants,
19:17
Speaker 2: as displayed by today's selloff confuse as to where exactly
19:21
Speaker 2: all of this goes.
19:23
Speaker 4: We got to take a quick break.
19:24
Speaker 2: We're going to have Wall Street watch when we return,
19:26
Speaker 2: and then more tariff talk, especially when it comes to automakers.
19:30
Speaker 4: Next here on the Financial Exchange.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:47
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 markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio netw.
20:00
Speaker 5: Well, after two consecutive winning days, markets are in the
20:03
Speaker 5: red today, led by a sell off in the tech
20:06
Speaker 5: sector as a FED begins their two day monetary policy meeting,
20:10
Speaker 5: followed by a press conference from FED Chairman Jerome Powell
20:13
Speaker 5: tomorrow afternoon at two thirty. At the moment, the Dow
20:17
Speaker 5: is down by four tenths of a percent or one
20:19
Speaker 5: hundred and seventy eight points, SMP five hundred down about
20:23
Speaker 5: one percent or fifty five points, and the tech heavy
20:27
Speaker 5: NASDAC down by one in seven tenths of a percent
20:30
Speaker 5: or three hundred and two points. Russell two thousand is
20:32
Speaker 5: down by eight tenths of a percent. Tenure Treasure realed
20:36
Speaker 5: is flat at four point three zero percent, and crude
20:39
Speaker 5: oil edging higher, trading at sixty seven dollars in sixty
20:42
Speaker 5: eight cents a barrel. Big news from the tech sector
20:46
Speaker 5: this morning, after Google signed a definitive agreement to acquire
20:51
Speaker 5: cybersecurity startup Whiz for thirty two billion dollars in an
20:55
Speaker 5: all cash deal. Whiz previously walked away from a twenty
20:59
Speaker 5: three billion dollar deal by Google last summer. Alphabet shares
21:04
Speaker 5: down by four percent. Meanwhile, in Video shares down by
21:07
Speaker 5: three percent ahead of a keynote speech from CEO Jensen
21:11
Speaker 5: Huang at its GtC Developers conference, where he is expected
21:15
Speaker 5: to showcase a new version of the company's Blackwell AI chips. Elsewhere,
21:20
Speaker 5: China's top domestic ev maker, BYD, reached a record high
21:25
Speaker 5: in Hong Kong after the company unveiled a technology that
21:28
Speaker 5: can charge an electric car in merely five minutes. More
21:33
Speaker 5: volatility for Tesla, with that stock down another five percent
21:37
Speaker 5: after analysts at RBC Capital Markets reduced their price target
21:41
Speaker 5: on the stock, citing increasing competition. Lucid up by twelve
21:46
Speaker 5: percent after Morgan Stanley upgraded the stock to equal weight,
21:50
Speaker 5: noting the ev maker's AI strategy could be a positive catalyst.
21:54
Speaker 5: In Goldman Sachs upgraded Ralph Lauren to buy from neutral.
22:00
Speaker 5: The banks said the fashion company has limited exposure to
22:03
Speaker 5: tariffs versus its peers. That stock is up by about
22:06
Speaker 5: a third of a percent. I'm Tucker Silvan, That's Wallstree.
22:09
Speaker 4: Watch Paul is a bit off script.
22:12
Speaker 2: But this morning I was listening to an interview with
22:14
Speaker 2: a I believe he was a professor of economics or
22:17
Speaker 2: maybe business from Duke University, and he pointed something out
22:20
Speaker 2: which I've heard before, and I pulled some data on
22:23
Speaker 2: it about the United States being relatively insulated from trade
22:28
Speaker 2: compared to other countries. And what I mean by that
22:31
Speaker 2: is when you look at the United States GDP, you know,
22:34
Speaker 2: add up everything in the United States produces, sells, services,
22:38
Speaker 2: add it all together, and you look at trade in particular,
22:42
Speaker 2: it's a relatively small portion compared to other countries. So
22:45
Speaker 2: trade imports plus exports divided by GDP gives you a
22:50
Speaker 2: percentage of GDP that trade makes up. And in the
22:54
Speaker 2: United States in twenty twenty three, I've heard sources as
22:57
Speaker 2: high as twenty seven percent, but the data I have
22:59
Speaker 2: from the World Bank puts the United States at twenty
23:03
Speaker 2: five percent of GDP. There are two countries in the
23:06
Speaker 2: world that that's lower, Ethiopia and Sudan, So not exactly
23:10
Speaker 2: global competitors on the when you go compare that to
23:16
Speaker 2: other big economic powerhouses, and I kind of doubt the
23:18
Speaker 2: data coming from China, but the estimates there thirty seven
23:21
Speaker 2: percent of their economy comes from trade. A giant like Germany,
23:27
Speaker 2: for example, another developed country eighty three percent trade related
23:32
Speaker 2: from GDP. Canada obviously being talked about, sixty seven percent,
23:37
Speaker 2: Mexico seventy three percent. You can have more than one
23:40
Speaker 2: hundred percent of your GDP coming from trade too, right.
23:43
Speaker 2: You can have some countries where trade makes up such
23:46
Speaker 2: a huge value of the economy. These are usually like
23:49
Speaker 2: Singapore and other countries like that, where they're trading very
23:52
Speaker 2: high value goods but not realizing a whole bunch of
23:54
Speaker 2: that in their GDP. But I bring it up to
23:57
Speaker 2: say that, you know, the President is direct when he
24:00
Speaker 2: says that, look, you know we are perhaps uh getting
24:04
Speaker 2: you know, screwed over by trade. But honestly, our economy
24:07
Speaker 2: is not all that reliant on trade. We can make
24:10
Speaker 2: things based economy. I don't I don't know, But we're
24:15
Speaker 2: a services based economy. But be a geographically and very
24:20
Speaker 2: large country that has the ability to grow things domestically
24:23
Speaker 2: and sell things domestically. And yes, when you think about
24:25
Speaker 2: the value of high tech services for example, Google, Amazon,
24:29
Speaker 2: the likes of them, that being US businesses, that that
24:32
Speaker 2: helps as well.
24:33
Speaker 4: What this ignores, however, and why I'm trying to make
24:37
Speaker 4: a point here.
24:37
Speaker 2: About you know, hey, this might not be that bad
24:40
Speaker 2: for the economy, we're tariffs to be in place, but
24:43
Speaker 2: it might be very bad for the stock market. And
24:46
Speaker 2: I think it comes back to once again separating those two.
24:48
Speaker 2: The economy is not the stock market, and the stock
24:51
Speaker 2: market is not the economy. Let's take just purely trade
24:54
Speaker 2: with Canada and think about the companies that are most
24:58
Speaker 2: heavily affected by I trade tariffs on Canadian goods. Right,
25:02
Speaker 2: If you have tariffs of twenty five percent on anything
25:05
Speaker 2: imported from Canada into the United States, and those terraffs
25:09
Speaker 2: get paid by the company that's doing the importing, because
25:12
Speaker 2: that's how tariffs work. It's not paid by the Canadian
25:15
Speaker 2: company that's exporting the good. It's paid by the American
25:17
Speaker 2: company or the foreign company that's doing business in the
25:20
Speaker 2: United States that's importing the good.
25:23
Speaker 4: Think about for a.
25:24
Speaker 2: Minute who those companies are that are doing the importing
25:28
Speaker 2: for a moment here, and you can understand why it's
25:30
Speaker 2: creating stock market volatility. It's Ford, it's Stilantis, it's General Motors,
25:36
Speaker 2: it is food growers, it's a whole bunch of US
25:40
Speaker 2: domiciled companies that just happen to do a lot of
25:43
Speaker 2: business in Canada. And that's in part what the President's
25:47
Speaker 2: trying to change is he doesn't want those US based
25:49
Speaker 2: companies doing business there. But I think speaks to some
25:52
Speaker 2: of the confusion that we're seeing out there, like why
25:54
Speaker 2: are European stocks up ten percent this year? Why are
25:57
Speaker 2: Canadian stocks doing well in the face of teriffs? And
26:00
Speaker 2: the answer is it might be really bad for their economy.
26:04
Speaker 2: Canada's pretty much been in a recession the last few years.
26:06
Speaker 2: But when you think about Canada's largest public companies, Power,
26:14
Speaker 2: the Hockey Company, the Royal Bank of Canada, Ye, not
26:19
Speaker 2: doing a whole lot of exports to the United States.
26:21
Speaker 2: Shopify it's an entirely service based payment system. Toronto, Dominion Bank,
26:26
Speaker 2: TD Bank, Enbridge Energy. Okay, yeah, you've got one there
26:30
Speaker 2: where they are going to be subject to tariffs. But
26:32
Speaker 2: you take a look at this, and you know, Thompson Reuters,
26:36
Speaker 2: these are not big companies that are exporting a whole
26:38
Speaker 2: bunch of stuff to the United States that are going
26:40
Speaker 2: to face massive increase in teriffs. When you think about
26:43
Speaker 2: which companies are going to face that it's largely US
26:46
Speaker 2: companies that happen to.
26:47
Speaker 4: Be doing business in these foreign countries.
26:49
Speaker 2: So again, it was an interesting conversation that I overheard
26:52
Speaker 2: and kind of led me down this path of why
26:54
Speaker 2: would US stocks which I don't know where they are today,
26:58
Speaker 2: but you're to date down like four percent, whereas you've
27:00
Speaker 2: got the rest of the developed world up a good
27:02
Speaker 2: ten percent in the stock market.
27:04
Speaker 4: And I think this largely explains it a lot. Is
27:06
Speaker 4: the companies who are most subjected to tariffs under these
27:10
Speaker 4: plans or buy and large US companies, they are going
27:13
Speaker 4: to face higher prices.
27:14
Speaker 3: Well, I take it even one step further, where it's
27:16
Speaker 3: the US consumer that ultimately is going to feel yes,
27:19
Speaker 3: the brunt of that, and that can impact the earnings
27:21
Speaker 3: of all these publicly traded companies out there. If the
27:25
Speaker 3: consumer's budget is constrained by the fact that vehicles are
27:29
Speaker 3: going to potentially cost more, going to see an upticking
27:31
Speaker 3: price or T shirts or whatever item you want to
27:35
Speaker 3: throw out there, overall consumption could decrease, and that's why
27:38
Speaker 3: you could see a challenging earnings environment for some of
27:40
Speaker 3: these public companies out there. I think that's the largest
27:43
Speaker 3: contributory factor amongst others on the stock market itself. Is
27:48
Speaker 3: it was a very overpriced market too. We've covered that also.
27:51
Speaker 2: Look, and I'm not standing here saying do or don't
27:54
Speaker 2: do this. One thing I will say is I think
27:56
Speaker 2: the back and forth uncertainty on it, I think that's
27:59
Speaker 2: a bad idea. Like I think conclusively, you know, if
28:03
Speaker 2: you have tariffs in place, I don't know what the
28:05
Speaker 2: impact is going to be. I don't think anybody does.
28:07
Speaker 2: And if anybody's telling you they do, then they're full
28:09
Speaker 2: of it. Because we haven't seen tariffs of this sort
28:11
Speaker 2: since the nineteen forty, so nobody actually knows how it's
28:13
Speaker 2: all going to play out. Will the jobs return to
28:16
Speaker 2: the United States at a higher degree? Will we see
28:18
Speaker 2: a manufacturing boom in the United States. I'm open to
28:20
Speaker 2: the concept of it.
28:22
Speaker 3: I'm not even sure if I am, I'm highly skeptical.
28:25
Speaker 2: I should say yeah, But again I'm not certainly, and
28:28
Speaker 2: I'm not saying that never do it right. What I
28:31
Speaker 2: am saying is that very clearly, what CEOs are telling
28:34
Speaker 2: you now is I'd be okay with the tariffs, but
28:38
Speaker 2: I can't deal with the uncertainty of whether or not
28:40
Speaker 2: I will have tariffs, And that's what I think this
28:42
Speaker 2: administration is going to need to address and address quickly,
28:45
Speaker 2: because that's the piece that is tougher to recover from.
28:48
Speaker 2: Right If if you develop so much uncertainty that businesses
28:51
Speaker 2: are simply unwilling to spend money, then you get a
28:55
Speaker 2: real problem in the economy that's tougher to resolve from.
28:58
Speaker 2: By just waving away tariffs or waving away some change,
29:01
Speaker 2: then it becomes tougher to rebuild the economic success story.
29:04
Speaker 3: Yeah, it plays the devil's advocate to me expressing skepticism
29:07
Speaker 3: as to whether or not manufacturing will be brought back
29:09
Speaker 3: domestically with some of the tariff agenda. There needs to
29:13
Speaker 3: be clear, concise plan as to what the tariffs are
29:16
Speaker 3: going to look like. For companies, to your point, to
29:18
Speaker 3: invest domestically to build up manufacturing capability, they need to
29:23
Speaker 3: be assured that it is something that is going to
29:25
Speaker 3: be worth investing in. And if the policy is going
29:27
Speaker 3: to continually change, then you're just going to have companies
29:30
Speaker 3: withhold investment until they get a clear sense of what
29:33
Speaker 3: it's going to look like. And that's what this comes
29:35
Speaker 3: down to, is getting a little more certainty here quick Break.
29:37
Speaker 2: When we come back, big changes over at the Social
29:39
Speaker 2: Security Administration in terms of staffing. What has that meant
29:42
Speaker 2: so far for recipients and those going to file? Quick
29:45
Speaker 2: Break will be covered that next here on the Financial Exchange.
29:49
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30:26
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31:11
Speaker 2: There's been a lot going on at Social Security Administration
31:14
Speaker 2: over the last few months. We had the Social Security
31:16
Speaker 2: Fairness Act that went into place back in January. Obviously
31:20
Speaker 2: the normal cost of living adjustments. Elon Musk called social
31:23
Speaker 2: Security a Ponzi scheme. There's been job cuts at the administration.
31:28
Speaker 2: I think for the average person it can be a
31:29
Speaker 2: little bit tough to navigate. Hey, what's the real news
31:33
Speaker 2: here that might affect me and what's the noise when
31:36
Speaker 2: it comes to Social Security. So let's start with the
31:39
Speaker 2: easiest one first before we move into the tougher stuff.
31:42
Speaker 2: The sourci Security Fairness Act eliminated what's called the government
31:45
Speaker 2: pension offset and the windfall elimination provision if you worked
31:49
Speaker 2: for a government in a job that did not require
31:53
Speaker 2: you to pay in to Social Security. That could be
31:55
Speaker 2: the Commonwealth of Massachusetts, a local town, parts of the
31:58
Speaker 2: federal government, or even a foreign country. Let's say you
32:01
Speaker 2: worked in the United Kingdom for a while and receive
32:04
Speaker 2: a government pension from there that could offset your Social Security.
32:07
Speaker 2: Those rules are now gone. You are not subject to
32:10
Speaker 2: that anymore, and many recipients have started receiving payments already
32:14
Speaker 2: on the calculation of what they are owed. From twenty
32:16
Speaker 2: twenty four and now into twenty twenty five. Elon Musk
32:20
Speaker 2: calling Social Security a Ponzi scheme and talking about cuts
32:24
Speaker 2: there legitimate thing to be worried about, or.
32:29
Speaker 4: Just kind of loud talk that we should ignore.
32:33
Speaker 3: Loud talk that we should ignore.
32:34
Speaker 2: Yeah, yeah, that's kind of my conclusion as well. Like
32:37
Speaker 2: I think that, you know, he will continue to attack
32:40
Speaker 2: it from a staffing perspective, but it doesn't sound like
32:44
Speaker 2: Elon Musk has a great solution to fixing what he
32:47
Speaker 2: described as a Ponzi scheme, and any changes to it
32:49
Speaker 2: must go through Congress. So I'm not immensely concerned about
32:53
Speaker 2: Elon Musk forcing changes to the Social Security payment system
32:58
Speaker 2: or you know, el ability for Social Security.
33:01
Speaker 3: We can all agree that changes need to be made
33:03
Speaker 3: to it, but just not going.
33:05
Speaker 2: To be led by Elon. No, and I don't think
33:07
Speaker 2: his perspective of it being a Ponzi scheme is going
33:09
Speaker 2: to be influential on members of Congress. No, the tougher
33:13
Speaker 2: question to answer is customer service. And look, for a
33:17
Speaker 2: lot of people, they never need customer service from Social Security,
33:20
Speaker 2: but sometimes you do. And here's where it's getting a
33:23
Speaker 2: little bit tricky. Like the market Watch here interviewed somebody
33:28
Speaker 2: who is dealing with an employer that screwed up their
33:32
Speaker 2: pay systems and didn't either didn't record their payments into
33:36
Speaker 2: Social Security for a couple of years or just didn't
33:38
Speaker 2: make the payments into Social Security. And so it looks
33:41
Speaker 2: like they didn't work for two years and their earnings
33:43
Speaker 2: records all screwed up, and they have to supply W
33:46
Speaker 2: two's and a whole bunch of basically proof that hey,
33:49
Speaker 2: I did work, I did pay into Social Security for
33:51
Speaker 2: these two years, even if my employer didn't cover it.
33:55
Speaker 2: The answer that people are hearing is good luck, get
33:57
Speaker 2: in line is kind of the answer on that one,
34:00
Speaker 2: and I think that's the message that I have for
34:02
Speaker 2: anyone trying to interact with folks. There's some scarier ones too,
34:06
Speaker 2: like that that would be concerning and annoying, but you
34:09
Speaker 2: would eventually get this problem solved if you had the
34:11
Speaker 2: documentation on it, and they would pay you the money
34:13
Speaker 2: that you were owed. The other ones that I'm hearing from, like, hey,
34:17
Speaker 2: somebody hacked my Social Security account and change my direct deposit.
34:22
Speaker 2: So far, they've been able to respond to that quickly
34:24
Speaker 2: and lock your account down. But those are the ones
34:27
Speaker 2: that I get worried about because that's a pretty common scam. Right, Hey,
34:30
Speaker 2: can I redirect someone's tax return or someone's Social Security
34:33
Speaker 2: payment to a different bank account and take those funds?
34:37
Speaker 4: Those are the ones that.
34:38
Speaker 2: You do want Social Security employees responding to responding to quickly,
34:42
Speaker 2: and at least one case they did. But I am
34:45
Speaker 2: hearing more and more that getting an appointment with Social
34:47
Speaker 2: Security is now taking weeks. There's no real ability to
34:51
Speaker 2: drop into a Social Security office, and I think that's
34:53
Speaker 2: frustrating some beneficiaries.
34:55
Speaker 3: Medicare is another one, just to kind of be aware
34:58
Speaker 3: of when you're applying for it. You want to look
35:01
Speaker 3: to try and apply for it anywhere from two to
35:04
Speaker 3: three months prior to you reaching that magic age sixty five,
35:07
Speaker 3: So that's one thing to note there. If you have
35:09
Speaker 3: lesser staff staffing there, the processing times on those applications
35:13
Speaker 3: could slow. So it's something that you may want to
35:16
Speaker 3: make sure that you're on top of and not leave
35:18
Speaker 3: to the last minute.
35:19
Speaker 2: We know that you have questions about social security, and
35:22
Speaker 2: when there are big changes going on at a program
35:26
Speaker 2: this big to people's financial security and future, it can
35:31
Speaker 2: add some apprehension into that decision making process, and frankly,
35:35
Speaker 2: I think it leaves people open to making the wrong
35:37
Speaker 2: decision when it comes to social security out of fear
35:40
Speaker 2: about the program, uncertainty about it, about its customer service,
35:43
Speaker 2: and just how it's going to wind up. If you're
35:46
Speaker 2: wondering how you should change your social security plan or
35:49
Speaker 2: how you should have a social security plan for the future,
35:52
Speaker 2: please give the folks at arm Strong Advisory Group a call.
35:54
Speaker 2: We work with our clients every day on questions like
35:57
Speaker 2: pensions and social security and how they will contribute to
36:00
Speaker 2: their larger financial plan and really how to take advantage
36:03
Speaker 2: of those programs to make them work best for you.
36:07
Speaker 2: If you have questions like that, give us a ring
36:08
Speaker 2: at eight hundred three nine three four zero zero one
36:11
Speaker 2: how to talk with you about your specifics. That number
36:14
Speaker 2: again for the Armstrong Advisory Group eight hundred three nine
36:17
Speaker 2: three four zero zero one.
36:19
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
36:22
Speaker 1: registered investment advisor. Nothing in the ad or in any
36:24
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
36:28
Speaker 1: your own financial tax and to state planning advisors before
36:30
Speaker 1: making any investment decisions. Armstrong may contact you to offer
36:33
Speaker 1: investment advisory services.
36:35
Speaker 2: Amazon planning to reshape their Alexa device business. The story
36:42
Speaker 2: with Amazon's Alexa devices has been for years that they
36:45
Speaker 2: are going to produce them and sell them at basically
36:49
Speaker 2: no profit.
36:51
Speaker 4: We talk about the you know what are the small ones,
36:54
Speaker 4: the dots that are around epos houses, and these these devices.
36:59
Speaker 2: The idea initial was, Hey, if we pop these into
37:02
Speaker 2: people's homes, A will learn about them substantially, and b
37:07
Speaker 2: maybe it'll make them more interested in buying Amazon goods
37:12
Speaker 2: in the short term. Right, Like if I can just
37:14
Speaker 2: talk to my Amazon speaker and say blah blah blah,
37:17
Speaker 2: order me new toothpaste and then maybe I'll be a
37:20
Speaker 2: more frequency buyer on these platforms.
37:23
Speaker 4: The answer is that hasn't worked out well.
37:26
Speaker 2: They've had no real uptake when it comes to things
37:29
Speaker 2: like the Amazon Music platform that has integrated into these
37:32
Speaker 2: at least in the paid versions of those things. And
37:35
Speaker 2: so they're taking a second hard look at this business
37:37
Speaker 2: to see how they go about monetizing it and offering
37:40
Speaker 2: new products. And I'm here to say that I just
37:42
Speaker 2: don't know that Amazon can do anything on the smart
37:45
Speaker 2: device base that I'd be personally willing to pay for
37:49
Speaker 2: the ring video doorbells as close as I get. And
37:51
Speaker 2: they bought that business, they didn't develop it in house, right,
37:54
Speaker 2: is that Yeah? That's Amazon, it is, right, Yeah, Like
37:57
Speaker 2: I do pay for that service. I pay them a
37:59
Speaker 2: monthly monitoring like I find that stuff useful. But when
38:03
Speaker 2: it comes to these smart devices in my home, I
38:05
Speaker 2: just don't know what perfection they're going to get to
38:07
Speaker 2: that I would actually shell out money for it quick break,
38:10
Speaker 2: but a lot more to cover, including big innovation potentially
38:15
Speaker 2: out of a Chinese automaker that's next year in the
38:17
Speaker 2: financial exchange,