September 24, 2024 • 38 mins
Mike Armstrong and Paul Lane discuss JPMorgan CEO Jamie Dimon's warning about the worsening state of geopolitics. Consumer confidence sinks to 3-month low. Americans pessimistic ahead of elections. Why are 'Buy American' policies not helpful to Americans? Why is Trump targeting Deere? What is China doing now to boost its economy?
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Episode Transcript
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Speaker 1 (00:00):
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Veterans Development Corporation DAS is the Financial Exchange with Mike
Armstrong and Paul Lane.
Speaker 2 (01:14):
Good morning, Happy Tuesday here on the Financial Exchange, day
after markets hit new all time highs yesterday and a
lot of different items to cover this morning. One. You
had several different Federal Reserve members speaking yesterday, so we'll
be covering some of the commentary from the likes of
Austin Goulsby and others before dozens more, maybe a dozen
(01:39):
more speak later this week. You had Consumer Confidence come
out at ten am this morning. But we're starting off
the show with the I guess useless Warning of the Week.
Speaker 3 (01:52):
I like where you're going with this. Yeah, I was
on a similar page.
Speaker 2 (01:55):
Useless Warning of the Week, which you know happens to
be totally true and there's just absolutely nothing that I
think you can do with it. But JP Morgan's CEO,
Jamie Diamond now off his warning about economic headwinds and
hurricanes on the horizon. He needed something else to get
(02:15):
everyone to worry about it, so is now warning that
geopolitics is getting worse and quote geopolitics, geopolitics is getting worse,
they are not getting better, and considers it to be
the world's biggest risk.
Speaker 3 (02:32):
So Captain Obvious has spoken.
Speaker 2 (02:36):
I guess that we should all head to the voting
booth in November and vote to make geopolitics better. Maybe
we'll write that in as like a request please improve
the geopolitical situation.
Speaker 3 (02:51):
Thanks his track record, he's one of the most impressive
bank executives this country has seen. I'm almost in history.
He ranks up there really high.
Speaker 2 (03:02):
So I'm the only big bank executive left who is
gone through the Great Financial Crisis and still managing a bank. Look,
the guy's incredibly intelligent and runs, like you said, probably
the most successful bank that in today's numbers by really
any way you look at it, constantly avoids risks that
(03:22):
other banks fall into. But I just find his guidance
and commentary to be somewhat laughable in terms of usefulness.
Speaker 3 (03:31):
Yeah, it's someone who whenever he comes across the headlines,
and the reason that we even would leave the show
with it is because of his pedigree that I'm often
looking to see what he has to say. But I
found myself over the course of the last year to
year and a half sort of fading away from looking
at this type of commentary. Just because this isn't instructive
(03:52):
at all. I could have told you this. I'm not
nearly as smart as Jamie Diamond. That there are geopolitical
concerns out there, and the commentary that he's had regarding
the US about a recession, it seems like he's been
saying that for two years now, since twenty two, that
this is a potential concern. Not to say that he
won't be right at some point. I mean, my dad
(04:13):
was saying since two than twelve that the market was
going to go down, and eventually it did. But I
would say I would say if he studied the tent
twelve year return of the markets, that overall sentiment wouldn't
be entirely right. And the same thing applies here when
you're mentioning geopolitics. At some point, he's going to be right.
There's likely going to be a concern that emerges from
(04:34):
all of these issues percolating. But this idea of just
saying that it's out there is really not something that
is relatively astute at this point.
Speaker 2 (04:43):
Yeah, and look, sometimes I think the way in which
these commentaries get framed by the press it might not
be terribly helpful too. It's not like he just went.
Speaker 3 (04:54):
We don't have two context.
Speaker 2 (04:56):
He didn't go to elector and and say geopolitics is
getting worse and then walk away.
Speaker 3 (05:00):
And I'm sure he's answering questions.
Speaker 2 (05:02):
It was part of a larger interview, is part of
a larger discussion. And he was specifically asked presumably, hey,
what do you look at as the biggest risks facing
the economy. He wasn't asked just generally speaking, Hey tell
us about the economy, and he replied, well, geopolitics is
getting worse. And to some extent, as a CEO of
a bank, you do constantly want them looking out and
(05:23):
rather than focusing solely on the potential upside to looking
for the biggest risks that are out there and trying
to find them. The banks are by definition kind of
risk managers. And so the larger contact of the quote
geopolitics is getting worse, They're not getting better. There's chance
for accidents and energy supply, god knows of other countries
get involved. You have a lot of war taking place
(05:44):
right now. Before referencing Yemen's Huthy rebel attacks that have
taken place in the Red Sea recently, here's where I
have a tough time. I think that I would probably
acknowledge that geopolitical tensions seem higher than many points over
the last few decades. You have the war in Russian
and Ukraine. You have the war in Israel that's you know,
(06:07):
floating over to new borders. You have all sorts of
migrant and crises and wars in Africa that are by
and large not being reported on because they never are.
The tough time that I have is does that represent
a bigger risk than a few years ago when North
Korea was doing much more constant nuclear testing or i be,
(06:30):
you know, interplistic missile testing. Does it represent a higher
or lower risk than a few years ago when you know,
we were considering sanctioning Iran but hadn't yet and they were,
you know, ramping up their nuclear you know, nuclear capabilities there. Like,
Does this represent a big, worse or better geopolitical risk
(06:51):
than you know, Brexit or Greece going through a currency crisis,
or you know, any number of things that we have
lived through. Is it, you know, more or less geopolitical
tension than right after nine to eleven? Like a number
of these different things have been out there historically, and
some of them have floated over to markets, right. I
(07:12):
think we can all point to food prices a result
of the Russian War in Ukraine. Certainly they all have impacts.
But simply stating that geopolitical tensions seem high right now, well,
I mean they've seen they seemed high several times over
the last several decades, and we have by and large continued.
(07:35):
I guess my point would be companies, specifically, you have
buy and large still found ways to make money over time,
and that's kind of what the stock market is all about.
So I guess that's where I don't find this stuff
to be particularly useful. And I admittedly have a tough
time determining right in the moment because it's not my
air of expertise, and I don't think there's a good
(07:56):
way of measuring it whether today's geopolitical times represent a
bigger or lesser risk than other points of high tension
in the past.
Speaker 3 (08:06):
Yeah, I'm in the same camp. We're on a daily basis,
you and I focused largely on the economy and the markets,
and assessing all the geopolitical conflicts out there would just
make my head's been trying.
Speaker 2 (08:18):
To keep up with all, right, Like you know, do
we feel more nervous about geopolitics today than we did
in the nineteen seventies when we were building nuclear bunkers
in elementary schools. I don't know, maybe we do. I'm
genuinely unsure, but it just fail. It's always a point
(08:40):
in time when geopolitics seem like they are dominating. Every
single year, you have people telling you that the biggest
risk of the stock market is geopolitics, and reliably, it's
almost never what the actual risk to markets are. So
plenty of risks. I mean, if I'm looking at the
immediate term, the biggest risk that I can think of
right now for the US economy happens to be employment
(09:03):
and the consumer. If they lose their job, they're not
going to spend as much money. If unemployment rates continue
to tick up, we're in a recession. And so the
immediate that's what I'm focused on. I'm not really focused
on all the geopolitical tensions because they've always existed in
the background.
Speaker 3 (09:17):
Yeah, it's interesting you point that out. Breaking news, we
had the September confidence data come out on the US
where it tumbled to its lowest level in more than
three years. According to the conference board here sliding down
to ninety eight point seven, down from one oh five
point six in August. It's the biggest one month declient
since August of twenty twenty one.
Speaker 2 (09:38):
Let's go ahead and take a quick break here. When
we come back, we'll revisit that consumer confidence reading because,
like you pointed out, biggest miss in three years, a
pretty significant hit at the same time that some other
consumer signals seem to be flashing positive. What does it
all mean? We'll cover that next on the Financial Exchange.
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Speaker 2 (11:04):
As Paul was mentioning, at ten am this morning, the
Conference Board released their monthly data on consumer confidence. This
is one of several different surveys we get of the consumer.
The University of Michigan does a separate consumer sentiment index
that's been longer ongoing. I think that one started in
the sixties. This one started in nineteen eighty five. The
Consumer Confidence index fell in September to ninety eight point seven.
(11:27):
That was from an upwardly revised one oh five point six.
So again, the way they do this measure is kind
of finicky, but they basically said, okay, consumer confidence was
one hundred in nineteen eighty five, and so if you
get readings above one hundred, it's generally considered historically fairly confident,
and if you get in below one hundred, it's generally
considered fairly negative. And for some context, for most of
(11:50):
the late twenty tens, really starting in mid twenty seventeen
right through the end of twenty nineteen or beginning of
twenty twenty, you had consumer confidence bouncing around one twenty
to one high one thirties. Since COVID you had to
dip well into the low eighties and kind of bouncing
around the one hundred to one hundred and fifteen range
(12:13):
and slowly seeing some persistent declines recently. Further context, in
the bottom of the stock market of oh nine, you
had this thing reading around thirty. So you do get
a lot worse than what we've seen over the last
few years as well when sentiment really shifts. But a
few things about this one. It's a fairly volatile gauge.
(12:36):
It is a survey piece of data, and so you
see it bounce around quite a bit as we're seeing
like in August, the reader, is it August or July
that this reading was as of so when we were
at one hundred and five point six, that was yeah,
one hundred five point six in August, where as September
fell to ninety eight point seven. Paul, is there anything
(12:59):
you can point to specifically that would explain to me
why confidence would fall by some seven ish points August
to September, because I struggle to come up with anything specific.
Speaker 3 (13:10):
It seems like gleaning through this report, and again this
is just kind of hot off the presses, so trying
to digest this relatively quickly here, but it seems like
labor market conditions are something that was at least mentioned
by some of the survey participants. This comes off the
heels of some relatively weak jobs reports that we've digested
over the course of the last couple months, So to me,
that would be the prevailing takeaway that labor market conditions
(13:35):
are concerned. It's worth noting that this data was compiled
prior to the fifty basis point cut that we saw
from the Federal Reserve on the eighteenth here, so perhaps
that change has people more optimistic when we see the
next round of data coming through. But like you said, Mike,
(13:55):
it's just a data point. It's worth just discussing, but
not necessary sssarily something that should be overly alarming.
Speaker 2 (14:04):
Yeah, you know other things here, like the assessment of
the labor market. The big labor market myths that we
had was actually recorded in very early August, so this
first report back in August would have accounted for that.
And sentiment was up in August, whereas now it's down.
So I don't have a great means of figuring out
what this might mean for the overall economy, other than
(14:27):
better readings would seem to be better for the outlook.
Consumers were less optimistic about the business conditions in September.
Eighteen and a half percent of consumers expected conditions to improve.
That's down from nineteen percent in August. Sixteen point six
percent expected business conditions to worsen. That's up from fourteen
and a half percent. The labor market where I think
this is particularly interesting. Consumers were basically flat on their
(14:51):
expectations for the labor market. So sixteen point four percent
of consumers expected more jobs to be available. It's actually
up slightly from the reading in August, but eighteen point
three percent and anticipated fewer jobs, which is higher reading
on that. Finally, on income prospects, eighteen percent of consumers
expected their incomes to increase, that was down from eighteen
(15:13):
point six percent last month, and thirteen percent expected their
incomes to decrease, which is a more significant upward revision
of eleven point seven percent on the previous month. So again,
what do you read of this? Well, directionally, consumers felt
a little bit worse than they did in September than
they did in August. I wouldn't go so far as
to read this to say and it means we're heading
(15:35):
for a recession. There's almost no indicators that you know,
turn so dramatically quickly that you can say, oh, yeah,
that's clearly recession indicator. But you know, you get a
few of these that stack up, and it starts to
make you scratch your head a little bit to say,
what's going to be the thing that changes people's minds?
Peace in Bloomberg from Tyler Cowan that by American policies
(15:56):
don't help Americans. So, you know, I think I can
think of a few ways in which they would be
more costly for Americans, where they would add, you know,
perhaps the best in class product to the American you know,
the American market, and get an unfair advantage here. What
(16:17):
does Tyler lay out here in terms of his argument
of why this doesn't work.
Speaker 3 (16:21):
I thought this was a compelling piece. It's basically discussing
this idea that the bi American Act is as an
act that was around with Herbert Hoover in nineteen thirty three,
and our economy has shifted dramatically as most developed countries
do over the years, where if you look at the
manufacturing sector back in nineteen seventy nine, twenty two percent
of non farm workers we're working in the manufacturing space.
(16:45):
That number sits at eight percent today. There's not nearly
as many manufacturing jobs. However, the point that he makes
is that it's not as if the United States in
general is lagging in terms of its manufacturing capabilities. There's
messaging out there by politicians that the US, you know,
needs to bring back jobs domestically, that there needs to
(17:05):
be more production here. However, if you read many different
economic pieces, we are the fourth largest steel producer, we
are the second largest automaker. Sixteen percent of global manufacturing
output in twenty twenty one was done by the US,
only surpassed by China. So I think those things are
important to keep in context. This idea that is not
always so black and White that you know, the US
(17:28):
is lagging from a manufacturing standpoint. The other point that
he makes there is that when you manufacture in the US,
it's more costly than doing it worth foreign firms. And
certainly a lot of US understand the national security concerns
that come into place working with countries like China and Russia.
I'm not sure encouraging that, but there are many allies
(17:49):
of the US that can manufacture things cheaply and more
efficiently that could end up, you know, being benefit beneficial
to the US when it's doing these infra structure products.
That's really the point of this piece.
Speaker 2 (18:02):
Yeah, and you know, there's some compelling arguments there, and
I can see how, yeah, we might not have the
best manufacturing skill set to I don't know, manufacture bridges
that need to be repaired throughout the United States, and
that could probably get done a lot more cost effectively
in South Korea, for example. I think this is quite nuanced,
(18:25):
and obviously you have to draw a line somewhere in
terms of what you're going to do. But for example,
should the United States be manufacturing its own subway cars?
Do we really have the skill set to be doing
that here? As it really necessary that we do, or
could you use trade policy in a way that encourages
our allies to do certain things right, Like, hey, we're
(18:47):
only going to accept bids from NATO member countries that
you know, meet our goals in terms of defense spending.
I'm kind of spitballing here, but there are other ways
to do this that don't require everything to be manufactured
here in the United States. And while I do attempt
to buy things made in America on the consumer level,
(19:09):
we know how difficult that is there you extrapolate that
out to massive government projects where billions in taxpayer money
is going to it becomes a little bit tougher to
justify at the end of the day. Let's take a
quick break. When we come back full market recap with
Wall Street Watch.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter. Act
TFE show breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:02):
After yesterday resulting in yet another record high cloes for
the Dow in SMP five hundred, markets today are relatively
quiet and in mixed territory. The Dow is up by
only twelve points, mostly flat, sm P five hundred down
about a quarter percent, or thirteen points, and the Nasdaq
is down by over a third of a percent. RUSS
two thousand is edging three points higher. Ten year treasureeled
(20:26):
up by three basis points at three point seven five percent,
and crude oil up nearly two percent higher training at
seventy one dollars and sixty two cents a barrel. Several
Chinese stocks, including Ali, Baba, JD, dot Com, Baidu, and others,
are seeing gains this morning after China's Central Bank announced
a new round of stimulus measures to help boost its
(20:46):
struggling economy. Global mining stocks, including Freeport Macmaran and Southern
Copper are also seeing gains in reaction to the stimulus announcement,
seeing that China is one of the world's largest consumers
of copper and other commodities, while Visa shares retreating by
four percent after Bloomberg reported that the Justice Department is
planning to file a monopoly lawsuit against the payment network
(21:10):
firm over its debit card business. Elsewhere, Deer shares are
flat after Donald Trump said at a presidential campaign event
that if elected, he would slap two hundred percent tariffs
on the farm equipment maker if it sold products made
in Mexico. Starbucks was downgraded by Jeffries to underperform from
hol citing low visibility in the US and China in
(21:33):
the near term. The firm also expects near and medium
term estimate reductions. Starbucks shares off by about a third
of a percent, and Lows was upgraded to outperform from
perform by Oppenheimer, noting that demand should improve as the
FED cuts rates and seas compelling longer term fundamentals. Lows
up by one percent. I'm Tucker Silva and that's Wall
(21:55):
Street Watch.
Speaker 2 (21:56):
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(22:19):
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Speaker 2 (23:53):
H Tucker mentioned a choice by John Deere and then
a mention by Donald Trump at a campaign rally. Rec
The Illinois based company announced in June that they're going
to be moving the production of some models of small
and medium sized construction loaders to their plants in Mexico
from where they're currently made in Dubuque, Iowa. In twenty
(24:15):
twenty two, they decided to move some cabs for large
farm tractors to Mexico from Waterloo, Iowa. So definitely not
the first time something like this has happened, and it's
scheduled to be completed this year. When asked, Deer executive
said the moves were intended to free up manufacturing space
and employees at US plants for other models. No way
to really prove out whether or not that's true, but
(24:35):
the companies said it would start assembling its new nine
RX tractor in that Waterloo space that was currently occupied
or formerly occupied. But again interesting timing here, saying that, yeah,
we move these jobs back in twenty twenty two and
just now we're going to start manufacturing this new tractor
line there. Deer also pointed out, hey, we've invested over
(24:56):
two and a half billion dollars in its US factories
over the past four years, and that, you know, the
United States is Deer's largest market. In response, canadidate Donald
Trump has said that he would levy two hundred percent
tariffs on any of those goods that moved manufacturing from
the United States to Mexico. Whether or not that's realistic
(25:16):
or can be done given the free trade agreements with
the unit US, Mexico, and Canada, it's all interesting questions.
But you know, obviously the White House has proven that
they have pretty vast power when it comes to tariffs
on different items. Paul, your initial thoughts.
Speaker 3 (25:32):
It seems like from a political rhetoric standpoint that the
idea of tariffs have really been central as Donald Trump
has gone around the campaign trail where he's discussed about
the tariff's success to China. I believe a sixty percent
one was mentioned there, as well as ten to twenty
percent to other countries in terms of imports. I've vocalized
(25:53):
before that as much as I felt that the Tax
and Jobs Cut Act was echelin economically stimulative, these types
of measures, I don't feel as if would be to
our country that it's coming off the heels of inflation
that we hadn't seen in thirty forty years. So I
wonder how much of this is posturing. You know, going
(26:14):
through the campaign trails, it's certainly from a messaging standpoint
strong to go out there and say that you're going
to bring a lot more manufacturing or jobs to the
United States. But I don't know economically if necessarily that
is the best course of action, particularly because you risk
retaliatory efforts by a lot of these countries. And then
specific to this one, there is an agreement in place
(26:37):
that Trump actually put together during his first term with
the US Mexico and Canada that you alluded to earlier.
That allows for a tear free agreement amongst the three countries,
which has certainly been beneficial to the United States with
all the issues that's gone on in Russia and Ukraine
and some of the issues in China as well, to
be able to utilize Mexico and Canada as imports.
Speaker 2 (26:58):
Yeah. I mean, look, you can make an argument that
obviously the US relationship with Mexico has deteriorated somewhat over
the last few years with migration and things along those lines.
But I really do struggle with policies that are intended
to slap tariffs on arguably one of our top five
closest allies in the world. M not I mean, you know, Canada, Australia,
(27:21):
United Kingdom, maybe France, anybody else take the place of Mexico.
There not many that I and so I do struggle
with that. I'm not saying that we should just ignore
this fact, like I would want to know, Hey, John Dear,
why are you choosing to manufacture this stuff in Mexico
instead of the United States. Is it purely just labor costs?
(27:41):
Are there other things that the United States isn't doing
that Mexico is doing? Is it taxes, is it a
number of other things, because so far a carrot plus
stick approach has been far more successful than just the
stick approach to trade policy and keeping jobs here. And
then where I worr is you just get to this
(28:02):
tit for tat level of tariffs where we know that
we don't really manufacture everything that we produce here in
the United States. And while that might be the appropriate
policy for a country like China that very clearly cheats
on trade policy, I can't point to Mexico and say
that the same thing is happening. I don't think that
(28:23):
Mexico's government is offering massive subsidies for Deer to manufacture there. Instead.
I don't think that they are artificially keeping labor costs down.
I don't think that they're doing currency manipulation or trying
to rip off the technology that John Deer creates. So
all those same accusations that I think you can levy
on China and create a successful argument for unfair trade practices,
(28:44):
I just don't think it applies to Mexico. And so
then my question is, Okay, what's the response from the
Mexican government if that happens, because them, I would find
a way to respond. Sure. Sure, let's take a quick
break when we come back. Time for a bit of
China talk now that we've started to alluding to it.
There's been some policy shifts from Chinese officials. What will
(29:05):
they mean for those Chinese citizens? And then also what
might they mean for markets there? And US investors will
cover that next on the Financial Exchange.
Speaker 1 (29:15):
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Speaker 2 (29:52):
Taking a look around here at markets. We have the
Shanghai Stock Exchange in particular up over four percent. They're
notching their best day in four years on easing policy
coming out of China to I don't know, try and
shake things up in a way that their industrial policy
hasn't been able to so far this year. What are
(30:13):
we seeing, and I guess as importantly, what are we
not seeing? In terms of policy shifts from the Chinese
government with these updates and changes.
Speaker 3 (30:21):
Here Paul so Mike a couple of these stimulative measures
that the Chinese government took included lowering their seven day
interest rate benchmark interest rate from one point seven percent
to one point five percent, so lowering interest rates. Also
trying to make it a little bit more incentive for
people to purchase homes by lowering the down payment requirement
(30:44):
for second homes from twenty five percent down to fifteen
percent down. And then you also had a cut of
rates on existing mortgages. So unlike the US market for
listeners out there, where we can refinance our mortgages, that
is not applicable in China, but they are applying this
rate cut to trickle out across all existing mort mortgages
(31:04):
out there. And then lastly, the initiative that they took
with their local governments is a little bit more easing
on the bank requirements in terms of what needs to
be held for cash reserves. All these measures that I
just mentioned, while stimulive in nature in terms of how
they're defined, I don't necessarily and the skepticism is shared
(31:26):
in the Wall Street Journal think that this is enough
and many don't think that this is enough to stimulate
the Chinese economy, where really the stimulation needs to be
focused on trying to bolster and boost Chinese consumption, which
has just been a really difficult thing to try and
do post pandemic. There is a lot of We talked
about consumer confidence early in the show. There is extremely
(31:50):
record low levels of consumer confidence in China at the moment.
Speaker 2 (31:54):
Yeah, and I think there would be really two ways
of addressing that, neither of which the Chinese government seems
to have any interest in. One would be addressing some
of the concerns consumers seem to have there about financial
stability and safety nets. There aren't many, you know, there's
(32:17):
not a strong social security program, pension program, there's not
a strong you know, medicaid government insurance equivalent type program.
There's no real assurances that, hey, if I become injured
on the job, I'm going to be able to support
my family or feed myself.
Speaker 4 (32:34):
There.
Speaker 2 (32:34):
I mean, perhaps some of the worn't about worries about
starving to death are no longer the case like they
were in China in the nineteen sixties, but it is
not the type of social net that you have here
in the United States. Now, I think there could be
plenty of criticism that we've gone exorbitantly too far in
some of the safety nets here in the United States,
and those costs need to be paired back in some ways,
(32:56):
although we're not talking about that in this presidential election,
but I know that doesn't exist, and I think when
you combine that with a it's tough to see how
much of this exists. But like a genuine maybe distrust
of information coming out of your government, I think that
(33:18):
would be, you know, a general conclusion that a lot
of Chinese citizens have is I'm not sure that I
can trust that the policy that exists today will exist tomorrow,
or that I have any real I don't know due process,
if I need to assume my employer or something along
those lines. With the absence of you know, that combination
(33:40):
of mistrust as well as lack of a safety net,
you can see why it's pretty difficult to stimulate demand here. Really, really,
the only cause for stimulating demand is if you convinced
the public that, hey, the assets that you invest in
today or the stuff that you buy today might be
worth more in the future. And you have a really
tough time doing that given what has happened to the
(34:01):
real estate sector over there over the last few years.
Speaker 3 (34:03):
The real estate market is the crux of the issues
that they're dealing with there. It accounted for twenty five
percent of their economic activity and it's been an area
that just has been so beleaguered over the last three
or four years. Barclays has estimated that since twenty twenty one,
eighteen trillion of household net worth has been wiped out.
That's approximately sixty thousand per family over that period of
(34:27):
time that has been wiped out. If you look at
the way the Chinese economic structure was based on pre pandemic,
a lot of middle class families would utilize their savings
to purchase real estate or purchase investment properties, and the
backlog of unfinished homes that they have now has been
a drag on the economy and the Chinese government for
(34:47):
the last several years. So it's mentioned here that perhaps
if they're able to clear out some of those backlog
of unfinished homes, and we talked about all the profit
developers that went under there too, maybe that would restore
some confidence. Otherwise, as you're talking about similar measures of
you know, influencing or unleashing a lot of cash reserves
(35:08):
and barring it. And that's not something that the Chinese
government is necessarily going to do, just you know, stoke
in tons of cash into the system to try and
increase consumption. Yeah, I don't think.
Speaker 2 (35:17):
Yeah, I mean, and we've talked at length about similar
types of policies that are being talked about, Like, you know,
the type of stuff on real estate that's being discussed
here shouldn't sound like a foreign concept, like it kind
of mirrors policies that we're talking about here domestically, Hey,
should we give twenty five thousand dollars to first time
home buyers as a credit? It may drive up housing
prices in China, but it doesn't actually do anything to
(35:42):
get at the value of homes. It just makes it
easier and cheaper to buy them in China if you're
lowering the down payment requires.
Speaker 3 (35:50):
And they have the reverse supply problem where we are
undersupplied and underdeveloped over the last fifteen years, they're in
the you know, opposite situation where they've overdeveloped and to
the point that they can't even finish the homes that
they've set out to build in the first place. So
that just leaves them in a really difficult spot from
an economic standpoint. I'm I'm sure they'll try and hit
(36:10):
their five percent economic growth figure that they have.
Speaker 2 (36:13):
Well, they still will, don't worry, always do. In somewhat
related news and definitively related to the point that I
made to my wife, which is we are definitely not
going on a family vacation to China anytime in our future,
a prominent economist at one of China's top think tanks,
and I believe a member of the Communist Party his
(36:34):
name is Zu Heng Peng, has been disappeared. I think
is the best way to describe it, so as I
think most no under she the party has directed a
far reach and clamp down on any forms of dissent,
and Zu, who turns fifty five this month, was detained
in the spring after he allegedly made some impolitic remarks.
(36:55):
This is a quote from the Wall Street Journal in
a private group chat on weich, which is a mobile
messaging platform. It was These are not comments that he
made on like the equivalent of Twitter or Facebook or
anything like this. This was a private group chat that
you know, I'm sure is supposed to be allegedly encrypted
and not monitored by your government. His remarks included comments
(37:19):
about China's flagging economy and veiled criticism of she that
referred to his mortality. One of the people said, you know,
I doubt that that was a statement like, oh, we
should take out she. I would just imagine it was
a statement of like, he can't live forever, can he? Nonetheless,
it couldn't really be determined which offenses Zoo was guilty of,
(37:39):
but he was removed from all of his positions at
the Cast Institute of Economics. His name disappeared from the
online list of personnel at a think tank affiliated with them,
and hasn't really been heard from since. So that's what
happens in China. When you open your mouth about the
(38:00):
errors of hu Jinpings, I bring it up. I bring
this stuff up when we can, because it's just such
a foreign concept to us these days in the United
States that it bears reminding quick break A lot more
to cover in the second hour the Financial Exchange. Stay tuned, folks,
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Veterans Development Corporation DAS is the Financial Exchange with Mike
Armstrong and Paul Lane.
Speaker 2 (01:14):
Good morning, Happy Tuesday here on the Financial Exchange, day
after markets hit new all time highs yesterday and a
lot of different items to cover this morning. One. You
had several different Federal Reserve members speaking yesterday, so we'll
be covering some of the commentary from the likes of
Austin Goulsby and others before dozens more, maybe a dozen
(01:39):
more speak later this week. You had Consumer Confidence come
out at ten am this morning. But we're starting off
the show with the I guess useless Warning of the Week.
Speaker 3 (01:52):
I like where you're going with this. Yeah, I was
on a similar page.
Speaker 2 (01:55):
Useless Warning of the Week, which you know happens to
be totally true and there's just absolutely nothing that I
think you can do with it. But JP Morgan's CEO,
Jamie Diamond now off his warning about economic headwinds and
hurricanes on the horizon. He needed something else to get
(02:15):
everyone to worry about it, so is now warning that
geopolitics is getting worse and quote geopolitics, geopolitics is getting worse,
they are not getting better, and considers it to be
the world's biggest risk.
Speaker 3 (02:32):
So Captain Obvious has spoken.
Speaker 2 (02:36):
I guess that we should all head to the voting
booth in November and vote to make geopolitics better. Maybe
we'll write that in as like a request please improve
the geopolitical situation.
Speaker 3 (02:51):
Thanks his track record, he's one of the most impressive
bank executives this country has seen. I'm almost in history.
He ranks up there really high.
Speaker 2 (03:02):
So I'm the only big bank executive left who is
gone through the Great Financial Crisis and still managing a bank. Look,
the guy's incredibly intelligent and runs, like you said, probably
the most successful bank that in today's numbers by really
any way you look at it, constantly avoids risks that
(03:22):
other banks fall into. But I just find his guidance
and commentary to be somewhat laughable in terms of usefulness.
Speaker 3 (03:31):
Yeah, it's someone who whenever he comes across the headlines,
and the reason that we even would leave the show
with it is because of his pedigree that I'm often
looking to see what he has to say. But I
found myself over the course of the last year to
year and a half sort of fading away from looking
at this type of commentary. Just because this isn't instructive
(03:52):
at all. I could have told you this. I'm not
nearly as smart as Jamie Diamond. That there are geopolitical
concerns out there, and the commentary that he's had regarding
the US about a recession, it seems like he's been
saying that for two years now, since twenty two, that
this is a potential concern. Not to say that he
won't be right at some point. I mean, my dad
(04:13):
was saying since two than twelve that the market was
going to go down, and eventually it did. But I
would say I would say if he studied the tent
twelve year return of the markets, that overall sentiment wouldn't
be entirely right. And the same thing applies here when
you're mentioning geopolitics. At some point, he's going to be right.
There's likely going to be a concern that emerges from
(04:34):
all of these issues percolating. But this idea of just
saying that it's out there is really not something that
is relatively astute at this point.
Speaker 2 (04:43):
Yeah, and look, sometimes I think the way in which
these commentaries get framed by the press it might not
be terribly helpful too. It's not like he just went.
Speaker 3 (04:54):
We don't have two context.
Speaker 2 (04:56):
He didn't go to elector and and say geopolitics is
getting worse and then walk away.
Speaker 3 (05:00):
And I'm sure he's answering questions.
Speaker 2 (05:02):
It was part of a larger interview, is part of
a larger discussion. And he was specifically asked presumably, hey,
what do you look at as the biggest risks facing
the economy. He wasn't asked just generally speaking, Hey tell
us about the economy, and he replied, well, geopolitics is
getting worse. And to some extent, as a CEO of
a bank, you do constantly want them looking out and
(05:23):
rather than focusing solely on the potential upside to looking
for the biggest risks that are out there and trying
to find them. The banks are by definition kind of
risk managers. And so the larger contact of the quote
geopolitics is getting worse, They're not getting better. There's chance
for accidents and energy supply, god knows of other countries
get involved. You have a lot of war taking place
(05:44):
right now. Before referencing Yemen's Huthy rebel attacks that have
taken place in the Red Sea recently, here's where I
have a tough time. I think that I would probably
acknowledge that geopolitical tensions seem higher than many points over
the last few decades. You have the war in Russian
and Ukraine. You have the war in Israel that's you know,
(06:07):
floating over to new borders. You have all sorts of
migrant and crises and wars in Africa that are by
and large not being reported on because they never are.
The tough time that I have is does that represent
a bigger risk than a few years ago when North
Korea was doing much more constant nuclear testing or i be,
(06:30):
you know, interplistic missile testing. Does it represent a higher
or lower risk than a few years ago when you know,
we were considering sanctioning Iran but hadn't yet and they were,
you know, ramping up their nuclear you know, nuclear capabilities there. Like,
Does this represent a big, worse or better geopolitical risk
(06:51):
than you know, Brexit or Greece going through a currency crisis,
or you know, any number of things that we have
lived through. Is it, you know, more or less geopolitical
tension than right after nine to eleven? Like a number
of these different things have been out there historically, and
some of them have floated over to markets, right. I
(07:12):
think we can all point to food prices a result
of the Russian War in Ukraine. Certainly they all have impacts.
But simply stating that geopolitical tensions seem high right now, well,
I mean they've seen they seemed high several times over
the last several decades, and we have by and large continued.
(07:35):
I guess my point would be companies, specifically, you have
buy and large still found ways to make money over time,
and that's kind of what the stock market is all about.
So I guess that's where I don't find this stuff
to be particularly useful. And I admittedly have a tough
time determining right in the moment because it's not my
air of expertise, and I don't think there's a good
(07:56):
way of measuring it whether today's geopolitical times represent a
bigger or lesser risk than other points of high tension
in the past.
Speaker 3 (08:06):
Yeah, I'm in the same camp. We're on a daily basis,
you and I focused largely on the economy and the markets,
and assessing all the geopolitical conflicts out there would just
make my head's been trying.
Speaker 2 (08:18):
To keep up with all, right, Like you know, do
we feel more nervous about geopolitics today than we did
in the nineteen seventies when we were building nuclear bunkers
in elementary schools. I don't know, maybe we do. I'm
genuinely unsure, but it just fail. It's always a point
(08:40):
in time when geopolitics seem like they are dominating. Every
single year, you have people telling you that the biggest
risk of the stock market is geopolitics, and reliably, it's
almost never what the actual risk to markets are. So
plenty of risks. I mean, if I'm looking at the
immediate term, the biggest risk that I can think of
right now for the US economy happens to be employment
(09:03):
and the consumer. If they lose their job, they're not
going to spend as much money. If unemployment rates continue
to tick up, we're in a recession. And so the
immediate that's what I'm focused on. I'm not really focused
on all the geopolitical tensions because they've always existed in
the background.
Speaker 3 (09:17):
Yeah, it's interesting you point that out. Breaking news, we
had the September confidence data come out on the US
where it tumbled to its lowest level in more than
three years. According to the conference board here sliding down
to ninety eight point seven, down from one oh five
point six in August. It's the biggest one month declient
since August of twenty twenty one.
Speaker 2 (09:38):
Let's go ahead and take a quick break here. When
we come back, we'll revisit that consumer confidence reading because,
like you pointed out, biggest miss in three years, a
pretty significant hit at the same time that some other
consumer signals seem to be flashing positive. What does it
all mean? We'll cover that next on the Financial Exchange.
Speaker 1 (09:55):
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Speaker 2 (11:04):
As Paul was mentioning, at ten am this morning, the
Conference Board released their monthly data on consumer confidence. This
is one of several different surveys we get of the consumer.
The University of Michigan does a separate consumer sentiment index
that's been longer ongoing. I think that one started in
the sixties. This one started in nineteen eighty five. The
Consumer Confidence index fell in September to ninety eight point seven.
(11:27):
That was from an upwardly revised one oh five point six.
So again, the way they do this measure is kind
of finicky, but they basically said, okay, consumer confidence was
one hundred in nineteen eighty five, and so if you
get readings above one hundred, it's generally considered historically fairly confident,
and if you get in below one hundred, it's generally
considered fairly negative. And for some context, for most of
(11:50):
the late twenty tens, really starting in mid twenty seventeen
right through the end of twenty nineteen or beginning of
twenty twenty, you had consumer confidence bouncing around one twenty
to one high one thirties. Since COVID you had to
dip well into the low eighties and kind of bouncing
around the one hundred to one hundred and fifteen range
(12:13):
and slowly seeing some persistent declines recently. Further context, in
the bottom of the stock market of oh nine, you
had this thing reading around thirty. So you do get
a lot worse than what we've seen over the last
few years as well when sentiment really shifts. But a
few things about this one. It's a fairly volatile gauge.
(12:36):
It is a survey piece of data, and so you
see it bounce around quite a bit as we're seeing
like in August, the reader, is it August or July
that this reading was as of so when we were
at one hundred and five point six, that was yeah,
one hundred five point six in August, where as September
fell to ninety eight point seven. Paul, is there anything
(12:59):
you can point to specifically that would explain to me
why confidence would fall by some seven ish points August
to September, because I struggle to come up with anything specific.
Speaker 3 (13:10):
It seems like gleaning through this report, and again this
is just kind of hot off the presses, so trying
to digest this relatively quickly here, but it seems like
labor market conditions are something that was at least mentioned
by some of the survey participants. This comes off the
heels of some relatively weak jobs reports that we've digested
over the course of the last couple months, So to me,
that would be the prevailing takeaway that labor market conditions
(13:35):
are concerned. It's worth noting that this data was compiled
prior to the fifty basis point cut that we saw
from the Federal Reserve on the eighteenth here, so perhaps
that change has people more optimistic when we see the
next round of data coming through. But like you said, Mike,
(13:55):
it's just a data point. It's worth just discussing, but
not necessary sssarily something that should be overly alarming.
Speaker 2 (14:04):
Yeah, you know other things here, like the assessment of
the labor market. The big labor market myths that we
had was actually recorded in very early August, so this
first report back in August would have accounted for that.
And sentiment was up in August, whereas now it's down.
So I don't have a great means of figuring out
what this might mean for the overall economy, other than
(14:27):
better readings would seem to be better for the outlook.
Consumers were less optimistic about the business conditions in September.
Eighteen and a half percent of consumers expected conditions to improve.
That's down from nineteen percent in August. Sixteen point six
percent expected business conditions to worsen. That's up from fourteen
and a half percent. The labor market where I think
this is particularly interesting. Consumers were basically flat on their
(14:51):
expectations for the labor market. So sixteen point four percent
of consumers expected more jobs to be available. It's actually
up slightly from the reading in August, but eighteen point
three percent and anticipated fewer jobs, which is higher reading
on that. Finally, on income prospects, eighteen percent of consumers
expected their incomes to increase, that was down from eighteen
(15:13):
point six percent last month, and thirteen percent expected their
incomes to decrease, which is a more significant upward revision
of eleven point seven percent on the previous month. So again,
what do you read of this? Well, directionally, consumers felt
a little bit worse than they did in September than
they did in August. I wouldn't go so far as
to read this to say and it means we're heading
(15:35):
for a recession. There's almost no indicators that you know,
turn so dramatically quickly that you can say, oh, yeah,
that's clearly recession indicator. But you know, you get a
few of these that stack up, and it starts to
make you scratch your head a little bit to say,
what's going to be the thing that changes people's minds?
Peace in Bloomberg from Tyler Cowan that by American policies
(15:56):
don't help Americans. So, you know, I think I can
think of a few ways in which they would be
more costly for Americans, where they would add, you know,
perhaps the best in class product to the American you know,
the American market, and get an unfair advantage here. What
(16:17):
does Tyler lay out here in terms of his argument
of why this doesn't work.
Speaker 3 (16:21):
I thought this was a compelling piece. It's basically discussing
this idea that the bi American Act is as an
act that was around with Herbert Hoover in nineteen thirty three,
and our economy has shifted dramatically as most developed countries
do over the years, where if you look at the
manufacturing sector back in nineteen seventy nine, twenty two percent
of non farm workers we're working in the manufacturing space.
(16:45):
That number sits at eight percent today. There's not nearly
as many manufacturing jobs. However, the point that he makes
is that it's not as if the United States in
general is lagging in terms of its manufacturing capabilities. There's
messaging out there by politicians that the US, you know,
needs to bring back jobs domestically, that there needs to
(17:05):
be more production here. However, if you read many different
economic pieces, we are the fourth largest steel producer, we
are the second largest automaker. Sixteen percent of global manufacturing
output in twenty twenty one was done by the US,
only surpassed by China. So I think those things are
important to keep in context. This idea that is not
always so black and White that you know, the US
(17:28):
is lagging from a manufacturing standpoint. The other point that
he makes there is that when you manufacture in the US,
it's more costly than doing it worth foreign firms. And
certainly a lot of US understand the national security concerns
that come into place working with countries like China and Russia.
I'm not sure encouraging that, but there are many allies
(17:49):
of the US that can manufacture things cheaply and more
efficiently that could end up, you know, being benefit beneficial
to the US when it's doing these infra structure products.
That's really the point of this piece.
Speaker 2 (18:02):
Yeah, and you know, there's some compelling arguments there, and
I can see how, yeah, we might not have the
best manufacturing skill set to I don't know, manufacture bridges
that need to be repaired throughout the United States, and
that could probably get done a lot more cost effectively
in South Korea, for example. I think this is quite nuanced,
(18:25):
and obviously you have to draw a line somewhere in
terms of what you're going to do. But for example,
should the United States be manufacturing its own subway cars?
Do we really have the skill set to be doing
that here? As it really necessary that we do, or
could you use trade policy in a way that encourages
our allies to do certain things right, Like, hey, we're
(18:47):
only going to accept bids from NATO member countries that
you know, meet our goals in terms of defense spending.
I'm kind of spitballing here, but there are other ways
to do this that don't require everything to be manufactured
here in the United States. And while I do attempt
to buy things made in America on the consumer level,
(19:09):
we know how difficult that is there you extrapolate that
out to massive government projects where billions in taxpayer money
is going to it becomes a little bit tougher to
justify at the end of the day. Let's take a
quick break. When we come back full market recap with
Wall Street Watch.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter. Act
TFE show breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:02):
After yesterday resulting in yet another record high cloes for
the Dow in SMP five hundred, markets today are relatively
quiet and in mixed territory. The Dow is up by
only twelve points, mostly flat, sm P five hundred down
about a quarter percent, or thirteen points, and the Nasdaq
is down by over a third of a percent. RUSS
two thousand is edging three points higher. Ten year treasureeled
(20:26):
up by three basis points at three point seven five percent,
and crude oil up nearly two percent higher training at
seventy one dollars and sixty two cents a barrel. Several
Chinese stocks, including Ali, Baba, JD, dot Com, Baidu, and others,
are seeing gains this morning after China's Central Bank announced
a new round of stimulus measures to help boost its
(20:46):
struggling economy. Global mining stocks, including Freeport Macmaran and Southern
Copper are also seeing gains in reaction to the stimulus announcement,
seeing that China is one of the world's largest consumers
of copper and other commodities, while Visa shares retreating by
four percent after Bloomberg reported that the Justice Department is
planning to file a monopoly lawsuit against the payment network
(21:10):
firm over its debit card business. Elsewhere, Deer shares are
flat after Donald Trump said at a presidential campaign event
that if elected, he would slap two hundred percent tariffs
on the farm equipment maker if it sold products made
in Mexico. Starbucks was downgraded by Jeffries to underperform from
hol citing low visibility in the US and China in
(21:33):
the near term. The firm also expects near and medium
term estimate reductions. Starbucks shares off by about a third
of a percent, and Lows was upgraded to outperform from
perform by Oppenheimer, noting that demand should improve as the
FED cuts rates and seas compelling longer term fundamentals. Lows
up by one percent. I'm Tucker Silva and that's Wall
(21:55):
Street Watch.
Speaker 2 (21:56):
Folks want to talk to you about the live broadcast
of the Financial Exchange coming up. We're doing two of them.
The first one's on October eighth out in Springfield, the
second one October twenty fourth down in Hyenas. If you
haven't been to one of these before, we're going to
do a live two hour broadcast of the Financial Exchange.
You can come watch that get done, and then you
can also join us after the fact for a free
(22:19):
educational lunch with the Armstrong Advisory Group. Chuck and I
will be there talking about the upcoming presidential election, the
potential policies that both candidates have proposed, what affects those
policies could have on the current economic landscape, all sorts
of different items that obviously impact you the everyday investor. Again,
it's two events, the first one on October eighth at
(22:40):
the MGM and Springfield, the second one October twenty fourth
at the Margaritaville Hotel and Resort on Hyannas. There's two
ways to sign up for this, and you do need
to sign up ahead of time. We will fill these
events ahead of time and we need to have sign
ups in advance here, but two ways to sign up.
I mentioned Armstrong Advisory dot com slash events. You can
(23:04):
get a whole bunch more information there. If you're having
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Speaker 1 (23:38):
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Speaker 2 (23:53):
H Tucker mentioned a choice by John Deere and then
a mention by Donald Trump at a campaign rally. Rec
The Illinois based company announced in June that they're going
to be moving the production of some models of small
and medium sized construction loaders to their plants in Mexico
from where they're currently made in Dubuque, Iowa. In twenty
(24:15):
twenty two, they decided to move some cabs for large
farm tractors to Mexico from Waterloo, Iowa. So definitely not
the first time something like this has happened, and it's
scheduled to be completed this year. When asked, Deer executive
said the moves were intended to free up manufacturing space
and employees at US plants for other models. No way
to really prove out whether or not that's true, but
(24:35):
the companies said it would start assembling its new nine
RX tractor in that Waterloo space that was currently occupied
or formerly occupied. But again interesting timing here, saying that, yeah,
we move these jobs back in twenty twenty two and
just now we're going to start manufacturing this new tractor
line there. Deer also pointed out, hey, we've invested over
(24:56):
two and a half billion dollars in its US factories
over the past four years, and that, you know, the
United States is Deer's largest market. In response, canadidate Donald
Trump has said that he would levy two hundred percent
tariffs on any of those goods that moved manufacturing from
the United States to Mexico. Whether or not that's realistic
(25:16):
or can be done given the free trade agreements with
the unit US, Mexico, and Canada, it's all interesting questions.
But you know, obviously the White House has proven that
they have pretty vast power when it comes to tariffs
on different items. Paul, your initial thoughts.
Speaker 3 (25:32):
It seems like from a political rhetoric standpoint that the
idea of tariffs have really been central as Donald Trump
has gone around the campaign trail where he's discussed about
the tariff's success to China. I believe a sixty percent
one was mentioned there, as well as ten to twenty
percent to other countries in terms of imports. I've vocalized
(25:53):
before that as much as I felt that the Tax
and Jobs Cut Act was echelin economically stimulative, these types
of measures, I don't feel as if would be to
our country that it's coming off the heels of inflation
that we hadn't seen in thirty forty years. So I
wonder how much of this is posturing. You know, going
(26:14):
through the campaign trails, it's certainly from a messaging standpoint
strong to go out there and say that you're going
to bring a lot more manufacturing or jobs to the
United States. But I don't know economically if necessarily that
is the best course of action, particularly because you risk
retaliatory efforts by a lot of these countries. And then
specific to this one, there is an agreement in place
(26:37):
that Trump actually put together during his first term with
the US Mexico and Canada that you alluded to earlier.
That allows for a tear free agreement amongst the three countries,
which has certainly been beneficial to the United States with
all the issues that's gone on in Russia and Ukraine
and some of the issues in China as well, to
be able to utilize Mexico and Canada as imports.
Speaker 2 (26:58):
Yeah. I mean, look, you can make an argument that
obviously the US relationship with Mexico has deteriorated somewhat over
the last few years with migration and things along those lines.
But I really do struggle with policies that are intended
to slap tariffs on arguably one of our top five
closest allies in the world. M not I mean, you know, Canada, Australia,
(27:21):
United Kingdom, maybe France, anybody else take the place of Mexico.
There not many that I and so I do struggle
with that. I'm not saying that we should just ignore
this fact, like I would want to know, Hey, John Dear,
why are you choosing to manufacture this stuff in Mexico
instead of the United States. Is it purely just labor costs?
(27:41):
Are there other things that the United States isn't doing
that Mexico is doing? Is it taxes, is it a
number of other things, because so far a carrot plus
stick approach has been far more successful than just the
stick approach to trade policy and keeping jobs here. And
then where I worr is you just get to this
(28:02):
tit for tat level of tariffs where we know that
we don't really manufacture everything that we produce here in
the United States. And while that might be the appropriate
policy for a country like China that very clearly cheats
on trade policy, I can't point to Mexico and say
that the same thing is happening. I don't think that
(28:23):
Mexico's government is offering massive subsidies for Deer to manufacture there. Instead.
I don't think that they are artificially keeping labor costs down.
I don't think that they're doing currency manipulation or trying
to rip off the technology that John Deer creates. So
all those same accusations that I think you can levy
on China and create a successful argument for unfair trade practices,
(28:44):
I just don't think it applies to Mexico. And so
then my question is, Okay, what's the response from the
Mexican government if that happens, because them, I would find
a way to respond. Sure. Sure, let's take a quick
break when we come back. Time for a bit of
China talk now that we've started to alluding to it.
There's been some policy shifts from Chinese officials. What will
(29:05):
they mean for those Chinese citizens? And then also what
might they mean for markets there? And US investors will
cover that next on the Financial Exchange.
Speaker 1 (29:15):
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Speaker 2 (29:52):
Taking a look around here at markets. We have the
Shanghai Stock Exchange in particular up over four percent. They're
notching their best day in four years on easing policy
coming out of China to I don't know, try and
shake things up in a way that their industrial policy
hasn't been able to so far this year. What are
(30:13):
we seeing, and I guess as importantly, what are we
not seeing? In terms of policy shifts from the Chinese
government with these updates and changes.
Speaker 3 (30:21):
Here Paul so Mike a couple of these stimulative measures
that the Chinese government took included lowering their seven day
interest rate benchmark interest rate from one point seven percent
to one point five percent, so lowering interest rates. Also
trying to make it a little bit more incentive for
people to purchase homes by lowering the down payment requirement
(30:44):
for second homes from twenty five percent down to fifteen
percent down. And then you also had a cut of
rates on existing mortgages. So unlike the US market for
listeners out there, where we can refinance our mortgages, that
is not applicable in China, but they are applying this
rate cut to trickle out across all existing mort mortgages
(31:04):
out there. And then lastly, the initiative that they took
with their local governments is a little bit more easing
on the bank requirements in terms of what needs to
be held for cash reserves. All these measures that I
just mentioned, while stimulive in nature in terms of how
they're defined, I don't necessarily and the skepticism is shared
(31:26):
in the Wall Street Journal think that this is enough
and many don't think that this is enough to stimulate
the Chinese economy, where really the stimulation needs to be
focused on trying to bolster and boost Chinese consumption, which
has just been a really difficult thing to try and
do post pandemic. There is a lot of We talked
about consumer confidence early in the show. There is extremely
(31:50):
record low levels of consumer confidence in China at the moment.
Speaker 2 (31:54):
Yeah, and I think there would be really two ways
of addressing that, neither of which the Chinese government seems
to have any interest in. One would be addressing some
of the concerns consumers seem to have there about financial
stability and safety nets. There aren't many, you know, there's
(32:17):
not a strong social security program, pension program, there's not
a strong you know, medicaid government insurance equivalent type program.
There's no real assurances that, hey, if I become injured
on the job, I'm going to be able to support
my family or feed myself.
Speaker 4 (32:34):
There.
Speaker 2 (32:34):
I mean, perhaps some of the worn't about worries about
starving to death are no longer the case like they
were in China in the nineteen sixties, but it is
not the type of social net that you have here
in the United States. Now, I think there could be
plenty of criticism that we've gone exorbitantly too far in
some of the safety nets here in the United States,
and those costs need to be paired back in some ways,
(32:56):
although we're not talking about that in this presidential election,
but I know that doesn't exist, and I think when
you combine that with a it's tough to see how
much of this exists. But like a genuine maybe distrust
of information coming out of your government, I think that
(33:18):
would be, you know, a general conclusion that a lot
of Chinese citizens have is I'm not sure that I
can trust that the policy that exists today will exist tomorrow,
or that I have any real I don't know due process,
if I need to assume my employer or something along
those lines. With the absence of you know, that combination
(33:40):
of mistrust as well as lack of a safety net,
you can see why it's pretty difficult to stimulate demand here. Really, really,
the only cause for stimulating demand is if you convinced
the public that, hey, the assets that you invest in
today or the stuff that you buy today might be
worth more in the future. And you have a really
tough time doing that given what has happened to the
(34:01):
real estate sector over there over the last few years.
Speaker 3 (34:03):
The real estate market is the crux of the issues
that they're dealing with there. It accounted for twenty five
percent of their economic activity and it's been an area
that just has been so beleaguered over the last three
or four years. Barclays has estimated that since twenty twenty one,
eighteen trillion of household net worth has been wiped out.
That's approximately sixty thousand per family over that period of
(34:27):
time that has been wiped out. If you look at
the way the Chinese economic structure was based on pre pandemic,
a lot of middle class families would utilize their savings
to purchase real estate or purchase investment properties, and the
backlog of unfinished homes that they have now has been
a drag on the economy and the Chinese government for
(34:47):
the last several years. So it's mentioned here that perhaps
if they're able to clear out some of those backlog
of unfinished homes, and we talked about all the profit
developers that went under there too, maybe that would restore
some confidence. Otherwise, as you're talking about similar measures of
you know, influencing or unleashing a lot of cash reserves
(35:08):
and barring it. And that's not something that the Chinese
government is necessarily going to do, just you know, stoke
in tons of cash into the system to try and
increase consumption. Yeah, I don't think.
Speaker 2 (35:17):
Yeah, I mean, and we've talked at length about similar
types of policies that are being talked about, Like, you know,
the type of stuff on real estate that's being discussed
here shouldn't sound like a foreign concept, like it kind
of mirrors policies that we're talking about here domestically, Hey,
should we give twenty five thousand dollars to first time
home buyers as a credit? It may drive up housing
prices in China, but it doesn't actually do anything to
(35:42):
get at the value of homes. It just makes it
easier and cheaper to buy them in China if you're
lowering the down payment requires.
Speaker 3 (35:50):
And they have the reverse supply problem where we are
undersupplied and underdeveloped over the last fifteen years, they're in
the you know, opposite situation where they've overdeveloped and to
the point that they can't even finish the homes that
they've set out to build in the first place. So
that just leaves them in a really difficult spot from
an economic standpoint. I'm I'm sure they'll try and hit
(36:10):
their five percent economic growth figure that they have.
Speaker 2 (36:13):
Well, they still will, don't worry, always do. In somewhat
related news and definitively related to the point that I
made to my wife, which is we are definitely not
going on a family vacation to China anytime in our future,
a prominent economist at one of China's top think tanks,
and I believe a member of the Communist Party his
(36:34):
name is Zu Heng Peng, has been disappeared. I think
is the best way to describe it, so as I
think most no under she the party has directed a
far reach and clamp down on any forms of dissent,
and Zu, who turns fifty five this month, was detained
in the spring after he allegedly made some impolitic remarks.
(36:55):
This is a quote from the Wall Street Journal in
a private group chat on weich, which is a mobile
messaging platform. It was These are not comments that he
made on like the equivalent of Twitter or Facebook or
anything like this. This was a private group chat that
you know, I'm sure is supposed to be allegedly encrypted
and not monitored by your government. His remarks included comments
(37:19):
about China's flagging economy and veiled criticism of she that
referred to his mortality. One of the people said, you know,
I doubt that that was a statement like, oh, we
should take out she. I would just imagine it was
a statement of like, he can't live forever, can he? Nonetheless,
it couldn't really be determined which offenses Zoo was guilty of,
(37:39):
but he was removed from all of his positions at
the Cast Institute of Economics. His name disappeared from the
online list of personnel at a think tank affiliated with them,
and hasn't really been heard from since. So that's what
happens in China. When you open your mouth about the
(38:00):
errors of hu Jinpings, I bring it up. I bring
this stuff up when we can, because it's just such
a foreign concept to us these days in the United
States that it bears reminding quick break A lot more
to cover in the second hour the Financial Exchange. Stay tuned, folks,
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