November 25, 2024 • 38 mins
Chuck Zodda and Mike Armstrong discuss Trump's pick for Treasury Secretary, Scott Bessent, and why Wall Street is a fan of the selection. Republicans’ big tax challenge is fitting all their priorities in one bill. How markets have responded to deficits. Stubborn US inflation set to reinforce Fed’s go-slow approach. Connecticut couple carged in $1 million theft of Lululemon goods.
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Speaker 1 (00:00):
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(01:04):
Veterans Development Corporation. This is the Financial Exchange with Chuck
Zutta and Mike Armstrong.
Speaker 2 (01:12):
Chuck, MIKEA. H. Tucker with you.
Speaker 3 (01:14):
We got a short week this week, so we'll get
right to it. Because Thanksgivings. On Thursday, Friday afternoon, a
little after five pm, we had a new Treasury secretary
nominated by the incoming Trump administration. And so Scott Bessant
is going to be the new Treasury Secretary.
Speaker 2 (01:34):
Barring something strange stuff happening.
Speaker 3 (01:38):
This should be a pretty big nothing burger as far
as a confirmation. It should proceed quickly and pretty enthusiastically
from my perspective, simply because Besst is someone who is
eminently qualified for the position, might be the overall most
talented person in the position in probably a couple of decades,
(02:03):
quite honestly, and I think also now gives us a
clearer roadmap for what to expect as far as the
Trump administration's approach to managing the nation's finances going forward.
Speaker 2 (02:19):
Yeah, markets jumping on the news, and so let's dive in.
Why would markets be excited about this pick other than
the fact that he is a Wall Street native.
Speaker 3 (02:31):
If you will well, let's let's talk about who you
know Scott bessont Is, because I think there's actually exactly
a household name. No, I'm guessing that ninety percent of Americans,
not ninety I'm guessing ninety nine point nine to nine
percent of Americans have never heard of him or had
never heard of him before last Friday. Even as of today.
I bet somewhere around ninety percent of Americans haven't because
(02:52):
how many Americans really pay attention to who the Treasury
Secretary is? Not like, not that many. But here's the deal.
So best born and raised in South Carolina and basically
decided in college after.
Speaker 2 (03:07):
He went to Yale.
Speaker 3 (03:07):
So he's a Yale which makes me a little bit
pretty supposed, you know, to not like him, but he's
but he's a really smart dude, so it's fine.
Speaker 2 (03:14):
But he wanted to.
Speaker 3 (03:15):
Be the editor in chief of the whatever the Yale
paper was and basically didn't get it, and as a result,
decided to get into investing instead. I think he just
needed a job and that's where he went. So he
ended up working for some really.
Speaker 2 (03:29):
Really smart people.
Speaker 3 (03:30):
Jim Channos, who ran a big short selling fund in
the nineties, George Soros, who's the CIO at Soros when
they broke the Bank of England and basically made a
billion dollars overnight.
Speaker 2 (03:42):
First job was at Brown Brothers Harriman household name.
Speaker 3 (03:46):
Like, the guy has made like been really involved in
a number of different areas, been in particular, knows foreign
exchange really well and just understands the overall global macro picture.
Speaker 1 (03:56):
Well.
Speaker 3 (03:56):
Like, that's that's the big thing that I think I
take away from him. And in terms of you know,
what does this pick mean? I think just reading some
different quotes here from Besson, I think helps to inform
how I'm personally thinking about what he wants to do
(04:16):
and how that potentially dovetails with his role in the
second Trump administration. A couple quotes I'm just gonna quote
from him, Why did I come out from behind my desk?
Speaker 1 (04:27):
Now?
Speaker 3 (04:27):
If you twenty twenty four as our last chance to
grow our way out of this problem. These are all
separate quotes, but I'm just gonna put them together. I
feel strongly that we're in the midst of a great realignment,
a Breton Woods type realignment in global policy and global trade,
and I'd like to be part of it, part of it.
If you remember, Bretton Woods was the system for FX
(04:48):
management after World War Two until it broke down in
the early nineteen seventies. If you go to by the way,
the Mount Washington resort up at Breton Woods, they actually
have a room there called the Gold Room, which is
where that was hashed out. I've been there and I'm
the only person who's ever taken pictures of the plaques
in that room, because it's a lot of people like, oh,
like we got to Breton was to ski. I'm like, no,
(05:08):
I want to see where the negotiated monetary policy and FX.
Speaker 2 (05:11):
That was. Like when I was taking pictures of the
Atlanta Federal Reserve building, I think I was in Yeah,
everyone else little company.
Speaker 3 (05:17):
Everyone was like, oh, like Millennium Park, the Olympics were here,
Like no, this is where the FED is.
Speaker 1 (05:21):
Ye.
Speaker 3 (05:22):
Other quotes from him, anyone with an economics degree will
tell you that our trade deficit also comes from our
budget deficit, and our currency can file these way. And
finally kind of the piece there is his stalls. Another
differentiated view that we have. This is from his hedge
fund key Square from about a year ago. Another differentiated
view that we have is that Trump will pursue where
(05:43):
a week dollar policy rather than implementing tariffs. Tariffs are
inflationary and would strengthen the dollar hardly a good starting
point for a US industrial renaissance. Weakening the dollar early
in his second administration would make US manufacturing competitive. A
week dollar and plentiful cheap energy could power boom the
current Wall Street consensus for a strong dollar based on
(06:03):
the tariffs, we disagree with that a strong dollar should
emerge by the end of his term if the US
reshoring effort is successful. And this is I think encapsulating
everything here, which is not discounting tariffs entirely. But if
you look at the first year of the first Trump presidency,
one of the big things that we saw was a
(06:24):
weeker dollar actually, and a weeker dollar if you think
about how it potentially helps US manufacturing, it's through a
very simple idea, which is, hey, if it becomes cheaper
for other people to buy US manufactured goods, they will
do so. They may do that even if you're not
incentivizing them with the stick of tariffs, which you may
end up with both. So where I end up with
(06:47):
on all of this is Beston is going to try
to manage foreign exchange from Treasury in order to try
to give US manufacturing and US production an advantage.
Speaker 2 (06:59):
It also appears to me that he sets up as
a direct contradiction, if you will, to Robert Lightthheiser and
trade policy that you've seen from I know you met him.
Speaker 3 (07:10):
No, no, because Bestn't also hang on, let me pull
up this piece here, give me one second, just because
I saw it over the weekend and I need to
pull it up because there's another informative quote on that
side of things, and.
Speaker 2 (07:23):
I know, Tucker, thank you. I'm working on it.
Speaker 3 (07:27):
Man, you're really aggressive today, like you didn't even give
me a chance to work on it.
Speaker 2 (07:31):
Here, let's see. You can summarize the quote if you'd
like to chock.
Speaker 3 (07:37):
No, I need to give the exact quote because it
matters where the heck is here we go. It's actually
from ten days ago. It's Scott best It's an opinion
piece from him on Fox News. So I think this
is also something where the venue matters, because this is
Bestn't trying to send a message to Trump and Trump
supporters because publishing it on Fox News. Yes, the headline,
(08:00):
let's talk tariffs. It's time to revitalize Alexander Hamilton's favorite tool.
I'm just gonna read the starting point. For months, economic
commentators parrot to the Harris campaign's misleading talk talking point
the tariffs are a sales tax. Like much of economists
conventional wisdom, this view is fundamentally incorrect. The truth is
that tariffs have a long and storied history as both
a revenue raising tool and a way of protecting strategically
(08:23):
important US industries. President elect Donald Trump has added a
third leg to the stool, tariff's as a negotiating tool
with our trading partners. It goes on to basically say, hey,
these aren't something that we should entirely shy away from,
and they do have a place.
Speaker 2 (08:38):
But I mean, correct me if I'm wrong. Robert Leitthheiser's
view on tariff's sounds a little bit different than that
to me, because I don't think he views them as
a tool to get people to the negotiating table.
Speaker 3 (08:48):
To you, well, so I've listened to the Lightheuser's entire
book on tape. Yep, that's how I Reading books is
hard when you have two kids under the age of five.
So instead you just listen to long words and they
don't really know what you're listening to, and they.
Speaker 2 (09:02):
Get to do their thing.
Speaker 3 (09:04):
But I think you're going to see kind of a
hybrid of these two policies, which is I would be
absolutely shocked at this point, this point if the Trump
administration did not pursue some kind of wide ranging tariff
implementation early on in his first term. I would also
be shocked if it was a blanket. Hey, we're gonna
just ratchet these upright away and call it a day.
(09:28):
I think the place that we're heading is okay. On China,
we are going to raise tariffs by five percent every
month for the first year, and that gets us to
sixty percent there, which that sixty percent number has been floated, yep,
by the Trump campaign. On everyone else, we're going to
raise tariffs by two percent each month and that gets
us to twenty four to twenty five percent by the
(09:49):
end of year one. And I'm not saying this is
good or bad. I'm just saying that this is where
I think this is going. And I do think that
this has some potential negative consequences for the US in
the short and like a lot of the things that
Besant is talking about. But my belief based on everything
that I've spent hours upon hours reading about the people
that are involved, specifically Lightheiser and Bessent, they believe that
(10:14):
even if you have to suffer some pain in the
short term for twelve, sixteen, eighteen, twenty four months, it
is worth it to build the longer term platform for
US growth that can happen in the second half of
a Trump term. By and large, they they view themselves
as the trade and fiscal equivalent of what Paul Vulker
(10:40):
was from monetary policy in the nineteen eighties. Paul Vulker,
when he was you know, running the FED back in
the early nineteen eighties, people freaking hated him, and they
hated him because he caused a He caused a deeper,
enormous recession in order to be like, no, I need
to do this and we'll deal with it. And I
think Bessent and Lightheiser view themselves in a similar light
(11:04):
in that, hey, we've got to deal with We've got
to take some pain in order to rectify what's happened
in the last forty years. And I think they're gonna
go pretty heavy in this direction. The two questions on this.
The first one, first one is the most important one.
Are they right? We're gonna have to see because how
(11:24):
this plays out like this could take a lot of
different frameworks, a lot of different paths. The second one, Hey,
even if they are right, can they see it through
to its full conclusion? Can you stand it if it
causes pain? Because here's the question that's gonna come up.
Let's say markets, Let's say the stock market's down twenty
five percent. President Trump come in one day and say, guys,
(11:47):
what the heck are we doing here?
Speaker 2 (11:48):
Can't do this anymore? Pull the plug.
Speaker 3 (11:52):
These are things that you have to try to figure out.
And so this is gonna be really interesting to watch.
I don't know how this is going to play out,
but to borrow a line from from Besson, who you know,
back in twenty thirteen, Shinzo Abbe, who was the Prime
Minister of Japan, consulted him on, you know, like their
(12:13):
plans to move forward with Abi Namis, and Bessen basically said, look,
I don't know what this is going to do, but
it's gonna be the market ride of a lifetime. This
is kind of the US equivalent of that, Like, hey,
We'll see how it plays out, but it's.
Speaker 2 (12:27):
Not going to be boring. I agree there, it is
not going to be boring.
Speaker 3 (12:31):
Let's take a quick break a little bit more on
this because I've just beenopolized fifteen minutes of everyone's time.
Speaker 2 (12:35):
Right after this.
Speaker 1 (12:37):
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Speaker 3 (13:34):
Mike, any other thoughts on the incoming Again, I know
he hasn't been confirmed yet, but who was likely going
to be the Treasury secretary?
Speaker 2 (13:43):
Scott bessem No. I think to your point, he is
going to be a very easy pass through the Senate.
You previously has supported Democrats and their campaigns for the
White House. He is close to Wall Street, and again
I think most importantly, seems quite qualified to do the job. Yeah,
(14:05):
it's so seems like an easy pass. He'll be the
first openly gay Treasury secretary. If that matters to anyone
trying to confirm him, I don't know that it does
or doesn't. But just a few things I think make
this a very easy pass through the Senate.
Speaker 3 (14:20):
And I would say, like, I'm just going through like
previous you know, US Treasury secretaries.
Speaker 2 (14:28):
I mean, quite honestly.
Speaker 3 (14:30):
You probably have to go back to the nineteen nineties
to find someone with this level of talent coming into
the role. Honestly, in my opinion, and again it doesn't
mean that he's going to end up doing a great job.
Or not, who knows. He's like the job that he
(14:51):
does is going to be the job that he does.
Speaker 2 (14:53):
But I think the interesting thing is he does not
see his job as promoting the statu quo. No, he
sees himself as a change agent and wants and sees
the Trump administration as an agent of big potential change
and wants to be there because he sees I'm guessing
both danger and opportunity.
Speaker 3 (15:14):
And I think he might actually have the chops to
be able to do what's going to be a very
challenging job. And so I think that's kind of interesting
to me when you look at this year.
Speaker 2 (15:27):
So we've established that on one side of the economic
policy front, there will be a quick and early push
from our perspective to implement tariffs, and we don't know
exactly what those will look like, but that is going
to be an early goal of the incoming Trump administration.
It also would seem like tax reform is going to
be one of the very first things that is looked
(15:49):
at from a Republican led Congress. Would you agree on
that front? No, No, you think it gets kicked kicked
down down the road. Well, let's talk.
Speaker 3 (16:00):
So tax reform versus tax cuts. Let's talk about that, Okay.
I don't think there is any big tax cut coming
early in the Trump administration.
Speaker 2 (16:12):
That's interesting because if you don't get it early, I'm
not sure you get it at all.
Speaker 3 (16:16):
The reason why I don't think that you get it
is because I don't think you're going to be able
to find enough that you can cut on the spending
side to make the dollars add up. Again, I'm looking
at this from the perspective of Besant, Lightheiser, and Trump,
all of whom have said, Look, the annual deficit is
too big, and I'm going to believe them when they
(16:36):
say that you're running six and a half to seven
percent deficits right now on an annual basis, and the
goal of Besent is to get it to three. So
when you look at the numbers and where you can
actually get rid of, you know, large enough amounts of
money to implement a further tax cut, I don't think
(16:59):
it's there right now. I think the path has to
be cut spending first. Figure out where the revenue is
going to come from on the other side, be it
whether it's tariffs, something else, like. Figure out where you're
gonna get your your other revenue from and then I
think your your actual tax cut is coming in year two.
Speaker 2 (17:21):
Do you view the expiring first Trump tax cuts as
that same category?
Speaker 3 (17:28):
If those are extended, that's not a tax cut, right
like that? That's so, yes, maybe you get that early on,
but you're not going to get a large personal income
tax cut, the reason being it doesn't help the fiscal
situation and you can't cut enough in order to make
the numbers work if you're adding a meaningful tax cut
(17:50):
on top of the cat cut from Trump one point zero.
Speaker 2 (17:54):
So we then enter twenty twenty five with a need
to get that done pretty quickly because the if the
Congress doesn't do anything, then those tax cuts would expire
beginning twenty twenty six. So, my guests, would you at
least have that addressed in twenty twenty five. The interesting
things that shake up there would be there's you know,
(18:14):
a very slim control of the House and a number
of Republicans who have said, hey, unless we see some
action on say salt, which would you know matter for
those in New England the state and local tax cuts
for instance, then they won't vote for it. So I
don't think it's a very easy thing to pass. But
I would agree that at the very least, I think
(18:35):
the twenty twenty six cuts get locked into place early on. Yeah,
the other stuff.
Speaker 3 (18:39):
Look, here's the challenge anytime you're dealing with the budget process.
There are a couple. The first is that with this
incoming administration, you get really tight majority. Specifically in the House,
you have a really tight majority. Yeah, you're gonna have
at most two to three defections that you can have
on that side of things. In the Senate you have
more room, but only if you're using reconciliation in order
(19:00):
to pass a bill, which look, if you're combining this
all into one bill, you know, spending, tax and you
know all those items, you basically get one bill because
you can do one of those reconciliation bills for each
of those items. You can have a max of three
in any given year, so ultimately you can't have many defections.
And remember, when it comes to the budget process, the
(19:21):
reason that the US budget is bloated like it is
is because as much as everyone likes to campaign against waste,
they love bringing money back to their districts because it
brings jobs and money back to their districts, so you're
fighting against that quick break. Wall Street Watch is next.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
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 market so
far today right here on the Financial Exchange Radio.
Speaker 4 (20:00):
Network Market Center. The holiday shortened trading week in positive
territory as Wall Street reacts to President elect Trump's selection
of Scott Besson as his Treasury secretary. Traders also readying
for a fresh look at inflation on Wednesday morning. Right now,
the Dow is up by one percent, or four hundred
and forty three points. S and P five hundred is
(20:22):
up by twenty five points, and the Nasdaq is up
by over a third of a percent, or seventy one points.
Russell two thousand is rallying nearly two percent higher. Ten
year treasure yield is off by eleven basis points at
four point two nine percent, and crude oil is down
over two percent lower today, trading at sixty nine dollars
in sixty five cents a barrel. Macy's down by over
(20:44):
three percent after the retailer said it was delaying its
quarterly earnings after finding that an employee had hidden up
to one hundred and fifty four million dollars in expenses
over several years. Chuck and Michael have more on that
story in the next Sticking with retail, where Abercromine fits
shares up by four percent ahead of its third quarter
(21:06):
earnings due out tomorrow. Ahead of the opening bell, Abercromie
stock is up more than fifteen percent this month. Meanwhile,
shares in Bath and Bodyworks jumping by seventeen percent after
its third quarter results beat expectations. Elsewhere, bitcoin development company
micro Strategy continues to garner attention given the recent jump
(21:28):
in bitcoin. Bernstein has now more than doubled its price
target of the stock to six hundred dollars from two
hundred and ninety dollars, suggesting more than forty percent upside
from Friday's Clothes. So far this year, micro Strategy stock
has surged about five hundred and sixty eight percent. Today,
that stock is off by three quarters of a percent.
(21:48):
Morgan Stanley upgraded Robinhood stock to overweight from equal weight,
where the firm said Robinhood's revenue growth could be stronger
post election due to more active trading of stocks in
crypto deregulation. That stock is up by five percent, and
after today's closing, Bell Zoom Video will unveil their third
quarter results. I'm Tucker Silvan, that's Wall Street Watch, Mike.
Speaker 3 (22:12):
We want to touch any more on potential fiscal possibilities
for the upcoming Congress.
Speaker 2 (22:17):
I don't think so. I think the key takeaway that
I have though, is big promises that were made on
the campaign trails, such as eliminating taxes on Social security,
such as limiting taxes on tips or on overtime, would
be tremendously difficult to pass unless you're going to completely
(22:39):
revamp how reconciliation works, for example, and that seems pretty unlikely.
Speaker 3 (22:44):
Well, social Security you can't touch in reconciliation, so that's
the first remember, So reconciliation, here's the deal. Budget reconciliation
is a process by which the House and the Senate
effectively get together and they can pass bills without needing
sixty seats approval. In the Senate, you're allowed for three
bills per year for reconciliation, one on spending, one on revenue,
(23:06):
and one on the debt limit. So you can have
those three bills that you pass. Oftentimes, when reconciliation's actually done,
they basically combine multiple aspects of that into one bill,
so you rarely actually see three separate ones. You just
see them, you know, kind of coalesced into a single
bill that might cover two or three of those items.
There is also something though, called the Bird rule, named
(23:27):
after something. I forget the guy's first name. It might
have been big actually got it. But basically the Bird
rule is the reason why the Trump tax cuts are
sunsetting after the next year, which is a it prohibits
you from increasing the deficit from more than a ten
(23:48):
year period using reconciliation, and b it also prohibits you
from making any changes to Social Security using reconciliation. So
quite honestly, you can't pass something on social Security without
a sixty seat vote, you know, majority in the Senate.
So as far as like what you can do, yeah,
(24:09):
there are other things. If you wanted to get together
and say, yeah, it's part of our reconciliation package, we're
going to pass no tax on tips, sure, like, you
could absolutely do that. The stuff no tax on Social
Security you couldn't touch because you're not allowed to touch
social Security through budget reconciliation. Now this also gets at
the point reconciliation. Uh, this is a process. Just to
(24:35):
again outline kind of where it comes from. This was
actually created by the Congressional Budget Act of nineteen seventy four.
First time was ever used was nineteen eighty. So this
is a relatively new not invention because it wasn't invented,
relatively new procedure, new way of doing things correct and
so it's been used, you know, a couple dozen times over.
You know that that process. But the rules that are
(24:59):
outlined there, some of them are actually legislated into being.
So it's not just something where, you know, with certain
things you can be like, oh well, the Senate can
change the rules to do that.
Speaker 2 (25:10):
This is something that was legislated into many unique sixty
votes to change it.
Speaker 3 (25:15):
Which means that in order to change like some of
these key tenets of reconciliation, you have to have them legislated.
So the bird rule, as an example, is legislated into existence.
It's not a norm like the filibuster or something like that.
It is quite literally legislated into existence as a law,
(25:37):
not a rule that's just made for the body.
Speaker 2 (25:39):
Right, which makes some of these things there were promise
on the campaign trail, pretty tough to do.
Speaker 3 (25:44):
So now that we've concluded, you know, how a bill
becomes a law, we can get back to, you know,
all the other pieces. But I this stuff matters because
it ultimately affects what is going to be able to
be passed in the timeline for those those things to
be passed.
Speaker 2 (25:58):
Kind of like a kidney stone.
Speaker 3 (26:00):
Right, Congress is the kidney and the bill they're trying
to pass stones. It's very it's a very painful process
that often takes longer than you think, but eventually you
get that thing out there and then you just gotta,
you know.
Speaker 2 (26:14):
See how you do after that. Got it? So there's that.
Should we talk about deficits? Yeah, what about them? They're
high grow they are. So here here's the deal.
Speaker 3 (26:26):
The US government traditionally, if you look at you know,
kind of average annual deficits typically ran anywhere between like
a two and four percent budget deficits budget deficit in
normal years. That was the case pretty much, you know,
through the two thousands.
Speaker 2 (26:42):
During the Biden administration again took over in early twenty
twenty one when they were significantly higher. But where do
you think we averaged six seven percent over the last
couple of years.
Speaker 3 (26:52):
The last two years I think are the ones that matter,
because the first two were all COVID response stuff where look,
regardless if it didn't matter, is just it was kind
of one time things. I mean, the last year of
the Trump presidency, the budget deficit was like fifteen percent
of GDP. The first year of the Biden presidency it
was eleven in change, and then you've been you know,
six to seven percent the last couple of years and
(27:12):
now getting worse. Like, the trajectory is not great.
Speaker 2 (27:15):
First Trump administration, during those pre COVID years, you were
running what three and a half to four and a half.
Speaker 3 (27:20):
Correct, And so the question is going to be, okay, like,
what do we see from a deficit perspective, how do you, you know,
kind of fix things to get them a little bit
more sustainable on an annual basis? And hey, is the
market actually starting to exert any force on interest rates
because it's concerned about how big the deficit actually is?
Speaker 2 (27:43):
Right? I think maybe you question to answer it's a
very difficult question to answer. I don't think you can have,
say the Wall Street Journal, for instance, put together this
chart that's maybe attempting to answer whether markets have responded
how markets have responded to deficits in the past, and
I think my answer is that they haven't. There's no
correlation between an increasing deficit and how stock markets have
(28:07):
performed on a year to year or even slightly longer
term basis. I can't really draw out any trend there,
can you.
Speaker 3 (28:14):
No, No, you can't, because there is nothing there.
Speaker 2 (28:18):
Right.
Speaker 3 (28:19):
The question is going to be how do you get
back to sustainable levels of annual deficits, which ultimately impacts
you know, kind of the broader amount of death that's outstanding.
I'll also ask and do lawmakers think that you need to?
Speaker 2 (28:34):
Like I do? I think, But when it's historically when
lawmakers have been asked what's more important getting your priorities
passed or worrying about deficits, the answer has been unanimous
in favor of getting my priorities.
Speaker 3 (28:49):
This is a recent thing, though, and I do want
to point this out. This is something that is kind
of since the early twenty ten first Barack Obama administration.
You had again the worst economic calamity that we, you know,
have seen in one hundred years. Yeah, and I still
(29:12):
remember sitting here in twenty ten and twenty eleven, and
the buzzword that was out there then was austerity. It
was all about, like, hey, we need to be like
tight with the budget. So Tea Party Republicans came about.
During that you had the sequester of budget funds passed,
I think is part of the compromise with John Bayner
in either twenty eleven or twenty twelve, I can't remember
the year, but like this was still a thing then,
(29:33):
which was, hey, like we we'd like to help the economy,
but we gotta be realistic about deficits. Ever since, like
twenty fourteen, twenty fifteen, neither party has talked really credibly
about deficits. The second Obama administration saw them expand pretty consistently.
The Trump administration, even before the COVID crisis hit, saw
(29:55):
them expand pretty consistently, and the Biden administration saw them
expand pretty consistently.
Speaker 2 (30:01):
Even after COVID wrap up.
Speaker 3 (30:03):
Correctly, Again, no one's talking about like COVID funds like
at this point, and you still are going to run
a six to seven percent budget deficit this year. You
can trast this with post Reagan tax cuts.
Speaker 2 (30:13):
In nineteen eighty one.
Speaker 3 (30:15):
Hey, the Reagan administration realized, Oops, we went a little
bit too far with this. They passed measures to shore
up the revenue side of things and to reduce spending.
Later in their term, the Bush administration had to raise taxes.
The Clinton administration had to cut services and raise taxes.
Speaker 2 (30:32):
Right, my big question is simply, what is it that
changes people's perspective on this? Because I don't see anything
in the right. I'll tell you this wasn't a campaign
about deficits. Let's be clear about that.
Speaker 3 (30:44):
No, what is going to ultimately change people's perspective on
this is panic. Yeah, when the market finally panics because
of the deficit, then politicians are going to get serious
and say, yep, we've got to do something.
Speaker 2 (30:58):
And do you have any evidence that that's going to
curR in twenty twenty five or anytime during the Trump president.
Speaker 3 (31:02):
No, I don't know.
Speaker 2 (31:03):
I have no idea. Yeah, I got no clue. Let's
take a quick break here.
Speaker 3 (31:06):
When we come back, let's talk a little bit about inflation.
We've got almost a whole hour of the show without
mentioning it once, and so it's time to, you know,
bring that bad boy back into our conversation today right after.
Speaker 1 (31:21):
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Speaker 2 (31:47):
Inflation Go. We're gonna get another reading this Wednesday. The
Fed's preferred measure of inflation is out at a thirty Yeah, yes,
eight thirty am, the PCE per Consumption Expenditures Index. That's
not really the most interesting thing about inflation. Quite honestly,
we are pretty it's pretty obvious what's going to happen there.
(32:09):
You're going to have year over year inflation coming in
in the two and a half to three percent range,
a little bit hotter than that if you strip out
the benefits from lower oil prices month o a month
somewhere in the point two to point three percent range.
We already got CPI. It's not going to be shocking,
would be my guess. Because we see prices, we know
that they're not shocking right now. The question is, how
(32:31):
is the Fed's framework for inflation continuing to develop and
what does that all mean for interest rates as we
head into twenty twenty five, and normally I would say
this shouldn't be much of a question, but the Fed's
been a little bit wishy washy in terms of their
long term perspective on all of this, and seems very
very willing to just take a wait and see approach
(32:53):
for now I think.
Speaker 3 (32:56):
But here's what bothers me is they're not talking. They
want to take a take a wait and see approach.
And what I mean by that is earlier this year
in Q one, we saw higher inflation numbers. Yeah, they
were coming in former and Jay Powell came out multiple
times and was like, yeah, we think this is just
(33:17):
gonna pass. We're not really worried about this. We'll we'll
look through this.
Speaker 2 (33:21):
Right. It's not what he's saying right now. That's my
point is we're seeing very similar data right now, yes,
and we're not seeing the same message.
Speaker 3 (33:29):
Sorry, maybe I misinterpreted what you were saying.
Speaker 2 (33:31):
No, No, you're fine. I think it comes down to
an inconsistency of messaging. And maybe it's simply because he
has evidence that he thinks last time it was just
something to look through, and this time he thinks it's
something more long term in nature. But he's not really
expressing that.
Speaker 3 (33:47):
No, it's it's much more. I mean his speech was
it last Friday or maybe no, two fridays ago. I
think it was was, you know, borderline hawkish in nature,
and like it's kind of weird coming from Jay. And
this is what Mark Fandetti and I were talking about
last week, which is, hey, man, like pick one or
the other. But you can't say you're data dependent and
(34:09):
then just say we're ignoring the data when it suits
your need.
Speaker 2 (34:13):
And what need is it's suiting right, Like nobody.
Speaker 3 (34:16):
We can't just continue freaking out about every data point forever, right,
it's exhausting.
Speaker 2 (34:23):
We just got to move on from that.
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Speaker 3 (35:25):
The New York Times, Connecticut a couple charged in one
million dollar theft of Lululemon goods. That's right, they stole
three pairs of pants from Lululemon and now for a
long time no so. In fact, the couple were charged
with a felonycount of organized retail theft after basically having
done this for the better part of the last year
(35:47):
or so it sounds like, and they originally started by
stealing from stores in Minnesota and then ended up hitting
stores in Connecticut, Colorado, New York, and Utah. So I
guess it was just wherever they were going, they were
stealing Lululemon stuff.
Speaker 2 (36:01):
And got a spread the scam out. You know, it's like, well,
any good scam, you can't do it at the same place.
Speaker 3 (36:05):
Twice they were arrested at a hotel room in Bloomington, Michigan,
where they found investigators found a dozen suitcases with fifty
thousand dollars worth of Lululemon attire, so they hadn't unloaded
the latest stuff.
Speaker 2 (36:16):
I guess.
Speaker 3 (36:17):
But pretty much what they were doing was they would
go in, the husband would go in and buy an
item or two, and then they would using some kind
of tool, remove one of the security tags from another
item in the store and attach it to the item
that he already bought to intentionally set off the alarm,
correct being like, oh no, I already bought this with
(36:37):
the other stuff that was now in their bag, free
and clear, and so they would do this quite.
Speaker 2 (36:44):
A bit exact. So basically they would set off the
alarm and then somebody else would walk out with a
bunch of still actually stolen goods at about the same time,
and that people would just assume, well, the alarm's going
off because of this guy and not whatever. Correct just happened, correct.
Speaker 3 (36:56):
And so someone else would go with some other stolen goods,
and so YadA YadA. This was you know, this, this
whole thing a million bucks. And again it's you know,
a million dollars in Lulu Lemon like, listen, I know
their T shirts are like seventy dollars or whatever. A
lot of stuff to steal a million dollars. And again
it sounds like they were just gallivanting around the country, hitting.
Speaker 2 (37:17):
New stores, stealing stuff. Yeah, this is this is not
as entertaining as the bear fraud of twenty twenty four
bear fraud. Yeah, oh yeah, insurance fraud. But nonetheless glad
that they got caught doing it. And again, the consistency
with this is you always eventually get caught.
Speaker 3 (37:36):
Yes, there is no free leggings, there are no to
jail you go, yeah, so yeah this Listen, I don't
think you can wear these in jail. I think they
kind of give you the clothes once you're there.
Speaker 2 (37:54):
Oh, it's probably a long time. You stole a million
dollars worth of stuff.
Speaker 3 (37:58):
It's probably not you know, three months, it's probably gonna.
Speaker 2 (38:02):
Be a while, so I hope it was worth it.
Let's take a quick break here.
Speaker 3 (38:07):
We got hour two coming up in a little bit
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Veterans Development Corporation. This is the Financial Exchange with Chuck
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Speaker 2 (01:12):
Chuck, MIKEA. H. Tucker with you.
Speaker 3 (01:14):
We got a short week this week, so we'll get
right to it. Because Thanksgivings. On Thursday, Friday afternoon, a
little after five pm, we had a new Treasury secretary
nominated by the incoming Trump administration. And so Scott Bessant
is going to be the new Treasury Secretary.
Speaker 2 (01:34):
Barring something strange stuff happening.
Speaker 3 (01:38):
This should be a pretty big nothing burger as far
as a confirmation. It should proceed quickly and pretty enthusiastically
from my perspective, simply because Besst is someone who is
eminently qualified for the position, might be the overall most
talented person in the position in probably a couple of decades,
(02:03):
quite honestly, and I think also now gives us a
clearer roadmap for what to expect as far as the
Trump administration's approach to managing the nation's finances going forward.
Speaker 2 (02:19):
Yeah, markets jumping on the news, and so let's dive in.
Why would markets be excited about this pick other than
the fact that he is a Wall Street native.
Speaker 3 (02:31):
If you will well, let's let's talk about who you
know Scott bessont Is, because I think there's actually exactly
a household name. No, I'm guessing that ninety percent of Americans,
not ninety I'm guessing ninety nine point nine to nine
percent of Americans have never heard of him or had
never heard of him before last Friday. Even as of today.
I bet somewhere around ninety percent of Americans haven't because
(02:52):
how many Americans really pay attention to who the Treasury
Secretary is? Not like, not that many. But here's the deal.
So best born and raised in South Carolina and basically
decided in college after.
Speaker 2 (03:07):
He went to Yale.
Speaker 3 (03:07):
So he's a Yale which makes me a little bit
pretty supposed, you know, to not like him, but he's
but he's a really smart dude, so it's fine.
Speaker 2 (03:14):
But he wanted to.
Speaker 3 (03:15):
Be the editor in chief of the whatever the Yale
paper was and basically didn't get it, and as a result,
decided to get into investing instead. I think he just
needed a job and that's where he went. So he
ended up working for some really.
Speaker 2 (03:29):
Really smart people.
Speaker 3 (03:30):
Jim Channos, who ran a big short selling fund in
the nineties, George Soros, who's the CIO at Soros when
they broke the Bank of England and basically made a
billion dollars overnight.
Speaker 2 (03:42):
First job was at Brown Brothers Harriman household name.
Speaker 3 (03:46):
Like, the guy has made like been really involved in
a number of different areas, been in particular, knows foreign
exchange really well and just understands the overall global macro picture.
Speaker 1 (03:56):
Well.
Speaker 3 (03:56):
Like, that's that's the big thing that I think I
take away from him. And in terms of you know,
what does this pick mean? I think just reading some
different quotes here from Besson, I think helps to inform
how I'm personally thinking about what he wants to do
(04:16):
and how that potentially dovetails with his role in the
second Trump administration. A couple quotes I'm just gonna quote
from him, Why did I come out from behind my desk?
Speaker 1 (04:27):
Now?
Speaker 3 (04:27):
If you twenty twenty four as our last chance to
grow our way out of this problem. These are all
separate quotes, but I'm just gonna put them together. I
feel strongly that we're in the midst of a great realignment,
a Breton Woods type realignment in global policy and global trade,
and I'd like to be part of it, part of it.
If you remember, Bretton Woods was the system for FX
(04:48):
management after World War Two until it broke down in
the early nineteen seventies. If you go to by the way,
the Mount Washington resort up at Breton Woods, they actually
have a room there called the Gold Room, which is
where that was hashed out. I've been there and I'm
the only person who's ever taken pictures of the plaques
in that room, because it's a lot of people like, oh,
like we got to Breton was to ski. I'm like, no,
(05:08):
I want to see where the negotiated monetary policy and FX.
Speaker 2 (05:11):
That was. Like when I was taking pictures of the
Atlanta Federal Reserve building, I think I was in Yeah,
everyone else little company.
Speaker 3 (05:17):
Everyone was like, oh, like Millennium Park, the Olympics were here,
Like no, this is where the FED is.
Speaker 1 (05:21):
Ye.
Speaker 3 (05:22):
Other quotes from him, anyone with an economics degree will
tell you that our trade deficit also comes from our
budget deficit, and our currency can file these way. And
finally kind of the piece there is his stalls. Another
differentiated view that we have. This is from his hedge
fund key Square from about a year ago. Another differentiated
view that we have is that Trump will pursue where
(05:43):
a week dollar policy rather than implementing tariffs. Tariffs are
inflationary and would strengthen the dollar hardly a good starting
point for a US industrial renaissance. Weakening the dollar early
in his second administration would make US manufacturing competitive. A
week dollar and plentiful cheap energy could power boom the
current Wall Street consensus for a strong dollar based on
(06:03):
the tariffs, we disagree with that a strong dollar should
emerge by the end of his term if the US
reshoring effort is successful. And this is I think encapsulating
everything here, which is not discounting tariffs entirely. But if
you look at the first year of the first Trump presidency,
one of the big things that we saw was a
(06:24):
weeker dollar actually, and a weeker dollar if you think
about how it potentially helps US manufacturing, it's through a
very simple idea, which is, hey, if it becomes cheaper
for other people to buy US manufactured goods, they will
do so. They may do that even if you're not
incentivizing them with the stick of tariffs, which you may
end up with both. So where I end up with
(06:47):
on all of this is Beston is going to try
to manage foreign exchange from Treasury in order to try
to give US manufacturing and US production an advantage.
Speaker 2 (06:59):
It also appears to me that he sets up as
a direct contradiction, if you will, to Robert Lightthheiser and
trade policy that you've seen from I know you met him.
Speaker 3 (07:10):
No, no, because Bestn't also hang on, let me pull
up this piece here, give me one second, just because
I saw it over the weekend and I need to
pull it up because there's another informative quote on that
side of things, and.
Speaker 2 (07:23):
I know, Tucker, thank you. I'm working on it.
Speaker 3 (07:27):
Man, you're really aggressive today, like you didn't even give
me a chance to work on it.
Speaker 2 (07:31):
Here, let's see. You can summarize the quote if you'd
like to chock.
Speaker 3 (07:37):
No, I need to give the exact quote because it
matters where the heck is here we go. It's actually
from ten days ago. It's Scott best It's an opinion
piece from him on Fox News. So I think this
is also something where the venue matters, because this is
Bestn't trying to send a message to Trump and Trump
supporters because publishing it on Fox News. Yes, the headline,
(08:00):
let's talk tariffs. It's time to revitalize Alexander Hamilton's favorite tool.
I'm just gonna read the starting point. For months, economic
commentators parrot to the Harris campaign's misleading talk talking point
the tariffs are a sales tax. Like much of economists
conventional wisdom, this view is fundamentally incorrect. The truth is
that tariffs have a long and storied history as both
a revenue raising tool and a way of protecting strategically
(08:23):
important US industries. President elect Donald Trump has added a
third leg to the stool, tariff's as a negotiating tool
with our trading partners. It goes on to basically say, hey,
these aren't something that we should entirely shy away from,
and they do have a place.
Speaker 2 (08:38):
But I mean, correct me if I'm wrong. Robert Leitthheiser's
view on tariff's sounds a little bit different than that
to me, because I don't think he views them as
a tool to get people to the negotiating table.
Speaker 3 (08:48):
To you, well, so I've listened to the Lightheuser's entire
book on tape. Yep, that's how I Reading books is
hard when you have two kids under the age of five.
So instead you just listen to long words and they
don't really know what you're listening to, and they.
Speaker 2 (09:02):
Get to do their thing.
Speaker 3 (09:04):
But I think you're going to see kind of a
hybrid of these two policies, which is I would be
absolutely shocked at this point, this point if the Trump
administration did not pursue some kind of wide ranging tariff
implementation early on in his first term. I would also
be shocked if it was a blanket. Hey, we're gonna
just ratchet these upright away and call it a day.
(09:28):
I think the place that we're heading is okay. On China,
we are going to raise tariffs by five percent every
month for the first year, and that gets us to
sixty percent there, which that sixty percent number has been floated, yep,
by the Trump campaign. On everyone else, we're going to
raise tariffs by two percent each month and that gets
us to twenty four to twenty five percent by the
(09:49):
end of year one. And I'm not saying this is
good or bad. I'm just saying that this is where
I think this is going. And I do think that
this has some potential negative consequences for the US in
the short and like a lot of the things that
Besant is talking about. But my belief based on everything
that I've spent hours upon hours reading about the people
that are involved, specifically Lightheiser and Bessent, they believe that
(10:14):
even if you have to suffer some pain in the
short term for twelve, sixteen, eighteen, twenty four months, it
is worth it to build the longer term platform for
US growth that can happen in the second half of
a Trump term. By and large, they they view themselves
as the trade and fiscal equivalent of what Paul Vulker
(10:40):
was from monetary policy in the nineteen eighties. Paul Vulker,
when he was you know, running the FED back in
the early nineteen eighties, people freaking hated him, and they
hated him because he caused a He caused a deeper,
enormous recession in order to be like, no, I need
to do this and we'll deal with it. And I
think Bessent and Lightheiser view themselves in a similar light
(11:04):
in that, hey, we've got to deal with We've got
to take some pain in order to rectify what's happened
in the last forty years. And I think they're gonna
go pretty heavy in this direction. The two questions on this.
The first one, first one is the most important one.
Are they right? We're gonna have to see because how
(11:24):
this plays out like this could take a lot of
different frameworks, a lot of different paths. The second one, Hey,
even if they are right, can they see it through
to its full conclusion? Can you stand it if it
causes pain? Because here's the question that's gonna come up.
Let's say markets, Let's say the stock market's down twenty
five percent. President Trump come in one day and say, guys,
(11:47):
what the heck are we doing here?
Speaker 2 (11:48):
Can't do this anymore? Pull the plug.
Speaker 3 (11:52):
These are things that you have to try to figure out.
And so this is gonna be really interesting to watch.
I don't know how this is going to play out,
but to borrow a line from from Besson, who you know,
back in twenty thirteen, Shinzo Abbe, who was the Prime
Minister of Japan, consulted him on, you know, like their
(12:13):
plans to move forward with Abi Namis, and Bessen basically said, look,
I don't know what this is going to do, but
it's gonna be the market ride of a lifetime. This
is kind of the US equivalent of that, Like, hey,
We'll see how it plays out, but it's.
Speaker 2 (12:27):
Not going to be boring. I agree there, it is
not going to be boring.
Speaker 3 (12:31):
Let's take a quick break a little bit more on
this because I've just beenopolized fifteen minutes of everyone's time.
Speaker 2 (12:35):
Right after this.
Speaker 1 (12:37):
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Speaker 3 (13:34):
Mike, any other thoughts on the incoming Again, I know
he hasn't been confirmed yet, but who was likely going
to be the Treasury secretary?
Speaker 2 (13:43):
Scott bessem No. I think to your point, he is
going to be a very easy pass through the Senate.
You previously has supported Democrats and their campaigns for the
White House. He is close to Wall Street, and again
I think most importantly, seems quite qualified to do the job. Yeah,
(14:05):
it's so seems like an easy pass. He'll be the
first openly gay Treasury secretary. If that matters to anyone
trying to confirm him, I don't know that it does
or doesn't. But just a few things I think make
this a very easy pass through the Senate.
Speaker 3 (14:20):
And I would say, like, I'm just going through like
previous you know, US Treasury secretaries.
Speaker 2 (14:28):
I mean, quite honestly.
Speaker 3 (14:30):
You probably have to go back to the nineteen nineties
to find someone with this level of talent coming into
the role. Honestly, in my opinion, and again it doesn't
mean that he's going to end up doing a great job.
Or not, who knows. He's like the job that he
(14:51):
does is going to be the job that he does.
Speaker 2 (14:53):
But I think the interesting thing is he does not
see his job as promoting the statu quo. No, he
sees himself as a change agent and wants and sees
the Trump administration as an agent of big potential change
and wants to be there because he sees I'm guessing
both danger and opportunity.
Speaker 3 (15:14):
And I think he might actually have the chops to
be able to do what's going to be a very
challenging job. And so I think that's kind of interesting
to me when you look at this year.
Speaker 2 (15:27):
So we've established that on one side of the economic
policy front, there will be a quick and early push
from our perspective to implement tariffs, and we don't know
exactly what those will look like, but that is going
to be an early goal of the incoming Trump administration.
It also would seem like tax reform is going to
be one of the very first things that is looked
(15:49):
at from a Republican led Congress. Would you agree on
that front? No, No, you think it gets kicked kicked
down down the road. Well, let's talk.
Speaker 3 (16:00):
So tax reform versus tax cuts. Let's talk about that, Okay.
I don't think there is any big tax cut coming
early in the Trump administration.
Speaker 2 (16:12):
That's interesting because if you don't get it early, I'm
not sure you get it at all.
Speaker 3 (16:16):
The reason why I don't think that you get it
is because I don't think you're going to be able
to find enough that you can cut on the spending
side to make the dollars add up. Again, I'm looking
at this from the perspective of Besant, Lightheiser, and Trump,
all of whom have said, Look, the annual deficit is
too big, and I'm going to believe them when they
(16:36):
say that you're running six and a half to seven
percent deficits right now on an annual basis, and the
goal of Besent is to get it to three. So
when you look at the numbers and where you can
actually get rid of, you know, large enough amounts of
money to implement a further tax cut, I don't think
(16:59):
it's there right now. I think the path has to
be cut spending first. Figure out where the revenue is
going to come from on the other side, be it
whether it's tariffs, something else, like. Figure out where you're
gonna get your your other revenue from and then I
think your your actual tax cut is coming in year two.
Speaker 2 (17:21):
Do you view the expiring first Trump tax cuts as
that same category?
Speaker 3 (17:28):
If those are extended, that's not a tax cut, right
like that? That's so, yes, maybe you get that early on,
but you're not going to get a large personal income
tax cut, the reason being it doesn't help the fiscal
situation and you can't cut enough in order to make
the numbers work if you're adding a meaningful tax cut
(17:50):
on top of the cat cut from Trump one point zero.
Speaker 2 (17:54):
So we then enter twenty twenty five with a need
to get that done pretty quickly because the if the
Congress doesn't do anything, then those tax cuts would expire
beginning twenty twenty six. So, my guests, would you at
least have that addressed in twenty twenty five. The interesting
things that shake up there would be there's you know,
(18:14):
a very slim control of the House and a number
of Republicans who have said, hey, unless we see some
action on say salt, which would you know matter for
those in New England the state and local tax cuts
for instance, then they won't vote for it. So I
don't think it's a very easy thing to pass. But
I would agree that at the very least, I think
(18:35):
the twenty twenty six cuts get locked into place early on. Yeah,
the other stuff.
Speaker 3 (18:39):
Look, here's the challenge anytime you're dealing with the budget process.
There are a couple. The first is that with this
incoming administration, you get really tight majority. Specifically in the House,
you have a really tight majority. Yeah, you're gonna have
at most two to three defections that you can have
on that side of things. In the Senate you have
more room, but only if you're using reconciliation in order
(19:00):
to pass a bill, which look, if you're combining this
all into one bill, you know, spending, tax and you
know all those items, you basically get one bill because
you can do one of those reconciliation bills for each
of those items. You can have a max of three
in any given year, so ultimately you can't have many defections.
And remember, when it comes to the budget process, the
(19:21):
reason that the US budget is bloated like it is
is because as much as everyone likes to campaign against waste,
they love bringing money back to their districts because it
brings jobs and money back to their districts, so you're
fighting against that quick break. Wall Street Watch is next.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
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 market so
far today right here on the Financial Exchange Radio.
Speaker 4 (20:00):
Network Market Center. The holiday shortened trading week in positive
territory as Wall Street reacts to President elect Trump's selection
of Scott Besson as his Treasury secretary. Traders also readying
for a fresh look at inflation on Wednesday morning. Right now,
the Dow is up by one percent, or four hundred
and forty three points. S and P five hundred is
(20:22):
up by twenty five points, and the Nasdaq is up
by over a third of a percent, or seventy one points.
Russell two thousand is rallying nearly two percent higher. Ten
year treasure yield is off by eleven basis points at
four point two nine percent, and crude oil is down
over two percent lower today, trading at sixty nine dollars
in sixty five cents a barrel. Macy's down by over
(20:44):
three percent after the retailer said it was delaying its
quarterly earnings after finding that an employee had hidden up
to one hundred and fifty four million dollars in expenses
over several years. Chuck and Michael have more on that
story in the next Sticking with retail, where Abercromine fits
shares up by four percent ahead of its third quarter
(21:06):
earnings due out tomorrow. Ahead of the opening bell, Abercromie
stock is up more than fifteen percent this month. Meanwhile,
shares in Bath and Bodyworks jumping by seventeen percent after
its third quarter results beat expectations. Elsewhere, bitcoin development company
micro Strategy continues to garner attention given the recent jump
(21:28):
in bitcoin. Bernstein has now more than doubled its price
target of the stock to six hundred dollars from two
hundred and ninety dollars, suggesting more than forty percent upside
from Friday's Clothes. So far this year, micro Strategy stock
has surged about five hundred and sixty eight percent. Today,
that stock is off by three quarters of a percent.
(21:48):
Morgan Stanley upgraded Robinhood stock to overweight from equal weight,
where the firm said Robinhood's revenue growth could be stronger
post election due to more active trading of stocks in
crypto deregulation. That stock is up by five percent, and
after today's closing, Bell Zoom Video will unveil their third
quarter results. I'm Tucker Silvan, that's Wall Street Watch, Mike.
Speaker 3 (22:12):
We want to touch any more on potential fiscal possibilities
for the upcoming Congress.
Speaker 2 (22:17):
I don't think so. I think the key takeaway that
I have though, is big promises that were made on
the campaign trails, such as eliminating taxes on Social security,
such as limiting taxes on tips or on overtime, would
be tremendously difficult to pass unless you're going to completely
(22:39):
revamp how reconciliation works, for example, and that seems pretty unlikely.
Speaker 3 (22:44):
Well, social Security you can't touch in reconciliation, so that's
the first remember, So reconciliation, here's the deal. Budget reconciliation
is a process by which the House and the Senate
effectively get together and they can pass bills without needing
sixty seats approval. In the Senate, you're allowed for three
bills per year for reconciliation, one on spending, one on revenue,
(23:06):
and one on the debt limit. So you can have
those three bills that you pass. Oftentimes, when reconciliation's actually done,
they basically combine multiple aspects of that into one bill,
so you rarely actually see three separate ones. You just
see them, you know, kind of coalesced into a single
bill that might cover two or three of those items.
There is also something though, called the Bird rule, named
(23:27):
after something. I forget the guy's first name. It might
have been big actually got it. But basically the Bird
rule is the reason why the Trump tax cuts are
sunsetting after the next year, which is a it prohibits
you from increasing the deficit from more than a ten
(23:48):
year period using reconciliation, and b it also prohibits you
from making any changes to Social Security using reconciliation. So
quite honestly, you can't pass something on social Security without
a sixty seat vote, you know, majority in the Senate.
So as far as like what you can do, yeah,
(24:09):
there are other things. If you wanted to get together
and say, yeah, it's part of our reconciliation package, we're
going to pass no tax on tips, sure, like, you
could absolutely do that. The stuff no tax on Social
Security you couldn't touch because you're not allowed to touch
social Security through budget reconciliation. Now this also gets at
the point reconciliation. Uh, this is a process. Just to
(24:35):
again outline kind of where it comes from. This was
actually created by the Congressional Budget Act of nineteen seventy four.
First time was ever used was nineteen eighty. So this
is a relatively new not invention because it wasn't invented,
relatively new procedure, new way of doing things correct and
so it's been used, you know, a couple dozen times over.
You know that that process. But the rules that are
(24:59):
outlined there, some of them are actually legislated into being.
So it's not just something where, you know, with certain
things you can be like, oh well, the Senate can
change the rules to do that.
Speaker 2 (25:10):
This is something that was legislated into many unique sixty
votes to change it.
Speaker 3 (25:15):
Which means that in order to change like some of
these key tenets of reconciliation, you have to have them legislated.
So the bird rule, as an example, is legislated into existence.
It's not a norm like the filibuster or something like that.
It is quite literally legislated into existence as a law,
(25:37):
not a rule that's just made for the body.
Speaker 2 (25:39):
Right, which makes some of these things there were promise
on the campaign trail, pretty tough to do.
Speaker 3 (25:44):
So now that we've concluded, you know, how a bill
becomes a law, we can get back to, you know,
all the other pieces. But I this stuff matters because
it ultimately affects what is going to be able to
be passed in the timeline for those those things to
be passed.
Speaker 2 (25:58):
Kind of like a kidney stone.
Speaker 3 (26:00):
Right, Congress is the kidney and the bill they're trying
to pass stones. It's very it's a very painful process
that often takes longer than you think, but eventually you
get that thing out there and then you just gotta,
you know.
Speaker 2 (26:14):
See how you do after that. Got it? So there's that.
Should we talk about deficits? Yeah, what about them? They're
high grow they are. So here here's the deal.
Speaker 3 (26:26):
The US government traditionally, if you look at you know,
kind of average annual deficits typically ran anywhere between like
a two and four percent budget deficits budget deficit in
normal years. That was the case pretty much, you know,
through the two thousands.
Speaker 2 (26:42):
During the Biden administration again took over in early twenty
twenty one when they were significantly higher. But where do
you think we averaged six seven percent over the last
couple of years.
Speaker 3 (26:52):
The last two years I think are the ones that matter,
because the first two were all COVID response stuff where look,
regardless if it didn't matter, is just it was kind
of one time things. I mean, the last year of
the Trump presidency, the budget deficit was like fifteen percent
of GDP. The first year of the Biden presidency it
was eleven in change, and then you've been you know,
six to seven percent the last couple of years and
(27:12):
now getting worse. Like, the trajectory is not great.
Speaker 2 (27:15):
First Trump administration, during those pre COVID years, you were
running what three and a half to four and a half.
Speaker 3 (27:20):
Correct, And so the question is going to be, okay, like,
what do we see from a deficit perspective, how do you, you know,
kind of fix things to get them a little bit
more sustainable on an annual basis? And hey, is the
market actually starting to exert any force on interest rates
because it's concerned about how big the deficit actually is?
Speaker 2 (27:43):
Right? I think maybe you question to answer it's a
very difficult question to answer. I don't think you can have,
say the Wall Street Journal, for instance, put together this
chart that's maybe attempting to answer whether markets have responded
how markets have responded to deficits in the past, and
I think my answer is that they haven't. There's no
correlation between an increasing deficit and how stock markets have
(28:07):
performed on a year to year or even slightly longer
term basis. I can't really draw out any trend there,
can you.
Speaker 3 (28:14):
No, No, you can't, because there is nothing there.
Speaker 2 (28:18):
Right.
Speaker 3 (28:19):
The question is going to be how do you get
back to sustainable levels of annual deficits, which ultimately impacts
you know, kind of the broader amount of death that's outstanding.
I'll also ask and do lawmakers think that you need to?
Speaker 2 (28:34):
Like I do? I think, But when it's historically when
lawmakers have been asked what's more important getting your priorities
passed or worrying about deficits, the answer has been unanimous
in favor of getting my priorities.
Speaker 3 (28:49):
This is a recent thing, though, and I do want
to point this out. This is something that is kind
of since the early twenty ten first Barack Obama administration.
You had again the worst economic calamity that we, you know,
have seen in one hundred years. Yeah, and I still
(29:12):
remember sitting here in twenty ten and twenty eleven, and
the buzzword that was out there then was austerity. It
was all about, like, hey, we need to be like
tight with the budget. So Tea Party Republicans came about.
During that you had the sequester of budget funds passed,
I think is part of the compromise with John Bayner
in either twenty eleven or twenty twelve, I can't remember
the year, but like this was still a thing then,
(29:33):
which was, hey, like we we'd like to help the economy,
but we gotta be realistic about deficits. Ever since, like
twenty fourteen, twenty fifteen, neither party has talked really credibly
about deficits. The second Obama administration saw them expand pretty consistently.
The Trump administration, even before the COVID crisis hit, saw
(29:55):
them expand pretty consistently, and the Biden administration saw them
expand pretty consistently.
Speaker 2 (30:01):
Even after COVID wrap up.
Speaker 3 (30:03):
Correctly, Again, no one's talking about like COVID funds like
at this point, and you still are going to run
a six to seven percent budget deficit this year. You
can trast this with post Reagan tax cuts.
Speaker 2 (30:13):
In nineteen eighty one.
Speaker 3 (30:15):
Hey, the Reagan administration realized, Oops, we went a little
bit too far with this. They passed measures to shore
up the revenue side of things and to reduce spending.
Later in their term, the Bush administration had to raise taxes.
The Clinton administration had to cut services and raise taxes.
Speaker 2 (30:32):
Right, my big question is simply, what is it that
changes people's perspective on this? Because I don't see anything
in the right. I'll tell you this wasn't a campaign
about deficits. Let's be clear about that.
Speaker 3 (30:44):
No, what is going to ultimately change people's perspective on
this is panic. Yeah, when the market finally panics because
of the deficit, then politicians are going to get serious
and say, yep, we've got to do something.
Speaker 2 (30:58):
And do you have any evidence that that's going to
curR in twenty twenty five or anytime during the Trump president.
Speaker 3 (31:02):
No, I don't know.
Speaker 2 (31:03):
I have no idea. Yeah, I got no clue. Let's
take a quick break here.
Speaker 3 (31:06):
When we come back, let's talk a little bit about inflation.
We've got almost a whole hour of the show without
mentioning it once, and so it's time to, you know,
bring that bad boy back into our conversation today right after.
Speaker 1 (31:21):
This Financial Exchange Show podcast drops every day on Apple, Spotify,
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Speaker 2 (31:47):
Inflation Go. We're gonna get another reading this Wednesday. The
Fed's preferred measure of inflation is out at a thirty Yeah, yes,
eight thirty am, the PCE per Consumption Expenditures Index. That's
not really the most interesting thing about inflation. Quite honestly,
we are pretty it's pretty obvious what's going to happen there.
(32:09):
You're going to have year over year inflation coming in
in the two and a half to three percent range,
a little bit hotter than that if you strip out
the benefits from lower oil prices month o a month
somewhere in the point two to point three percent range.
We already got CPI. It's not going to be shocking,
would be my guess. Because we see prices, we know
that they're not shocking right now. The question is, how
(32:31):
is the Fed's framework for inflation continuing to develop and
what does that all mean for interest rates as we
head into twenty twenty five, and normally I would say
this shouldn't be much of a question, but the Fed's
been a little bit wishy washy in terms of their
long term perspective on all of this, and seems very
very willing to just take a wait and see approach
(32:53):
for now I think.
Speaker 3 (32:56):
But here's what bothers me is they're not talking. They
want to take a take a wait and see approach.
And what I mean by that is earlier this year
in Q one, we saw higher inflation numbers. Yeah, they
were coming in former and Jay Powell came out multiple
times and was like, yeah, we think this is just
(33:17):
gonna pass. We're not really worried about this. We'll we'll
look through this.
Speaker 2 (33:21):
Right. It's not what he's saying right now. That's my
point is we're seeing very similar data right now, yes,
and we're not seeing the same message.
Speaker 3 (33:29):
Sorry, maybe I misinterpreted what you were saying.
Speaker 2 (33:31):
No, No, you're fine. I think it comes down to
an inconsistency of messaging. And maybe it's simply because he
has evidence that he thinks last time it was just
something to look through, and this time he thinks it's
something more long term in nature. But he's not really
expressing that.
Speaker 3 (33:47):
No, it's it's much more. I mean his speech was
it last Friday or maybe no, two fridays ago. I
think it was was, you know, borderline hawkish in nature,
and like it's kind of weird coming from Jay. And
this is what Mark Fandetti and I were talking about
last week, which is, hey, man, like pick one or
the other. But you can't say you're data dependent and
(34:09):
then just say we're ignoring the data when it suits
your need.
Speaker 2 (34:13):
And what need is it's suiting right, Like nobody.
Speaker 3 (34:16):
We can't just continue freaking out about every data point forever, right,
it's exhausting.
Speaker 2 (34:23):
We just got to move on from that.
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Speaker 3 (35:25):
The New York Times, Connecticut a couple charged in one
million dollar theft of Lululemon goods. That's right, they stole
three pairs of pants from Lululemon and now for a
long time no so. In fact, the couple were charged
with a felonycount of organized retail theft after basically having
done this for the better part of the last year
(35:47):
or so it sounds like, and they originally started by
stealing from stores in Minnesota and then ended up hitting
stores in Connecticut, Colorado, New York, and Utah. So I
guess it was just wherever they were going, they were
stealing Lululemon stuff.
Speaker 2 (36:01):
And got a spread the scam out. You know, it's like, well,
any good scam, you can't do it at the same place.
Speaker 3 (36:05):
Twice they were arrested at a hotel room in Bloomington, Michigan,
where they found investigators found a dozen suitcases with fifty
thousand dollars worth of Lululemon attire, so they hadn't unloaded
the latest stuff.
Speaker 2 (36:16):
I guess.
Speaker 3 (36:17):
But pretty much what they were doing was they would
go in, the husband would go in and buy an
item or two, and then they would using some kind
of tool, remove one of the security tags from another
item in the store and attach it to the item
that he already bought to intentionally set off the alarm,
correct being like, oh no, I already bought this with
(36:37):
the other stuff that was now in their bag, free
and clear, and so they would do this quite.
Speaker 2 (36:44):
A bit exact. So basically they would set off the
alarm and then somebody else would walk out with a
bunch of still actually stolen goods at about the same time,
and that people would just assume, well, the alarm's going
off because of this guy and not whatever. Correct just happened, correct.
Speaker 3 (36:56):
And so someone else would go with some other stolen goods,
and so YadA YadA. This was you know, this, this
whole thing a million bucks. And again it's you know,
a million dollars in Lulu Lemon like, listen, I know
their T shirts are like seventy dollars or whatever. A
lot of stuff to steal a million dollars. And again
it sounds like they were just gallivanting around the country, hitting.
Speaker 2 (37:17):
New stores, stealing stuff. Yeah, this is this is not
as entertaining as the bear fraud of twenty twenty four
bear fraud. Yeah, oh yeah, insurance fraud. But nonetheless glad
that they got caught doing it. And again, the consistency
with this is you always eventually get caught.
Speaker 3 (37:36):
Yes, there is no free leggings, there are no to
jail you go, yeah, so yeah this Listen, I don't
think you can wear these in jail. I think they
kind of give you the clothes once you're there.
Speaker 2 (37:54):
Oh, it's probably a long time. You stole a million
dollars worth of stuff.
Speaker 3 (37:58):
It's probably not you know, three months, it's probably gonna.
Speaker 2 (38:02):
Be a while, so I hope it was worth it.
Let's take a quick break here.
Speaker 3 (38:07):
We got hour two coming up in a little bit
on the Financial Exchange
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