November 26, 2024 • 38 mins
Mike Armstrong and Marc Fandetti discuss Trump's planned tariffs on Mexico, Canada, and China that could cripple trade. Trump fires salvo on North American trade pact. New home sales plunge 17% in October. Consumer confidence jumps to 16-month high as Americans see economy improving. Bessent will have to fix America's finances. Musk wants $2T of spending cuts.
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Episode Transcript
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(01:07):
Face is the Financial Exchange with Mike Armstrong and Mark Fandetty.
Speaker 2 (01:14):
More than happy Thanksgiving Week and welcome back to the
Financial Exchange. I know it's kind of odd to wish
people happy Thanksgiving week, but I'm not gonna be here tomorrow,
so genuinely happy Thanksgiving to everybody out there. I know
I'm excited to get together with some family, less excited
to get together with others, and that's a typical Thanksgiving
for most people out there. So Happy Thanksgiving as we
(01:35):
all get prepared and probably lose sleep on prepping that
giant feast for Thursday. Welcome back to the Financial Exchange.
Mike Armstrong, Mark Fandatty and Tucker Silva with you on
a Tuesday. After the Dow reached all time highs yesterday.
On the Scott Bessent News Today, Dow's offul little bit,
but really nothing to do with markets overall. Really just
(01:57):
one drug company weighing on the performance of the now,
which is why it's a stupid index that's only comprised
of thirty names that aren't a real fair representation of
the overall US economy. But that's a conversation for another day.
Top news of today, however, is an announcement or tweet
or just general policy indication from Donald Trump on trade.
(02:19):
We've suspected that tariffs are going to be a key
cornerstone of the next president's administration, and I don't know
coming out coming out swinging here. So what was said
yesterday is that President elect Donald Trump intends to impose
tariffs on all products coming into the United States from Canada, Mexico,
and China. Quote both Mexico and Canada have the absolute
(02:42):
right and power to easily solve this long simmering problem.
That long simmering problem that he's talking about. It happens
to be drugs in particular, fence and all and illegal
aliens coming into the United States, which you've not you know,
you've ticked off a number of things for me, and
don't you know, don't get me wrong, I'm immigration expert,
but fentanol, illegal drugs, illegal immigration. You've named a number
(03:07):
of things that I typically see as problems mentioned with
Mexico and China. I'm unfamiliar with those darn French fur
trappers coming over the Canadian border illegally and bringing their
maple syrup, funny accents, and over politeness being a problem
with US with US relations with Canada. But maybe I
am missing something here and apparent to be fair. Apparently
(03:30):
this summer there was a large number of illegal Indian
immigrants coming to the United States from Canada, but to
my knowledge, that has largely stopped entirely. So again, this
is one I think we do need to take this seriously.
The discussions about tariffs are quite specific here, right. These
are not general statements. These are I intend to place
tariffs on Canada, on Mexico of twenty five percent and
(03:54):
additional tariffs on China of an extra ten percent. And
so when somebody's that specific, I think, I think we
need to take it seriously and dive into what that
could mean and why it might be coming.
Speaker 3 (04:04):
Now I guess he's not even president yet. My head's
already spinning. There are so many Okay, let's I'll try
to stay focused on the issue of tariffs. That's the
one thing he's been talking about my whole adult life.
And I'm no spring chicken, sadly, so I assume he's serious.
I assume he's going to do what he can under
(04:26):
the law, which gives the president the ability to impose
some tariffs unilaterally for national security and related reasons. He
seems dead serious about that these are sizeable tariffs.
Speaker 2 (04:38):
So let's take a mits on all goods coming from Mexico.
Speaker 3 (04:42):
Look at the stuff you buy, from food to the
stuff at Low's or home depot or wherever. Look where
it's made. Most of it is Mexico or China. Presumably
this will affect those things if he's serious. And there's
always this question with Donald Trump and governing by tweet
or whatever you want to call all these missives he's
sending out via the social network he owns and interestingly
(05:05):
gets paid for. When people this is like George Washington saying,
you want to read my farewell address fifty bucks, but
Lincoln emancipatient proclamation up. You want to know what's in it,
how much you got. This is a little bit like that.
I guess I'm gonna have to get used to that.
He's making major policy announcements on a platform he gets
paid for bringing traffic to. Okay, I'll put that aside,
because I said I'd stay focused if I could on tariffs.
(05:25):
So Mike, the immediate impact and this is the point
of a tariff will be to raise prices. If you
don't think it will, then you don't think. I'm not
gonna say you don't know how tariffs work because I'm
not an international autonomous nor have I ever worked in trade.
But that's the whole point. They should raise prices immediately
on a lot of the stuff that we buy. Effect
estimates are sort of all over the place. We've never
had anything of this magnitude and scale in the modern
(05:48):
era suggested before, but somewhere in the several hundred two
thousands per family, depending on say you're purchasing habits. It's
also going to be inflationary, at least in the short term,
because not all prices will adjust to compensate for the
reduced purchasing power we'll all have when these goods get
more expensive.
Speaker 2 (06:08):
Go ahead, so let's start with some basics here. In
terms of trade, the United States, Mexico, China, and Canada
together account for about a little bit more than about
a third of all goods and services, both imported and exported.
So on the import side, like you said, you know,
substantially more terrorists on about a third of what we
import into the United states in terms of exports. Might
(06:31):
there be retaliation? Who knows, but you know that that
would be the concern there for both importing companies and
exporting companies in terms of seriousness, right like, we always
get back to that question of how serious should this
be treated? Is this a real policy decision or is
this a negotiating chip And I think, honestly, my guest
(06:53):
would be more of a negotiating tactic for Canada and
more of a serious threat for Mexico and China.
Speaker 3 (06:58):
Think of how disruptive it is just feigning you're pointing
a gun at someone. That could technically be a negotiating tactics.
You don't know if it's loaded, but people have to
immediately start to rejigger. For example, if you're a business,
you're buying inputs to production of whatever you make, some
of those are imported. Something like a fifth of all
(07:20):
imports are on intermediate goods that are used in production.
This happened when we impost steel tariffs in twenty eighteen.
Caterpillar had to lay people off because their cost of
production went up. So you have to immediately start planning
for the reality of this. We've got two months or
so heads up. I think as a say you're a
purchasing manager or whoever makes these decisions in a production capacity,
(07:44):
you have to assume today that the stuff you buy
a lot of to make your business work at the
margins that are expected, it's going to get a lot
more expensive in two months. So this is immediately disruptive.
It's crazy to me that markets react to Scott Bissent yesterday,
who we don't even know if he's going to have
any class out. His own economic views are a little murky,
and we know that Donald Trump knows what he wants
to do, so it's questionable that we're going to get
(08:06):
besense economic policies as opposed to Trump. Markets jump yesterday
in response to his appointment. They don't react in response
to this edict from Trump today.
Speaker 2 (08:15):
Yeah, equity markets don't. But you did see a pretty
big jump in currency markets, right. We're seeing the US
dollar appreciate substantially against the Canadian dollar, against the Mexican payso,
against the Chinese yuan. So we are seeing some currency movie.
Speaker 3 (08:27):
This affects profitability, which is why it's a little weird
to me. Maybe I'm not looking under the hood, I'm
just working at the aggregates. It just seems a little
weird to me that the reaction is so muted, but
maybe there's maybe there are things roiling under the surface.
Speaker 2 (08:40):
Yeah, in any case, you are seeing, if not an
immediate equity reaction, you are seeing some reaction from currency markets,
which I think would be logical, right what you're seeing.
If you're seeing substantial tariffs and pose, then you would
expect Yeah, maybe that does mean weaker Mexican Payso maybe
it does mean weaker Canadian dollar and a number of
issues for those countries, and you know, stronger dollar in reaction.
(09:03):
And it also could mean you know, a very common
retaliatory measure from China could be currency manipulation, and that's
something that they have toyed with in the past. And
to make it really you know, point in case, if
you are facing a bunch of import tariffs from the
United States on goods coming from your country, your China,
and you have the ability to maneuver your currency, then
(09:26):
a pretty easy way to offset those tariffs would be
to say, hey, we're going to devalue our currency by
ten percent, and therefore the net price to Americans of
that product is going to be the same even with
the tariff, and so that's the concern. And trust me,
there are big problems for the Chinese government where they
to implement such a thing. They're already facing issues of
you know, capital flying out of China because of concerns
(09:48):
well about the government and their policy on things, as
well as their policy to manipulate currency. And so if
you start to implement a policy of weakening your currency intentionally,
there are a lot of wealthy Chinese who will try
and get that money out of there. But nonetheless that
has been a path that the Chinese have taken in
the past that hurts American manufacturers. So my mere point
(10:10):
with all of this is very simply that tariffs as
a tool are complicated. They raise prices for consumers, they
manipulate currency prices. They are complicated to these that it's
tough to play out in a war game scenario, if
you will, who does what next, and how that all
works out.
Speaker 3 (10:30):
None of these amaladies that he's trying to address will
necessarily respond to tariffs. He's using them. They really are,
in his view, a cure all. They are the magic
bullet for anything you want to fix illegal you want
to fix immigration, illegal immigration, impose a tariff and get
the country on whom you're imposing it. We're not really
(10:53):
imposing tariffs on China, We're imposing excuse me, on Mexico
or Canada.
Speaker 2 (10:56):
So bizarre.
Speaker 3 (10:57):
We were a trading block not that long ago. History
has just taking such a weird turn. These they're national
security questions at play here. We're not talking about those,
We're just talking about the economic questions. But anyway, punishing
Mexico and Canada for illegal immigration, I guess that's I
guess one way to do it is with tariffs. It's
just such a blunt instrument, and we bear the burden
(11:20):
is consumers potentially for years to come.
Speaker 2 (11:23):
It is let's take a quick break. I want to
dive a little bit, but I honestly just don't have
much to say on the Canadian side. I don't really
understand that piece of it. I don't really see what
fight it is that we have with Canada, one of
our closest trading partners. But I think there are some
legitimate not even just immigration, but economic concerns. When it
wants questioning that ago, let's take a quick break and
come back and talk about that a little bit more here,
(11:44):
specifically on tariff's on North American trade partners. That's next
on the Financial Exchange.
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Speaker 2 (12:43):
With the announcement yesterday of Trump's plans to impose tariffs
on I'm going to focus here on Canada and Mexico.
It sets the stage for Okay, what exactly does he
want to negotiate, he has said, and I believe that
he've used tariffs as a negotiating tactic to bring parties
to the table and change deals or you know, get
(13:04):
updated terms on things like NAFTA, and so I suspect
that that is the case. I'm gonna put Canada to
the side here because I don't really know what you're
trying to get out of Canada. I think there was
a brief surge in illegal immigration from Canada that was
pretty quickly resolved over the course of the last year.
So maybe there's something additional there, But I have a
(13:24):
tough time figuring that one out. And I'm going to
sead focus on Mexico and identify what I'm guessing the
Trump administration will see as legitimate problems. First and foremost
would be illegal immigration from Canada or excuse me, from
Mexico to the United States. That's a pretty clear point.
I don't think I need to go much further. Drug cartels,
drug imports from Mexico to Canada legitimate problem that I
(13:47):
think we can pretty much all agree on. You know,
violence that makes its way to or over the border
with the United States is illegitimate problem. Could you point
to evidence that that's improved a little bit over the
last couple of years. Yes, but still probably a big problem.
The one that I see less getting talked about that
I think needs to be addressed is growing Chinese investment
(14:09):
in Mexico. That to me is an interesting one. So
for instance, byd the I believe, largest carmaker in the
world at this stage, Chinese ev maker primarily is making
some massive investments in Mexico and Mexican auto manufacturing, and
I think if we're to look at that, you know, hey,
is that a backdoor into the US market, or more realistically,
(14:33):
is it just a threat to US automakers trying to
do business in Mexico. That's part of the North American
Free Trade Agreement? And what does all of that look like? Again,
I don't know how you move terrace onto Mexico to
prevent a Chinese company from investing there. But this is
a real issue across the globe that you know, China
has been making significant inroads, specifically into less developed nations,
(14:57):
and you know, and to the extent the United States
wants to stop that, I wonder what sort of tool
tariffs would be and how successful they might be if implemented.
And I don't think anybody said any of us have
an answer. But those are the big three.
Speaker 3 (15:11):
So back to your initial point, No one's saying, we're
getting a lot of texts. Hey, didn't you guys read
Trump's message? Yeah, I read it. It was like five
sentence as it wasn't that hard. And yes, I understand
that we have a fentyel problem. I understand we have
a legal immigration problem. Use the damn military. I don't
really care. It does seem like an invasion to me.
I wouldn't be uncomfortable with that.
Speaker 2 (15:30):
That's just me.
Speaker 3 (15:30):
I'm a bit of a right winger in some senses.
Tariffs aren't the right probably aren't the right tool unless
his intention is to at the eleventh hour change his
position soften it. This really is a negotiating tactic. That's
my only point. I'm not qualified to evaluate solutions to
the fentanyl problem. It's an old problem. It didn't start
(15:53):
under Joe Biden, it didn't start under Donald Trump. It's
been in the making for three decades or so. Illegal
immigration similarly didn't start under Joe Biden. Didn't start under Trump,
just because it went up under Trump relative to Obama,
I don't blame him for that, sure blame him for
sitting on his hands because he didn't. Biden's slightly different story.
I guess overlooked it for a long time. Are tariff's
(16:14):
the right solution, though? I think that's where you have
you have to you have to separate the the emotionally
charged issue of illegal immigration and the feelings that brings
out in people, which I get, I share them, from
the economic consequences which we try to focus on here
on the financial exchange and in our day jobs as custodians,
as stewards of people's money.
Speaker 2 (16:33):
It's a fair question, and I think from the Trump
administra the future Trump administration standpoint, while it is probably
an imperfect or bad tool to fight these things, it
happens to be the one tool that you can.
Speaker 3 (16:50):
It's easy, you can easily.
Speaker 2 (16:52):
He likes easy.
Speaker 3 (16:53):
This isn't as much of a criticism as it seems.
He likes easy. Oh, I fixed it.
Speaker 2 (16:57):
Imagine how many court cases you would face, for instance,
if you try to implement the US military on fighting
fentanyl in our largest cities or using it right, there's
just a lot more barriers. And so I think he.
Speaker 3 (17:11):
Does might be more durable, Mike. Sometimes you know better
than anybody. I think things that are things that are
worth it can be hard and take time. The problem
with his first term, since we're talking about Trump here,
is that he likes to fix things with tweets and
then move on. That's why we didn't fix some in
the four years he was president. I would like to
see a more durable solution put into place. Never mind
(17:33):
again the economic impact, which is our primary focus here,
of something like tariffs.
Speaker 2 (17:37):
Let's take a minute and bring it back home though.
Let's talk about all this in the context of reserve
judgment for right or wrong. Let's talk about what the
economy looks like if these things that are being talked
about go into place. Right, we're talking about tax cuts,
if not tax cuts, because I have some doubts as
to whether or not they'll be able to be substantial
enough to move things. Certainly a lock in of the
(17:59):
twenty seven teen Tax Cuts and Jobs Act through twenty
twenty six, we're talking about higher terriffs. What does that
in your mind? You know, paint a picture of the
twenty twenty five and beyond economy here in the United States,
which you know as I'm seeing it spells uncertainty about
(18:19):
where US companies profit, how much they profit, whether or
not it's a hit to a profit, that's an open
question in my mind. But higher interest rates potential for
higher inflation seems to be an area that a lot
of people are honing in on, honing in on as
a state of the US economy under Trump.
Speaker 3 (18:36):
Is agenda has some stagflationary elements to it, deporting a
lot of people who are working. As stagflationary. You could say, hey,
that's the right thing to do. They're not sure legally so,
and I agree with that for what it's worth in
the interest of full disclosure, But it's that is stagflationary.
There's no way around it. Tariffs are stagflationary. They reduce growth,
they increase inflation. Tax cuts, new tax cuts, not just extensions,
(18:58):
would be stimulative. That would be inflationary and stimulative. So
that might work against the stag force of some of
those other policies, the growth retarding forces. So Mike, on balance,
it's hard to say. It feels a little stagflationary to me.
Speaker 2 (19:13):
And I think that's an important question, is if we
do get a pause in the growth of this economy
and maybe a sell off in stocks. Is this something
that the Trump administration can stick to for that long
term vision. Let's take a quick break when we come back,
a little bit of Wall Street Watch. Like us on.
Speaker 1 (19:42):
Facebook and follow us on Twitter at TFE show. Breaking
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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 Change Radio Network.
Speaker 4 (20:03):
Markets are in mixed territory as traders react to the
threat of new terrorists from President elect Donald Trump. And
at two o'clock this afternoon, Wall Street Wolves shift their
attention to FED meeting minics for clues about interest rates
going forward. Right now, the Dow is off by three
hundred and two points, over two thirds of a percent,
(20:23):
SMP five hundred is up by only nine points, Nasdaq
is up nearly half a percent, or seventy nine points.
Russell two thousand is off over three quarters of a
percent or twenty points. Ten year treasure reeled is up
by six basis points at four point three to two percent,
and crude oil up nearly one percent higher, trading at
sixty nine dollars in fifty two cents a barrel. Several
(20:46):
car makers who have factories in Mexico, including Ford, Stalantis
and General Motors, are seeing losses in reaction to the
tariff news. Nissan also saw losses in Japan after a
year in critical mid stage try les. Amgen said its
experimental weight loss injection help patients lose up to twenty
percent of their weight on average. However, Wall Street was
(21:09):
expecting that percentage to be higher. Amgen down by twelve
percent so far today. Meanwhile, Abercrombie fit shares down by
six percent, despite the retailer beating third quarter earnings expectations
and offering strong guidance for the holiday period. Abercrombie also
hiked its full year guidance more retailer earnings to digest
(21:30):
after Best Buy miss third quarter revenue forecasts and cut
its full year sales forecast as new iPhones and AI
enabled lap laptops weren't enough.
Speaker 2 (21:40):
To boost sales.
Speaker 4 (21:41):
That stocked down by seven percent. And one more item
from the retail world, where Cohle's shares are down by
twenty percent after the struggling retailer missed third quarter earnings
and also named its third chief executive in three years. Elsewhere,
Zoom Video shares down by seven percent despite the video
conference and company beating analysts expectations for profit and revenue.
(22:04):
Rivian up by one and a half percent after the
ev maker said it received approval for a government loan
of up to six point six billion dollars to boost
production capacity. I'm Tucker Silvan, that's Wallstreet Watch.
Speaker 2 (22:18):
A couple of economic data points out this morning, one
of which you probably don't need me to tell you.
New home sales fell to six hundred and ten thousand units.
That's the lowest level since November of twenty twenty two.
Also came in well below consensus estimates of seven hundred
and twenty five thousand homes. New home sales now down
seventeen percent from last month, nine percent from a year ago,
so big shocker. Higher interest rates, no homes for sale.
(22:40):
People aren't buying homes. The other data point that came
out this morning consumer confidence. This has been bouncing around,
and I bring up this one because this is one
of those signals that really got the recession indication wrong
for the last five years, and so we've been talking
about a little bit more because hey, it's been signaling
recession for quite some time. The Consumer Board Consumer Confidence
(23:02):
Index in general increased in November to one hundred and
eleven point seven. That's up two point one points from
one hundred nine point six in October. And as a
frame of reference, you know, right after COVID we were
hanging out in the mid eighties to low nineties range
for a period of time. The other piece of this
index that has been used to point at recession in
(23:27):
the past was the Expectations Index. This is based on
consumer's shorter term outlook for income, business, labor market conditions.
That one ticked up to zero point four percent up
to ninety two point three. A threshold of eighty has
historically signaled recession, and we were there for a good
part of twenty twenty two, twenty twenty three, and twenty
(23:48):
twenty four. We're obviously not there right now, but that
was another, again, one of those imperfect recession signals that
we were getting over the course of the last two
years that to this point hasn't resulted in recession. Now
we've bounced back out of that territory, much like things
like the Psalm Rule indicator, the two to ten Yeld
two to ten year yield inversion and many other signals
(24:12):
that were, you know, giving kind of a false signal
about where this economy might be heading over the last
couple of years.
Speaker 3 (24:18):
Yeah, relationships that lead leading or even concurrent, so leading
would be the consumer expectations index or the stock market.
They are in theory, they're impounding people's expectations, as the
name of the expectation survey suggests, stocks do as well.
Thereforeward looking the so called PSALM rule that relationship between
the rise and unemployment and the state of the broader
(24:38):
economy is more of a concurrent indicator, and as we
know it broke down. The problem with any of these
using any of these variables as forecasters is that they
assume that relationships among them stay the same, and they don't,
which is why it's good to do what you and
Chuck do on the show Mike, which is present a
wide array of indicator who's leading?
Speaker 2 (25:00):
Do not do that current?
Speaker 3 (25:02):
No, I look at just why strictly coin flip.
Speaker 2 (25:05):
He just talks to the guy named Bob at his
barber shop, and whatever Bob has to say, Mark Vandetty
buys that day, Scott Bessant will have to fix America's finances.
According to Bill Dudley, who's writing a column piece for Bloomberg,
is it the job of the Treasury Secretary to fix
America's finances? And and what would you call broken? If
(25:28):
you write, like, what part of America's finances would you
deem broken if Scott Besson's job is to fix them?
I'm confused by the title in its entirety. I think
Scott Besson's job and is to manage those finances, do
so in an orderly fashion, and ensure that the United
(25:49):
States dollar and treasury market remains the most liquid and
reliable market in the world for placing funds and facility trade.
But I struggle to come up with what his job
is when it comes to fixing something. And that's the
problem with articles like this is you're setting people up
(26:10):
to fail if you say you need to fix something
but don't define what it is they need to fix.
Speaker 3 (26:14):
Look, the Treasury Secretary's mandate is very broad, Mike, and
I'm reading right from Treasury's website here. I won't read
the whole description, but it's only a paragraph. They formulate
and recommend domestic and international financial, economic, and tax policy
participating in the formulation of policies of general significance for
the economy, managing the public debt, overseeing the day to
day activities of the Treasury Department, carrying out its major
(26:37):
law enforcement responsibilities, etc. It's incredibly broad. Some of the
duties are quite mundane and probably get executed by the bureaucracy.
Others depend on the strength of the Treasury secretary. When
you have someone with strong knowledge of financial markets, think
Hank Paulson during the financial crisis, that might not have
ended as painful as it was, might not have ended
(26:59):
as well in the sense that we didn't descend into
depression as is. It did not for Hank Paulson, and
there are probably other examples, you know, going back through time.
So there are some mechanical things that they're responsible for,
but those are sort of taking care of by the bureaucracy.
Your job is to supervise them. There are bigger decisions
(27:21):
with respect to fiscal policy that ultimately Congress is in charge.
Speaker 2 (27:25):
That was kind of my thinking is if you're going
to define America's finances as broken or a problem, yeah,
that's Congress is reading fixing. Scott Besson's not going to
be able to fix that, and I doubt he's going
to be, you know, heading to Capitol Hill every week
to try and you know, lobby Congress to make changes
to the budget. I mean, if you want to, I
think if you were going to identify one problem with
(27:47):
America's finances, it would be that we're, you know, spending
six point seventy five trillion dollars in the fiscal year
that ended September thirtieth, that we are spending a massive portion,
in a growing portion of our annual budget on interest
on our debt. And Scott Besson's not gonna be able
to fix any of those problems.
Speaker 3 (28:07):
No, No, the charge for dealing with that lies with
the President. Obviously presents a budget, but Congress has its
own ideas by design. When you think how many Treasury
secretaries can you actually name, it's you'd be hard pressed,
probably to name more than a handful from memory from
your own lifetime, and forget about it. Historically, some have
(28:30):
been quite unimportant, others have been more consequential, but ultimately
their duties are kind of I hope I'm not understating
things here, sure, but anybody expecting miracles from Scott Besson,
expecting him to push back on the tendency to see
tariffs as the hammer and everything is a nail. And
what's the answered immigration? Tariff's, fentanyl tariffs, woman's reproductive rights,
(28:51):
easy tariffs. He actually said this during the campaign the
president elected it. Actually he was talking about childcare. I mean,
he thinks the answer to everything is a tariff. Can
Scott Besont provide him with a richer framework through with
which to analyze economic problems. I'm a little skeptical, but
we'll see.
Speaker 2 (29:07):
Markets seem to buy it. Yesterday at least, I've.
Speaker 3 (29:09):
Given up on reading anything in the market.
Speaker 2 (29:13):
Let's take a quick break. When we come back, I
do want to talk about government spending. Six point seven
trillion dollars in federal government spending last year. Elon Musk
has been tasked with cutting some two trillion dollars out
of there. Where's it going to come from? If he's
going to find that quote unquote fat, Let's take a
quick break and cover that next.
Speaker 1 (29:32):
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Speaker 2 (30:05):
All right, Mark, I'm making you Elon Musk for the day.
Find me two trillion dollars of spending cuts. We spent
six point seventy five trillion dollars in the fiscal year
that ended September thirtieth. That amount is expected to grow,
if for no other reason than just interest on our
nation's debt. So where's it gonna come from? My friend.
Speaker 3 (30:25):
Mike, It's not like nobody's but I was thinking the
first thing, I would never mind. Well, we can talk
about it later if there's time. The It's not like
nobody's looked at this problem. There are right leaning and
libertarian and I know because I read them all think tanks,
the Cato Institute, Heritage Foundation, and many others that have
been looking at federal spending since since and before the
(30:47):
Republicans took Congress in nineteen ninety four. Heck, you could
just dust off New Gingrich's contract with America. There are
plenty of good ideas.
Speaker 4 (30:54):
The sorry, Mark, turn off your microphone.
Speaker 3 (30:56):
Damn you say that again.
Speaker 2 (30:59):
Plenty of good ideas, pretty.
Speaker 3 (31:00):
Good ideas out there.
Speaker 2 (31:01):
You don't.
Speaker 3 (31:01):
You don't have to reinvent the wheel on this you
start with. My preference would be not to start like
an accountant like musk and Ramaswami. You're doing and lashing
out at individual people. They're actually doing this. They're calling
out people on social media. Hey fat cat, your time
has come. Can you imagine running a business like that? Hey,
fandaed a your luggage around here? You don't produce anything,
Your time has come it? Hopefully that doesn't sound familiar.
(31:25):
So I take a little bit issue with the way
they're approaching this. They're approaching this like like like some
hopped up McKinsey junior consultant who just wants to come
in and prove to the people that hired him that
they could be a they could be a tough guy.
And that's the way to approach this is I think philosophically,
should the federal government be in the in the business
of education? If not, we can eliminate that department. I'm sorry,
(31:47):
it's gonna cause some disruption, will help those people adjust
to their new you know, will help them with the transition,
et cetera. So I guess, Mike, my point here is
that and you made this point earlier. Federal budget is
roughly six trillly, you said six point seven. I've always
said closer to six. But either way.
Speaker 2 (32:03):
Yeah, According to the Wall Street Journal, for the fiscal
year that ended September thirtieth, it came in at six
point seventy five.
Speaker 3 (32:09):
Okay, So they want to cut roughly a third. Every
study I've seen recently suggests that you cannot do that
without cutting to the bone of entitlements.
Speaker 2 (32:19):
So let's let's get into the breakdown here at Wall
Street Journal has a pretty nice chart here if you
have a subscription and can get in there. But in
terms of mandatory and discretionary spending items, you've got one
point four to nine trillion dollars going to Medicare and Medicaid.
You've got another one point four or five trillion a
year going to Social Security, nine hundred and forty nine
(32:42):
billion dollars going to net interest. Other mandatory spending one
and a quarter trillion. What's in there? Government pensions, retired
military pensions, things along those lines. Among them, Where do
you accumulatively?
Speaker 3 (32:56):
No, you had almost six trillion, right, you keep.
Speaker 2 (32:59):
One and a half. One and a half gets me
to three four. I'm a little bit over five now.
And then we've got discretionary spending eight hundred and fifty
billion a year going to defense and then another nine
hundred fifty billion dollars going to non defense items.
Speaker 3 (33:15):
So you could cut out all the non defense and
only get half the cuts their promise.
Speaker 2 (33:19):
Correct. Yeah, if you cut everything except defense except defense.
Speaker 3 (33:23):
You still only get to half to week wants to get.
Speaker 2 (33:25):
You still only get half, that's right. And you know, Medicaid,
for instance, could be a target. Like I said, Medicare
and Medicaid. Donald Trump has made promises on not cutting Medicare,
not so much on Medicaid. The CBO estimated that fifty
six percent of Medicaid benefits in twenty twenty four would
be going towards the aged, blind and disabled. Nursing homes
(33:48):
is a big source of payments for Medicaid, for example,
for those that don't cannot make the payments, So you know,
could you cut there, And I don't know what we
would do with those people, but you know that that
could be a potential target, you know. Smaller mandatory categories
include items such as, like I mentioned, retirement benefits from
military and federal employees. I don't think you're going to
(34:09):
be cutting there uh support for states to help with
foster care and adoption. I guess maybe you know. But again,
to really move the needle here, you probably do need
to go after and to be fair, Elon Musk isn't
shying away from saying that, hey, there's too much waste
in the military and we need to ways to find
and been here in that forty years we all you know,
everybody loves that story of familiar with the story of
(34:32):
the space pen.
Speaker 3 (34:33):
I'm familiar with the story of the gold taps in
an admiral's bathroom on an aircraft is similar.
Speaker 2 (34:38):
There's plenty of them. The space pen was the idea
that we needed to develop a pen that was capable
of writing in space. The story was that NASA spent
a million dollars developing this thing. It's actually not true.
A private company did, and that well, I think the
point was, why don't we just use a pencil.
Speaker 3 (34:56):
And like rat fighting here, the same in space. Presumably
they thought it doesn't wouldn't graph fight flake off?
Speaker 2 (35:02):
I don't know, but this was a Soviet era story
where like the Americans spent millions dollars developing pen and
the Soviets just said, well, we can do the same
thing with a pencil. But yeah, they're not shying away
from that. But as I think everyone would acknowledge, finding
two trillion dollars, if not an impossibility, will be an
extreme challenge for anyone, even where they'd given the power
(35:24):
to completely slash items entirely on their own.
Speaker 4 (35:27):
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Speaker 1 (36:31):
The proceeding was paid for and the views expressed are
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Cushing and Armstrong do not endorse each other and are
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Speaker 2 (36:41):
Mark, Mark and Tucker. I'm gonna get very personal real
quick here for a second. How tall are each of you?
Speaker 1 (36:48):
Five nine?
Speaker 2 (36:49):
You're five to nine? Really?
Speaker 4 (36:51):
Why is I surprised you?
Speaker 2 (36:51):
Just the elix shorter?
Speaker 3 (36:52):
I'm approximately that hype kah, I'm a little bit.
Speaker 2 (36:55):
Under five to six. Actually very very very short, as
you both know. But what I bring this up for
is because this story surprised me that US airlines, specifically
five of the larger airlines, collected twelve point four billion
dollars from seat fees from twenty eighteen to twenty twenty three,
(37:16):
which you know, having the benefit of being well below
the national average in terms of height. Has not been
seen your pompadour, though, I am not factoring in any
of my normal hats that I wear, fluffy, my fluffy hair,
my Conan O'Brien hair that I have going here. Yeah no, no,
I'm not factoring that in either. But twelve point four
(37:39):
billion dollars collected. This speaks to in my mind, why
the likes of Southwest Airlines are struggling so much right
now when they don't really have these extra products. I
was talking about my flight back from San Francisco over
the weekend. Jet Blue with their first class seating is
something that just did not exist when that company came
(38:01):
to the market two decades ago, and the market is
very much evolved where people are willing to pay for
these types of upgrades. We've got to take a quick break.
Markets remain open in a mixed territory, with the Dow
still off by about half a percent. We'll have a
full market recap and more coming up next on the
Financial Exchange
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(01:07):
Face is the Financial Exchange with Mike Armstrong and Mark Fandetty.
Speaker 2 (01:14):
More than happy Thanksgiving Week and welcome back to the
Financial Exchange. I know it's kind of odd to wish
people happy Thanksgiving week, but I'm not gonna be here tomorrow,
so genuinely happy Thanksgiving to everybody out there. I know
I'm excited to get together with some family, less excited
to get together with others, and that's a typical Thanksgiving
for most people out there. So Happy Thanksgiving as we
(01:35):
all get prepared and probably lose sleep on prepping that
giant feast for Thursday. Welcome back to the Financial Exchange.
Mike Armstrong, Mark Fandatty and Tucker Silva with you on
a Tuesday. After the Dow reached all time highs yesterday.
On the Scott Bessent News Today, Dow's offul little bit,
but really nothing to do with markets overall. Really just
(01:57):
one drug company weighing on the performance of the now,
which is why it's a stupid index that's only comprised
of thirty names that aren't a real fair representation of
the overall US economy. But that's a conversation for another day.
Top news of today, however, is an announcement or tweet
or just general policy indication from Donald Trump on trade.
(02:19):
We've suspected that tariffs are going to be a key
cornerstone of the next president's administration, and I don't know
coming out coming out swinging here. So what was said
yesterday is that President elect Donald Trump intends to impose
tariffs on all products coming into the United States from Canada, Mexico,
and China. Quote both Mexico and Canada have the absolute
(02:42):
right and power to easily solve this long simmering problem.
That long simmering problem that he's talking about. It happens
to be drugs in particular, fence and all and illegal
aliens coming into the United States, which you've not you know,
you've ticked off a number of things for me, and
don't you know, don't get me wrong, I'm immigration expert,
but fentanol, illegal drugs, illegal immigration. You've named a number
(03:07):
of things that I typically see as problems mentioned with
Mexico and China. I'm unfamiliar with those darn French fur
trappers coming over the Canadian border illegally and bringing their
maple syrup, funny accents, and over politeness being a problem
with US with US relations with Canada. But maybe I
am missing something here and apparent to be fair. Apparently
(03:30):
this summer there was a large number of illegal Indian
immigrants coming to the United States from Canada, but to
my knowledge, that has largely stopped entirely. So again, this
is one I think we do need to take this seriously.
The discussions about tariffs are quite specific here, right. These
are not general statements. These are I intend to place
tariffs on Canada, on Mexico of twenty five percent and
(03:54):
additional tariffs on China of an extra ten percent. And
so when somebody's that specific, I think, I think we
need to take it seriously and dive into what that
could mean and why it might be coming.
Speaker 3 (04:04):
Now I guess he's not even president yet. My head's
already spinning. There are so many Okay, let's I'll try
to stay focused on the issue of tariffs. That's the
one thing he's been talking about my whole adult life.
And I'm no spring chicken, sadly, so I assume he's serious.
I assume he's going to do what he can under
(04:26):
the law, which gives the president the ability to impose
some tariffs unilaterally for national security and related reasons. He
seems dead serious about that these are sizeable tariffs.
Speaker 2 (04:38):
So let's take a mits on all goods coming from Mexico.
Speaker 3 (04:42):
Look at the stuff you buy, from food to the
stuff at Low's or home depot or wherever. Look where
it's made. Most of it is Mexico or China. Presumably
this will affect those things if he's serious. And there's
always this question with Donald Trump and governing by tweet
or whatever you want to call all these missives he's
sending out via the social network he owns and interestingly
(05:05):
gets paid for. When people this is like George Washington saying,
you want to read my farewell address fifty bucks, but
Lincoln emancipatient proclamation up. You want to know what's in it,
how much you got. This is a little bit like that.
I guess I'm gonna have to get used to that.
He's making major policy announcements on a platform he gets
paid for bringing traffic to. Okay, I'll put that aside,
because I said I'd stay focused if I could on tariffs.
(05:25):
So Mike, the immediate impact and this is the point
of a tariff will be to raise prices. If you
don't think it will, then you don't think. I'm not
gonna say you don't know how tariffs work because I'm
not an international autonomous nor have I ever worked in trade.
But that's the whole point. They should raise prices immediately
on a lot of the stuff that we buy. Effect
estimates are sort of all over the place. We've never
had anything of this magnitude and scale in the modern
(05:48):
era suggested before, but somewhere in the several hundred two
thousands per family, depending on say you're purchasing habits. It's
also going to be inflationary, at least in the short term,
because not all prices will adjust to compensate for the
reduced purchasing power we'll all have when these goods get
more expensive.
Speaker 2 (06:08):
Go ahead, so let's start with some basics here. In
terms of trade, the United States, Mexico, China, and Canada
together account for about a little bit more than about
a third of all goods and services, both imported and exported.
So on the import side, like you said, you know,
substantially more terrorists on about a third of what we
import into the United states in terms of exports. Might
(06:31):
there be retaliation? Who knows, but you know that that
would be the concern there for both importing companies and
exporting companies in terms of seriousness, right like, we always
get back to that question of how serious should this
be treated? Is this a real policy decision or is
this a negotiating chip And I think, honestly, my guest
(06:53):
would be more of a negotiating tactic for Canada and
more of a serious threat for Mexico and China.
Speaker 3 (06:58):
Think of how disruptive it is just feigning you're pointing
a gun at someone. That could technically be a negotiating tactics.
You don't know if it's loaded, but people have to
immediately start to rejigger. For example, if you're a business,
you're buying inputs to production of whatever you make, some
of those are imported. Something like a fifth of all
(07:20):
imports are on intermediate goods that are used in production.
This happened when we impost steel tariffs in twenty eighteen.
Caterpillar had to lay people off because their cost of
production went up. So you have to immediately start planning
for the reality of this. We've got two months or
so heads up. I think as a say you're a
purchasing manager or whoever makes these decisions in a production capacity,
(07:44):
you have to assume today that the stuff you buy
a lot of to make your business work at the
margins that are expected, it's going to get a lot
more expensive in two months. So this is immediately disruptive.
It's crazy to me that markets react to Scott Bissent yesterday,
who we don't even know if he's going to have
any class out. His own economic views are a little murky,
and we know that Donald Trump knows what he wants
to do, so it's questionable that we're going to get
(08:06):
besense economic policies as opposed to Trump. Markets jump yesterday
in response to his appointment. They don't react in response
to this edict from Trump today.
Speaker 2 (08:15):
Yeah, equity markets don't. But you did see a pretty
big jump in currency markets, right. We're seeing the US
dollar appreciate substantially against the Canadian dollar, against the Mexican payso,
against the Chinese yuan. So we are seeing some currency movie.
Speaker 3 (08:27):
This affects profitability, which is why it's a little weird
to me. Maybe I'm not looking under the hood, I'm
just working at the aggregates. It just seems a little
weird to me that the reaction is so muted, but
maybe there's maybe there are things roiling under the surface.
Speaker 2 (08:40):
Yeah, in any case, you are seeing, if not an
immediate equity reaction, you are seeing some reaction from currency markets,
which I think would be logical, right what you're seeing.
If you're seeing substantial tariffs and pose, then you would
expect Yeah, maybe that does mean weaker Mexican Payso maybe
it does mean weaker Canadian dollar and a number of
issues for those countries, and you know, stronger dollar in reaction.
(09:03):
And it also could mean you know, a very common
retaliatory measure from China could be currency manipulation, and that's
something that they have toyed with in the past. And
to make it really you know, point in case, if
you are facing a bunch of import tariffs from the
United States on goods coming from your country, your China,
and you have the ability to maneuver your currency, then
(09:26):
a pretty easy way to offset those tariffs would be
to say, hey, we're going to devalue our currency by
ten percent, and therefore the net price to Americans of
that product is going to be the same even with
the tariff, and so that's the concern. And trust me,
there are big problems for the Chinese government where they
to implement such a thing. They're already facing issues of
you know, capital flying out of China because of concerns
(09:48):
well about the government and their policy on things, as
well as their policy to manipulate currency. And so if
you start to implement a policy of weakening your currency intentionally,
there are a lot of wealthy Chinese who will try
and get that money out of there. But nonetheless that
has been a path that the Chinese have taken in
the past that hurts American manufacturers. So my mere point
(10:10):
with all of this is very simply that tariffs as
a tool are complicated. They raise prices for consumers, they
manipulate currency prices. They are complicated to these that it's
tough to play out in a war game scenario, if
you will, who does what next, and how that all
works out.
Speaker 3 (10:30):
None of these amaladies that he's trying to address will
necessarily respond to tariffs. He's using them. They really are,
in his view, a cure all. They are the magic
bullet for anything you want to fix illegal you want
to fix immigration, illegal immigration, impose a tariff and get
the country on whom you're imposing it. We're not really
(10:53):
imposing tariffs on China, We're imposing excuse me, on Mexico
or Canada.
Speaker 2 (10:56):
So bizarre.
Speaker 3 (10:57):
We were a trading block not that long ago. History
has just taking such a weird turn. These they're national
security questions at play here. We're not talking about those,
We're just talking about the economic questions. But anyway, punishing
Mexico and Canada for illegal immigration, I guess that's I
guess one way to do it is with tariffs. It's
just such a blunt instrument, and we bear the burden
(11:20):
is consumers potentially for years to come.
Speaker 2 (11:23):
It is let's take a quick break. I want to
dive a little bit, but I honestly just don't have
much to say on the Canadian side. I don't really
understand that piece of it. I don't really see what
fight it is that we have with Canada, one of
our closest trading partners. But I think there are some
legitimate not even just immigration, but economic concerns. When it
wants questioning that ago, let's take a quick break and
come back and talk about that a little bit more here,
(11:44):
specifically on tariff's on North American trade partners. That's next
on the Financial Exchange.
Speaker 1 (11:49):
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Speaker 2 (12:43):
With the announcement yesterday of Trump's plans to impose tariffs
on I'm going to focus here on Canada and Mexico.
It sets the stage for Okay, what exactly does he
want to negotiate, he has said, and I believe that
he've used tariffs as a negotiating tactic to bring parties
to the table and change deals or you know, get
(13:04):
updated terms on things like NAFTA, and so I suspect
that that is the case. I'm gonna put Canada to
the side here because I don't really know what you're
trying to get out of Canada. I think there was
a brief surge in illegal immigration from Canada that was
pretty quickly resolved over the course of the last year.
So maybe there's something additional there, But I have a
(13:24):
tough time figuring that one out. And I'm going to
sead focus on Mexico and identify what I'm guessing the
Trump administration will see as legitimate problems. First and foremost
would be illegal immigration from Canada or excuse me, from
Mexico to the United States. That's a pretty clear point.
I don't think I need to go much further. Drug cartels,
drug imports from Mexico to Canada legitimate problem that I
(13:47):
think we can pretty much all agree on. You know,
violence that makes its way to or over the border
with the United States is illegitimate problem. Could you point
to evidence that that's improved a little bit over the
last couple of years. Yes, but still probably a big problem.
The one that I see less getting talked about that
I think needs to be addressed is growing Chinese investment
(14:09):
in Mexico. That to me is an interesting one. So
for instance, byd the I believe, largest carmaker in the
world at this stage, Chinese ev maker primarily is making
some massive investments in Mexico and Mexican auto manufacturing, and
I think if we're to look at that, you know, hey,
is that a backdoor into the US market, or more realistically,
(14:33):
is it just a threat to US automakers trying to
do business in Mexico. That's part of the North American
Free Trade Agreement? And what does all of that look like? Again,
I don't know how you move terrace onto Mexico to
prevent a Chinese company from investing there. But this is
a real issue across the globe that you know, China
has been making significant inroads, specifically into less developed nations,
(14:57):
and you know, and to the extent the United States
wants to stop that, I wonder what sort of tool
tariffs would be and how successful they might be if implemented.
And I don't think anybody said any of us have
an answer. But those are the big three.
Speaker 3 (15:11):
So back to your initial point, No one's saying, we're
getting a lot of texts. Hey, didn't you guys read
Trump's message? Yeah, I read it. It was like five
sentence as it wasn't that hard. And yes, I understand
that we have a fentyel problem. I understand we have
a legal immigration problem. Use the damn military. I don't
really care. It does seem like an invasion to me.
I wouldn't be uncomfortable with that.
Speaker 2 (15:30):
That's just me.
Speaker 3 (15:30):
I'm a bit of a right winger in some senses.
Tariffs aren't the right probably aren't the right tool unless
his intention is to at the eleventh hour change his
position soften it. This really is a negotiating tactic. That's
my only point. I'm not qualified to evaluate solutions to
the fentanyl problem. It's an old problem. It didn't start
(15:53):
under Joe Biden, it didn't start under Donald Trump. It's
been in the making for three decades or so. Illegal
immigration similarly didn't start under Joe Biden. Didn't start under Trump,
just because it went up under Trump relative to Obama,
I don't blame him for that, sure blame him for
sitting on his hands because he didn't. Biden's slightly different story.
I guess overlooked it for a long time. Are tariff's
(16:14):
the right solution, though? I think that's where you have
you have to you have to separate the the emotionally
charged issue of illegal immigration and the feelings that brings
out in people, which I get, I share them, from
the economic consequences which we try to focus on here
on the financial exchange and in our day jobs as custodians,
as stewards of people's money.
Speaker 2 (16:33):
It's a fair question, and I think from the Trump
administra the future Trump administration standpoint, while it is probably
an imperfect or bad tool to fight these things, it
happens to be the one tool that you can.
Speaker 3 (16:50):
It's easy, you can easily.
Speaker 2 (16:52):
He likes easy.
Speaker 3 (16:53):
This isn't as much of a criticism as it seems.
He likes easy. Oh, I fixed it.
Speaker 2 (16:57):
Imagine how many court cases you would face, for instance,
if you try to implement the US military on fighting
fentanyl in our largest cities or using it right, there's
just a lot more barriers. And so I think he.
Speaker 3 (17:11):
Does might be more durable, Mike. Sometimes you know better
than anybody. I think things that are things that are
worth it can be hard and take time. The problem
with his first term, since we're talking about Trump here,
is that he likes to fix things with tweets and
then move on. That's why we didn't fix some in
the four years he was president. I would like to
see a more durable solution put into place. Never mind
(17:33):
again the economic impact, which is our primary focus here,
of something like tariffs.
Speaker 2 (17:37):
Let's take a minute and bring it back home though.
Let's talk about all this in the context of reserve
judgment for right or wrong. Let's talk about what the
economy looks like if these things that are being talked
about go into place. Right, we're talking about tax cuts,
if not tax cuts, because I have some doubts as
to whether or not they'll be able to be substantial
enough to move things. Certainly a lock in of the
(17:59):
twenty seven teen Tax Cuts and Jobs Act through twenty
twenty six, we're talking about higher terriffs. What does that
in your mind? You know, paint a picture of the
twenty twenty five and beyond economy here in the United States,
which you know as I'm seeing it spells uncertainty about
(18:19):
where US companies profit, how much they profit, whether or
not it's a hit to a profit, that's an open
question in my mind. But higher interest rates potential for
higher inflation seems to be an area that a lot
of people are honing in on, honing in on as
a state of the US economy under Trump.
Speaker 3 (18:36):
Is agenda has some stagflationary elements to it, deporting a
lot of people who are working. As stagflationary. You could say, hey,
that's the right thing to do. They're not sure legally so,
and I agree with that for what it's worth in
the interest of full disclosure, But it's that is stagflationary.
There's no way around it. Tariffs are stagflationary. They reduce growth,
they increase inflation. Tax cuts, new tax cuts, not just extensions,
(18:58):
would be stimulative. That would be inflationary and stimulative. So
that might work against the stag force of some of
those other policies, the growth retarding forces. So Mike, on balance,
it's hard to say. It feels a little stagflationary to me.
Speaker 2 (19:13):
And I think that's an important question, is if we
do get a pause in the growth of this economy
and maybe a sell off in stocks. Is this something
that the Trump administration can stick to for that long
term vision. Let's take a quick break when we come back,
a little bit of Wall Street Watch. Like us on.
Speaker 1 (19:42):
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 markets so far today right
here on the Financial Change Radio Network.
Speaker 4 (20:03):
Markets are in mixed territory as traders react to the
threat of new terrorists from President elect Donald Trump. And
at two o'clock this afternoon, Wall Street Wolves shift their
attention to FED meeting minics for clues about interest rates
going forward. Right now, the Dow is off by three
hundred and two points, over two thirds of a percent,
(20:23):
SMP five hundred is up by only nine points, Nasdaq
is up nearly half a percent, or seventy nine points.
Russell two thousand is off over three quarters of a
percent or twenty points. Ten year treasure reeled is up
by six basis points at four point three to two percent,
and crude oil up nearly one percent higher, trading at
sixty nine dollars in fifty two cents a barrel. Several
(20:46):
car makers who have factories in Mexico, including Ford, Stalantis
and General Motors, are seeing losses in reaction to the
tariff news. Nissan also saw losses in Japan after a
year in critical mid stage try les. Amgen said its
experimental weight loss injection help patients lose up to twenty
percent of their weight on average. However, Wall Street was
(21:09):
expecting that percentage to be higher. Amgen down by twelve
percent so far today. Meanwhile, Abercrombie fit shares down by
six percent, despite the retailer beating third quarter earnings expectations
and offering strong guidance for the holiday period. Abercrombie also
hiked its full year guidance more retailer earnings to digest
(21:30):
after Best Buy miss third quarter revenue forecasts and cut
its full year sales forecast as new iPhones and AI
enabled lap laptops weren't enough.
Speaker 2 (21:40):
To boost sales.
Speaker 4 (21:41):
That stocked down by seven percent. And one more item
from the retail world, where Cohle's shares are down by
twenty percent after the struggling retailer missed third quarter earnings
and also named its third chief executive in three years. Elsewhere,
Zoom Video shares down by seven percent despite the video
conference and company beating analysts expectations for profit and revenue.
(22:04):
Rivian up by one and a half percent after the
ev maker said it received approval for a government loan
of up to six point six billion dollars to boost
production capacity. I'm Tucker Silvan, that's Wallstreet Watch.
Speaker 2 (22:18):
A couple of economic data points out this morning, one
of which you probably don't need me to tell you.
New home sales fell to six hundred and ten thousand units.
That's the lowest level since November of twenty twenty two.
Also came in well below consensus estimates of seven hundred
and twenty five thousand homes. New home sales now down
seventeen percent from last month, nine percent from a year ago,
so big shocker. Higher interest rates, no homes for sale.
(22:40):
People aren't buying homes. The other data point that came
out this morning consumer confidence. This has been bouncing around,
and I bring up this one because this is one
of those signals that really got the recession indication wrong
for the last five years, and so we've been talking
about a little bit more because hey, it's been signaling
recession for quite some time. The Consumer Board Consumer Confidence
(23:02):
Index in general increased in November to one hundred and
eleven point seven. That's up two point one points from
one hundred nine point six in October. And as a
frame of reference, you know, right after COVID we were
hanging out in the mid eighties to low nineties range
for a period of time. The other piece of this
index that has been used to point at recession in
(23:27):
the past was the Expectations Index. This is based on
consumer's shorter term outlook for income, business, labor market conditions.
That one ticked up to zero point four percent up
to ninety two point three. A threshold of eighty has
historically signaled recession, and we were there for a good
part of twenty twenty two, twenty twenty three, and twenty
(23:48):
twenty four. We're obviously not there right now, but that
was another, again, one of those imperfect recession signals that
we were getting over the course of the last two
years that to this point hasn't resulted in recession. Now
we've bounced back out of that territory, much like things
like the Psalm Rule indicator, the two to ten Yeld
two to ten year yield inversion and many other signals
(24:12):
that were, you know, giving kind of a false signal
about where this economy might be heading over the last
couple of years.
Speaker 3 (24:18):
Yeah, relationships that lead leading or even concurrent, so leading
would be the consumer expectations index or the stock market.
They are in theory, they're impounding people's expectations, as the
name of the expectation survey suggests, stocks do as well.
Thereforeward looking the so called PSALM rule that relationship between
the rise and unemployment and the state of the broader
(24:38):
economy is more of a concurrent indicator, and as we
know it broke down. The problem with any of these
using any of these variables as forecasters is that they
assume that relationships among them stay the same, and they don't,
which is why it's good to do what you and
Chuck do on the show Mike, which is present a
wide array of indicator who's leading?
Speaker 2 (25:00):
Do not do that current?
Speaker 3 (25:02):
No, I look at just why strictly coin flip.
Speaker 2 (25:05):
He just talks to the guy named Bob at his
barber shop, and whatever Bob has to say, Mark Vandetty
buys that day, Scott Bessant will have to fix America's finances.
According to Bill Dudley, who's writing a column piece for Bloomberg,
is it the job of the Treasury Secretary to fix
America's finances? And and what would you call broken? If
(25:28):
you write, like, what part of America's finances would you
deem broken if Scott Besson's job is to fix them?
I'm confused by the title in its entirety. I think
Scott Besson's job and is to manage those finances, do
so in an orderly fashion, and ensure that the United
(25:49):
States dollar and treasury market remains the most liquid and
reliable market in the world for placing funds and facility trade.
But I struggle to come up with what his job
is when it comes to fixing something. And that's the
problem with articles like this is you're setting people up
(26:10):
to fail if you say you need to fix something
but don't define what it is they need to fix.
Speaker 3 (26:14):
Look, the Treasury Secretary's mandate is very broad, Mike, and
I'm reading right from Treasury's website here. I won't read
the whole description, but it's only a paragraph. They formulate
and recommend domestic and international financial, economic, and tax policy
participating in the formulation of policies of general significance for
the economy, managing the public debt, overseeing the day to
day activities of the Treasury Department, carrying out its major
(26:37):
law enforcement responsibilities, etc. It's incredibly broad. Some of the
duties are quite mundane and probably get executed by the bureaucracy.
Others depend on the strength of the Treasury secretary. When
you have someone with strong knowledge of financial markets, think
Hank Paulson during the financial crisis, that might not have
ended as painful as it was, might not have ended
(26:59):
as well in the sense that we didn't descend into
depression as is. It did not for Hank Paulson, and
there are probably other examples, you know, going back through time.
So there are some mechanical things that they're responsible for,
but those are sort of taking care of by the bureaucracy.
Your job is to supervise them. There are bigger decisions
(27:21):
with respect to fiscal policy that ultimately Congress is in charge.
Speaker 2 (27:25):
That was kind of my thinking is if you're going
to define America's finances as broken or a problem, yeah,
that's Congress is reading fixing. Scott Besson's not going to
be able to fix that, and I doubt he's going
to be, you know, heading to Capitol Hill every week
to try and you know, lobby Congress to make changes
to the budget. I mean, if you want to, I
think if you were going to identify one problem with
(27:47):
America's finances, it would be that we're, you know, spending
six point seventy five trillion dollars in the fiscal year
that ended September thirtieth, that we are spending a massive portion,
in a growing portion of our annual budget on interest
on our debt. And Scott Besson's not gonna be able
to fix any of those problems.
Speaker 3 (28:07):
No, No, the charge for dealing with that lies with
the President. Obviously presents a budget, but Congress has its
own ideas by design. When you think how many Treasury
secretaries can you actually name, it's you'd be hard pressed,
probably to name more than a handful from memory from
your own lifetime, and forget about it. Historically, some have
(28:30):
been quite unimportant, others have been more consequential, but ultimately
their duties are kind of I hope I'm not understating
things here, sure, but anybody expecting miracles from Scott Besson,
expecting him to push back on the tendency to see
tariffs as the hammer and everything is a nail. And
what's the answered immigration? Tariff's, fentanyl tariffs, woman's reproductive rights,
(28:51):
easy tariffs. He actually said this during the campaign the
president elected it. Actually he was talking about childcare. I mean,
he thinks the answer to everything is a tariff. Can
Scott Besont provide him with a richer framework through with
which to analyze economic problems. I'm a little skeptical, but
we'll see.
Speaker 2 (29:07):
Markets seem to buy it. Yesterday at least, I've.
Speaker 3 (29:09):
Given up on reading anything in the market.
Speaker 2 (29:13):
Let's take a quick break. When we come back, I
do want to talk about government spending. Six point seven
trillion dollars in federal government spending last year. Elon Musk
has been tasked with cutting some two trillion dollars out
of there. Where's it going to come from? If he's
going to find that quote unquote fat, Let's take a
quick break and cover that next.
Speaker 1 (29:32):
The Financial Exchange Show podcast drops every day on Apple, Spotify,
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Speaker 2 (30:05):
All right, Mark, I'm making you Elon Musk for the day.
Find me two trillion dollars of spending cuts. We spent
six point seventy five trillion dollars in the fiscal year
that ended September thirtieth. That amount is expected to grow,
if for no other reason than just interest on our
nation's debt. So where's it gonna come from? My friend.
Speaker 3 (30:25):
Mike, It's not like nobody's but I was thinking the
first thing, I would never mind. Well, we can talk
about it later if there's time. The It's not like
nobody's looked at this problem. There are right leaning and
libertarian and I know because I read them all think tanks,
the Cato Institute, Heritage Foundation, and many others that have
been looking at federal spending since since and before the
(30:47):
Republicans took Congress in nineteen ninety four. Heck, you could
just dust off New Gingrich's contract with America. There are
plenty of good ideas.
Speaker 4 (30:54):
The sorry, Mark, turn off your microphone.
Speaker 3 (30:56):
Damn you say that again.
Speaker 2 (30:59):
Plenty of good ideas, pretty.
Speaker 3 (31:00):
Good ideas out there.
Speaker 2 (31:01):
You don't.
Speaker 3 (31:01):
You don't have to reinvent the wheel on this you
start with. My preference would be not to start like
an accountant like musk and Ramaswami. You're doing and lashing
out at individual people. They're actually doing this. They're calling
out people on social media. Hey fat cat, your time
has come. Can you imagine running a business like that? Hey,
fandaed a your luggage around here? You don't produce anything,
Your time has come it? Hopefully that doesn't sound familiar.
(31:25):
So I take a little bit issue with the way
they're approaching this. They're approaching this like like like some
hopped up McKinsey junior consultant who just wants to come
in and prove to the people that hired him that
they could be a they could be a tough guy.
And that's the way to approach this is I think philosophically,
should the federal government be in the in the business
of education? If not, we can eliminate that department. I'm sorry,
(31:47):
it's gonna cause some disruption, will help those people adjust
to their new you know, will help them with the transition,
et cetera. So I guess, Mike, my point here is
that and you made this point earlier. Federal budget is
roughly six trillly, you said six point seven. I've always
said closer to six. But either way.
Speaker 2 (32:03):
Yeah, According to the Wall Street Journal, for the fiscal
year that ended September thirtieth, it came in at six
point seventy five.
Speaker 3 (32:09):
Okay, So they want to cut roughly a third. Every
study I've seen recently suggests that you cannot do that
without cutting to the bone of entitlements.
Speaker 2 (32:19):
So let's let's get into the breakdown here at Wall
Street Journal has a pretty nice chart here if you
have a subscription and can get in there. But in
terms of mandatory and discretionary spending items, you've got one
point four to nine trillion dollars going to Medicare and Medicaid.
You've got another one point four or five trillion a
year going to Social Security, nine hundred and forty nine
(32:42):
billion dollars going to net interest. Other mandatory spending one
and a quarter trillion. What's in there? Government pensions, retired
military pensions, things along those lines. Among them, Where do
you accumulatively?
Speaker 3 (32:56):
No, you had almost six trillion, right, you keep.
Speaker 2 (32:59):
One and a half. One and a half gets me
to three four. I'm a little bit over five now.
And then we've got discretionary spending eight hundred and fifty
billion a year going to defense and then another nine
hundred fifty billion dollars going to non defense items.
Speaker 3 (33:15):
So you could cut out all the non defense and
only get half the cuts their promise.
Speaker 2 (33:19):
Correct. Yeah, if you cut everything except defense except defense.
Speaker 3 (33:23):
You still only get to half to week wants to get.
Speaker 2 (33:25):
You still only get half, that's right. And you know, Medicaid,
for instance, could be a target. Like I said, Medicare
and Medicaid. Donald Trump has made promises on not cutting Medicare,
not so much on Medicaid. The CBO estimated that fifty
six percent of Medicaid benefits in twenty twenty four would
be going towards the aged, blind and disabled. Nursing homes
(33:48):
is a big source of payments for Medicaid, for example,
for those that don't cannot make the payments, So you know,
could you cut there, And I don't know what we
would do with those people, but you know that that
could be a potential target, you know. Smaller mandatory categories
include items such as, like I mentioned, retirement benefits from
military and federal employees. I don't think you're going to
(34:09):
be cutting there uh support for states to help with
foster care and adoption. I guess maybe you know. But again,
to really move the needle here, you probably do need
to go after and to be fair, Elon Musk isn't
shying away from saying that, hey, there's too much waste
in the military and we need to ways to find
and been here in that forty years we all you know,
everybody loves that story of familiar with the story of
(34:32):
the space pen.
Speaker 3 (34:33):
I'm familiar with the story of the gold taps in
an admiral's bathroom on an aircraft is similar.
Speaker 2 (34:38):
There's plenty of them. The space pen was the idea
that we needed to develop a pen that was capable
of writing in space. The story was that NASA spent
a million dollars developing this thing. It's actually not true.
A private company did, and that well, I think the
point was, why don't we just use a pencil.
Speaker 3 (34:56):
And like rat fighting here, the same in space. Presumably
they thought it doesn't wouldn't graph fight flake off?
Speaker 2 (35:02):
I don't know, but this was a Soviet era story
where like the Americans spent millions dollars developing pen and
the Soviets just said, well, we can do the same
thing with a pencil. But yeah, they're not shying away
from that. But as I think everyone would acknowledge, finding
two trillion dollars, if not an impossibility, will be an
extreme challenge for anyone, even where they'd given the power
(35:24):
to completely slash items entirely on their own.
Speaker 4 (35:27):
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Speaker 2 (36:41):
Mark, Mark and Tucker. I'm gonna get very personal real
quick here for a second. How tall are each of you?
Speaker 1 (36:48):
Five nine?
Speaker 2 (36:49):
You're five to nine? Really?
Speaker 4 (36:51):
Why is I surprised you?
Speaker 2 (36:51):
Just the elix shorter?
Speaker 3 (36:52):
I'm approximately that hype kah, I'm a little bit.
Speaker 2 (36:55):
Under five to six. Actually very very very short, as
you both know. But what I bring this up for
is because this story surprised me that US airlines, specifically
five of the larger airlines, collected twelve point four billion
dollars from seat fees from twenty eighteen to twenty twenty three,
(37:16):
which you know, having the benefit of being well below
the national average in terms of height. Has not been
seen your pompadour, though, I am not factoring in any
of my normal hats that I wear, fluffy, my fluffy hair,
my Conan O'Brien hair that I have going here. Yeah no, no,
I'm not factoring that in either. But twelve point four
(37:39):
billion dollars collected. This speaks to in my mind, why
the likes of Southwest Airlines are struggling so much right
now when they don't really have these extra products. I
was talking about my flight back from San Francisco over
the weekend. Jet Blue with their first class seating is
something that just did not exist when that company came
(38:01):
to the market two decades ago, and the market is
very much evolved where people are willing to pay for
these types of upgrades. We've got to take a quick break.
Markets remain open in a mixed territory, with the Dow
still off by about half a percent. We'll have a
full market recap and more coming up next on the
Financial Exchange
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