December 16, 2024 • 38 mins
Chuck Zodda and Mike Armstrong discuss the upcoming Fed meeting where many expect a rate cut, but what about rate cuts in 2025? Will Trump and Powell get along? The belief of a good economy comes down to party afiliation. China's economy is losing momentum. How are Americans preparing for Trump's tariffs?
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Episode Transcript
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Speaker 1 (00:00):
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(01:07):
This is the Financial Exchange with Chuck Zada and Mike Armstrong.
Speaker 2 (01:13):
Last full week before the Christmas holiday.
Speaker 3 (01:15):
It's Chuck, Mike, and Tucker with you, and we'll kick
things off with a little bit of FED discussion because
we've got Federal Reserve with a meeting this week. Jay
Powell about to pop on the purple tie and say, hey,
here's what I'm gonna be doing with rates for the
next little bit.
Speaker 2 (01:34):
What's expected here.
Speaker 4 (01:35):
Mike, Well, first things first will be well, quite honestly,
this is one of those meetings, and I guess many
of these meetings where pay more attention to what I
say than what I do.
Speaker 2 (01:46):
Oh good, there's a ninety.
Speaker 4 (01:49):
Chance of a rate cut, so we're getting a quarter
percent of rates coming down on the short end. The
question will be where are your viewpoints? Where are the
committee's viewpoints on rates for twenty twenty five? And the
most recent dot plot that was done the day after
the election showed that the I think median forecast was
(02:12):
for four rate cuts in twenty twenty five, and that
seems unlikely to be maintained after this next meeting. The
interesting question that I don't know how he's going to
answer will be what is the Federal Reserve now doing
in terms of their assumptions for modeling out policy changes
(02:34):
from Congress. I think there's some meat on that bone,
because last time he could get away with the I've
got the quote underlined here. We don't guess, we don't speculate,
and we don't assume. But at this stage, if you
are not speculating that, for instance, tax rates are at
(02:54):
least going to stay where they are, then you're making
a pretty big assumption about what Congress does. And what
I mean by this is, according to today's laws, tax
rates will go up in twenty twenty six. If you're
actually modeling that out in your forecasts, then you're probably
coming up with a pretty inaccurate outcome of where this
(03:15):
economy goes over the next four years. And so I
think that's an interesting question, is, hey, how have your
thoughts developed on policy over the next six weeks, given
what we now know about the makeup of Congress, the
White House and conjecture coming out of all those.
Speaker 2 (03:29):
I bet he says nothing on that.
Speaker 3 (03:31):
I think he's going to continue to say, we don't
assume or speculate because look, while you while you're going
to get something on the tax side, it's very unclear
what format it's going to take. And the reason that
I say this is just looking at, you know, the
stuff that is coming out now where hey, in the House,
you've got a whole bunch of Northeastern Republicans that are
(03:53):
saying you need to do something about the salt deduction. Well,
in order to make the salt deduction even you know,
somewhat paid for, you got to figure out where the
revenue is coming from on the other side, or where
you're cutting the spending. And this gets into this whole
big budgetary mix where you're kind of like, oh, like, yeah,
we'd love to cut federal spending, but we got four
(04:14):
hundred and thirty five different House members that all want
projects in their district in order to get government money,
and no one wants to actually give that up. So
I'm not saying this is good or bad. It just
is sure, And that's the reality of the situation on this.
What I find interesting is that in this piece from
the Wall Street Journal by Nick tim Rouse, who Nick tim.
Speaker 2 (04:36):
Rouse is the Fed whisper.
Speaker 4 (04:38):
Yes, he just whispers to the Fed, Well, he whispers,
the FED seemingly whispers to him, and then he's hated
with a megaphone and says, I'm Nick Timrose of the
Wall Street Journal.
Speaker 2 (04:50):
He actually doesn't sound like that.
Speaker 3 (04:51):
But you I think there's some interesting stuff in here
that is basically telling you what the FED is going
to to say at the upcoming meeting, which is, Hey,
we're going to cut here, but we are seeing way
too many signs that inflation is still you know, cooking.
The labor market is not deteriorated the way we anticipated
(05:14):
it deteriorating in September, and as such, we're gonna put
a lot of plans on hold for any cuts over
the next three to six months. And if you think
cuts are coming, you probably have to wait until the
second half of twenty five before you're gonna get them.
That's what this piece from Tim Morouse is suggesting to me.
Speaker 4 (05:33):
Yeah, people are some others are describing this as trying
to pull off a hawkish cut, yes, which doesn't really
make much sense because you're cutting interest rates but trying
to be hawkish. But that's that's what I think Jerome
Powell is going to try and pull off. Here is Hey,
we're on this path of lower rates. We still think
it's justifiable, but let's hold off on making any plans
for twenty twenty five at this stage.
Speaker 3 (05:54):
Well, you look at what you've done now to this point,
and you've again if you just kind of assumed that
the Fed is going to end up with a cut
at the December meeting, which is priced into markets, at
this point, you take a look at and you say, Okay,
the effective FED funds raise is going to be going
from you know, five and a third basically down to
(06:16):
four and a third over the last three months.
Speaker 2 (06:18):
It's one percent in rate cuts that you've delivered there.
Speaker 3 (06:23):
In a typical recessionary cutting cycle, you typically have to
do somewhere between three hundred and four hundred basis points,
and rate.
Speaker 2 (06:32):
Cuts you can get away with like two fifty.
Speaker 3 (06:34):
But you're basically saying, hey, if this is a recession,
we've done somewhere between like twenty five to forty percent
of the work needed in order to stem that tide.
And given that we're not seeing much out there that
is truly indicating recession right now, that's probably enough at
the moment.
Speaker 2 (06:52):
Yeah, like that, it's really.
Speaker 3 (06:54):
Clear to be able for the FED to be able
to message that and say yeah, we're five with this. Now,
is that number actually going to end up being fine? No,
because there are still a million different policy permutations that
we have no idea about as far as how they're
going to be implemented, what's going to be implemented, and
(07:15):
when they're going to be implemented. We still don't have
any real clarity on the tariff.
Speaker 2 (07:20):
Side of the equation. Don't know what's going on there,
Am I wrong? Nope.
Speaker 3 (07:25):
We still don't know what's going on on the immigration
side of things as far as hey, you know, what
is the plan for how many people are going to
be deported and when agreed? And on the tax side, yeah,
there's there's chatter about a tax bill and getting something done,
but we still don't have any idea whether that is
simply an extension of the current cuts, whether there's anything
(07:47):
deeper there. And so the fiscal side is kind of
messy too in terms of what does it look like.
Speaker 4 (07:53):
Yeah, I would argue the only thing that is relatively
clear on the tax side is that rates won't be
going up twenty twenty six, and even that's not a
sure thing. But that seems relatively clear to me is
that rates which are due to go up in twenty
twenty six according to current law, probably won't beyond that.
Who's gonna get a tax cut, who's not? Will corporate
(08:15):
taxes stay the same, Will people pee taxes on social
Security tips over time, different sorts of wages.
Speaker 2 (08:21):
I think all of that's up in the air.
Speaker 4 (08:23):
The only thing I feel relatively confident about is that
tax rates across the US probably won't be heading up
in twenty twenty six like their dute do too. And
that you said probably only because you're still not fully
cat I'm I'm like ninety percent of the way there.
But even there, there's you know, there's always some degree
of doubt.
Speaker 2 (08:43):
There's some question on it.
Speaker 3 (08:44):
Certainly, so I think that when you look at the
needle that the FED is going to try to thread here.
If I were Jay Powell, the messaging would be very simple.
We saw deterioration in the economy back in September, back
in the late part of the summer, and so we
moved quickly to make sure it didn't get worse. Then
they can even try to take a little bit of
(09:05):
credit for this, which listen you don't get to be
Chair of the Fed without taking credit for something. Due
to our actions, the economy has strengthened in the last
few months. See what I did there? Yeah, you see
see what I did. As such, we do not believe
that further cuts are appropriate at this time, but we
reserve the right to implement them if necessary. Currently, we
(09:31):
view the risks to our dual mandate of higher inflation
and higher unemployment of you know, maintaining low inflation and
low unemployment as being equal as opposed to tilted towards
the employment side. Several months ago, would anyone like to
ask me any questions?
Speaker 2 (09:51):
Why are eggs so expensive? Uh? Freaking bird flew man? Like,
what the hell?
Speaker 1 (09:56):
Like?
Speaker 2 (09:56):
That's that's basically it. Yeah.
Speaker 4 (09:58):
Yeah, There's so many other factors that come into here.
We're gonna cover later about how people may be pulling
purchases up front ahead of time because they're worried about tariffs.
And so I continue to agree there's gonna be a
lot of pressure for Jerome Powell to you know, lay
down a stake in terms of where he thinks things
go in twenty twenty five. And I do tend to
(10:19):
agree that by and large. You can't possibly know at
this stage what teriffs might look like, what immigration might
look like, what taxes look like, and those will all
be highly impactful on inflation come twenty twenty five.
Speaker 3 (10:33):
Let's take a quick break here when we come back,
so we talked about the Powell Trump relationship, or if
we'd done enough Powell talk for today.
Speaker 4 (10:41):
I want to talk just briefly about the timing of
things when it comes to that relationship and what some
are going to interpret it as, and then we'll we
can move on from the Fed talk after that.
Speaker 2 (10:52):
Let's do that when we return.
Speaker 1 (10:55):
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Speaker 5 (11:19):
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Speaker 3 (11:49):
Piece in the New York Times to day, Powell's FED
appears headed for another collision with Trump. This implies that
there was a collision before, which I thought they generally
got along pretty well during his first term, So I'm
not really sure what the first collision was. Yeah, like yeah,
Trump would always say, hey, like Powell's got to you know,
(12:10):
do this, do that, But he says that about everyone.
Speaker 4 (12:13):
The only thing you can call a collision would be
on this time the campaign trail, Like that would be
the only one. And it's only a collision if Jerome
Powell engages with it. So I tend to agree a
collision might be a an exaggeration here, But here's where
things are going to show and where some are going
to call politics on the FED. The FED started cutting
(12:36):
rates in September before the election, and they did a
big rate cut of fifty basis points. They have subsequently
now cut rates the day after the election and we'll
probably do so on Wednesday of this week. Then Donald
Trump is going to take office in January, and then
the Federal Reserve is going to start meeting afterwards. And
there is a fairly significant chance that the timing all
(13:00):
that is going to work out so that Jerome Powell
pauses rate cuts pretty much the same exact time that
Donald Trump takes office. Sure it's not a sure thing,
but it's very possible that that is what occurs. And
you know, Donald Trump is being called a low rate guy.
Guess what, any president in US history can be described
as a low rate guy because they all want lower rates.
Speaker 3 (13:23):
No one sits there in the White House and says,
you know what, it would make this economy better higher
interest rates.
Speaker 2 (13:29):
Right.
Speaker 4 (13:29):
There are some that say, hey, Federal Reserve needs to
do his job. I'm going to stay out of it.
But if you ask them what they want, they want
lower rates because it stimulates the economy. It's a very clear,
you know, set of priorities. And so this is where
it's lining up. And I think for those that understand
what the Fed's job is and watch what's going on
(13:51):
the economy, it makes a fair bit of sense, right,
you know, the September rate cut might have been too big,
might have been unjustified, and I think that's debatable. But overall,
the direction of where they went over the last three
months made perfect sense given the data, and may make
sense in January to stop cutting. But the timing is
going to look suspicious to those that don't pay a
(14:12):
lot of attention, and so that's where we're heading. Well,
then they should pay better attention because it's it's not suspicious.
It's not and we will spend all of our time
clarifying it, and they should pay more attention.
Speaker 2 (14:23):
But let's be really.
Speaker 4 (14:24):
Clear, like how many people could pickt uro own power
out of the lineup?
Speaker 2 (14:29):
I would guess of average everyday Americans.
Speaker 4 (14:32):
Yeah, like what portion of Americans could pick your own
power out of the lineup?
Speaker 2 (14:35):
Tucker?
Speaker 3 (14:35):
If I give you an over under a four percent
taking the over the under over, it's tiny over an
under of ten percent under, so like seven over eight
and a half got it.
Speaker 4 (14:49):
So that is merely My point is, it's not political.
It doesn't look political to me. But when you look
at the timing of all that, plenty of pundits are
going to be all over the TV stations in the
news telling you that the only reason Jerome Powell has
stopped cutting rates is because he hates Donald Trump. And
I genuinely don't think anything could be further from the truth,
but that's probably what you.
Speaker 3 (15:10):
Look I hate even engaging with this line of thinking
because it's dumb. What benefit does ja Powell get from
making his boss upset at him? Not even his boss,
but like the because again, the FED is independent, and
he says that, like, he can't fire me. But what
does Powell get out of that. His term is up
(15:31):
before like Trump's out of office, so it's not like
he's gonna be renewed anyways. Not saying it makes sense.
Speaker 2 (15:40):
I don't know.
Speaker 3 (15:40):
I look at this and the other thing, just from
a thought exercise perspective, is Okay, let's say that the
FED decides, you know what, we're gonna do what President
Trump wants, We're gonna cut interest rates more. What I
remember that the interest rates that most Americans are act
actually concerned about are long term ones that the FED
(16:03):
doesn't control. Because the big concern on interest rates is
how much does it cost to buy a car?
Speaker 2 (16:08):
How much does it cost to buy a house?
Speaker 3 (16:10):
And car loans typically track like anywhere from like the
three to five year treasury plus you know, a whole bunch,
and mortgages typically track the ten year give or take,
you know, two to three percent on the on the upside.
So ultimately, the thing that's kind of interesting about all
this is, look, if the FED engaged in a bunch
(16:31):
of cutting right now. Let's say they went out and said, Hey,
you know what, December, we're gonna front run this. Actually
President Trump wants us to cut interest rates more great,
We're gonna take the FED funds rate down to two.
Speaker 2 (16:43):
Long term rates are going up. Long term rates are
going up.
Speaker 3 (16:45):
And the reason why I want everyone to understand this,
if the FED cuts to two percent right now, it
basically says, yeah, we're gonna try to juice the economy
and make it cheaper for people to buy things. In
doing so, it generates a bunch of economic activity, which
in turn potentially pushes up both growth and inflation, which
means long term rates probably move up. If the Fed
(17:07):
does something like that, we don't really the last forty
years in the US, we haven't had to deal with
this because inflation has been kind of non existent for
that time. But if you talk to anyone who lives
in a place like Brazil, or you talk to anyone
who lives in a place like Vietnam or Thailand, places
(17:28):
that are not as developed and that have more risk
associated with their currencies. The ways that central banks have
to behave is one where hey, if you cut at
the wrong time when there's too much growth or inflation,
you actually lose control of the long end of the
yield curve because that growth or inflation is gonna get
(17:48):
out of control. We haven't had to deal with it
in the US because the growth has been slowing because
we're getting older and the population is not growing as quickly,
and inflation has largely not been a problem over the
last forty years for any number of reasons that we
can speculate on, but ultimately it doesn't matter. It just
hasn't been a problem intoday's world, where inflation is kind
(18:11):
of plateauing, you know, right around three percent, you say, yeah,
I'm gonna cut interest rates. It doesn't necessarily move the
long end down. It's it's not something where the long
end is inherently correlated in that fashion. There look no
further if you want evidence of this in the US J.
Powell mid September September nineteenth, I believe it was, maybe
(18:34):
it was the sixteenth. It was one of those two says, Hey,
I'm cutting interest rates by half a percent. The ten
year treasury since then is up two thirds of a percent.
There's my evidence right right there. It's what's happened in
the US for the last three months. Fed started cutting.
What's happened to mortgage rates? They've gone up. They've gone up. So, yeah,
(18:59):
you can't cut your way out of this situation that
we're in right now. If a recession materializes, sure really works,
go for it, have a couple of cuts. But otherwise, yeah,
it's it's a different environment. That's why I think Powell's
gonna signal, yeah, we're halting cuts because he kind of
wants to stop the runaway of you know that that
(19:20):
ten year because it's it's kind of troubling him. I
think to take a quick break here. When we come back,
we got Wall Street Watch after this.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter. Act
TFE show breaking business news is always first right here
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Street Watch a complete look at what's moving markets. So
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Speaker 5 (20:01):
Well FED meeting week is upon US and markets are
in positive territory. Aside from the FED Wallstree will be
monitoring other economic data points due out this week, including
retail sales tomorrow, housing starts and building permits on Wednesday,
jobless claims on Thursday, and the core PC index on Friday.
At the moment that now is up by forty eight
(20:22):
points are a tenth of a percent. SMP five hundred
is up by four tenths of a percent or twenty
five points. In the NASZAC is up by three quarters
of a percent or one hundred and fifty points. RUSTED
two thousand and up by four tenths of a percent.
Ten Youar Treasure Reel down by one basis point at
four point three eight percent, and crude oil is down
(20:43):
by about a third of a percent, rating just above
seventy one dollars a barrel. Shares in super micro Computer
down by four percent after Bloomberg reported on Friday that
the data center center company had hired investment bank Evercore
ISI to help it raise equity and decktcal capital. This
comes after its auditor resigned previously in the fall, Concerns
(21:04):
have now increased that super Micro might be delisted by
the Nasdaq. Speaking of the Nasdaq, shares in micro Strategy
jumping by nearly five percent following news of the company's
addition to the NASDAQ one hundred. Elsewhere, Honeyware honey Well
up by three percent after the industry giants said its
board is exploring the possibility of separating its aero space division.
(21:29):
After its twenty four percent leap on Friday on the
heels of better than expected quarterly results. Broadcom shares are
up another eight percent today. Ford Stock was downgraded by
Jeffries to underperform from hold, with firm mentioned concerns of
an inventory overhang along with valuation. Ford shares it down
by three percent and for notable earnings this week. Micron
(21:51):
Technology will report on Wednesday, followed by FedEx and Nike
on Thursday. I'm Tucker Silvan, That's Wall Street Watch Mike.
Speaker 3 (22:01):
Every month we get the University of Michigan's Consumer Survey.
One of the things that the most famous thing that
they survey in that survey survey is confidence, where they
basically say, you know, how confident are you in the
economy now? And in the future and YadA, YadA. What
we also get from this is they do break out
(22:23):
their survey responses by political party, so you can see
exactly how, you know, different political parties are viewing different
items and also talking about, hey, you know, are you
planning on spending more or or not?
Speaker 2 (22:37):
So.
Speaker 3 (22:37):
Unsurprisingly, the latest consumer confidence data shows that Republicans' views
of their finances and the economy jump forty five points
from about sixty to one hundred and five in November
compared to October. Likewise, democrats outlook fell by the same
(22:58):
exact amount to play eight point seven, which means here's
here's what this means.
Speaker 2 (23:04):
If you are someone who.
Speaker 3 (23:06):
Voted Republican, your economy got twice as good overnight, and
if you are a Democrat, your economy got twice as bad,
which is again I'm I'm saying this facetiously, but ultimately
what it means is that we're not actually viewing the
economy even halfway objectively because quite honestly, in real terms,
(23:31):
the economy can't change that much in a month.
Speaker 4 (23:34):
So if we are to take all this at face value,
is this survey useful today? It's a big one, right,
Like you know, it's an amazing data series because it
goes all the way back to what nineteen forty something,
nineteen sixty something.
Speaker 2 (23:54):
It is a.
Speaker 4 (23:55):
Long standing data series that you can readily use to
check america feelings on the economy compared to any point
in history. It doesn't need to be adjusted for inflation.
It is a nice, long, continuous data series that has
been in existence for a long time. It's been so
(24:16):
and it's been Let's be clear, it's been useless for
the last five years in terms of indicating longer than that,
anything about the state of the economy longer than that.
Speaker 3 (24:24):
It's probably been borderline useless for the last twenty years,
aside from a couple of you know, instances here and there.
I'm looking at the long term, long ish term data
on this. Let me see if I can go all
the way back. No, that one's not going to be
the right thing. I'm looking back to two thousand. So
(24:47):
two thousand comes along, and basically through September eleventh, you
had Republicans and Democrats basically saying the same things about
the economy YEP. Immediately after that and through the remainder
of of Bush two point Zeros term you had Republicans
saying the economy was good and Democrats saying the economy
(25:07):
was bad for the entire next six and a half
years pretty consistently. Finally, everyone bottoms out in late two
thousand and eight because everyone had to be like, man,
this really is the worst, and yeah, okay, we got
accurate readings there where pretty much everyone said the economy
was horrible. You then continue through Obama's term, and during
(25:31):
that time, Democrats still said the economy was bad, but
they were rating it much more highly than Republicans. And
then you get to Trump's first term, Republicans say everything's great,
Democrats say everything's bad. You get to Biden's term, Democrats
say everything's great, Republicans say everything's bad. So it hasn't
had much meaningful signal in the last twenty five years now.
Speaker 4 (25:55):
And you also can't do much with it because it's
not as though we can point to anything here where
it shows oh yeah, and when Republicans say it's bad,
they invest less to their portfolio in stocks. For example, Right,
there's no correlation here. People just say, oh, I don't
like the way the economy is heading, but I'm not
going to change anything that I'm doing. So I'm getting
(26:17):
to the point where I don't know how useful something
like Michigan sentiment is other than being a coincident indicator
of when the entire economy really sucks. Yeah, it doesn't
even lead anything.
Speaker 3 (26:31):
No, you try to figure out what it means, and
basically all you find is that everyone's just rooting for
their own laundry, which is it's fine, like it is
what it is. But basically, whichever party owns the presidency,
like it's not even like the House or Senate matter,
it's it's quite literally whoever has the presidency, people in
(26:52):
that party say the economy's good, yeah, and people in
the other one say it's bad.
Speaker 4 (26:55):
Pretty difficult to objectively look at twenty twenty four and say, wow,
what a crap economy.
Speaker 2 (27:00):
This was, Well, you cat you have that.
Speaker 3 (27:02):
You go back at this historically over any time and
be like, yeah, like, this isn't really an accurate picture
in the last twenty five years here and look it
is what it is in terms of hey, this used
to have some signal and it just doesn't.
Speaker 2 (27:16):
Really at this point. But you know, the.
Speaker 3 (27:22):
It's really just not something that is producing a great
signal at this point, because it literally changes on a
dime every time you have a change of who's in
power in the presidency.
Speaker 4 (27:33):
Do you think there's anything to these other trends that
are being teased out here that there's a discussion of, Hey,
do members of a party who took power spend differently
in the aftermath of that? There's a study in Australia
where the winners supporters were ten to fifteen percent more
likely to buy a car according to polls. Here, when
(27:54):
a voter's party matches the presidents, they're more likely to
buy or sell a house as an example. I don't
know that I actually buy any of that. I don't know,
you know, like I don't know. Maybe, like do we
see housing activity? This will be a really interesting one
to measure, Like do we see a bunch of housing
(28:15):
activity tick up in deeply red states?
Speaker 2 (28:19):
Maybe, right, that'll be an interesting one to take a
look at.
Speaker 3 (28:22):
I guess yeah, Look, we'll be able to see it
over the next twelve months.
Speaker 2 (28:26):
But it's just, uh, I don't know.
Speaker 3 (28:29):
Let's take a quick break here when we come back,
when we talk a little bit about China's economy, because
it's bad.
Speaker 1 (28:35):
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Speaker 3 (29:07):
We got a piece in the Wall Street Journal. It's
titled China's Economy loses momentum. This implies that the Chinese
economy have momentum originally. In fact, every object has momentums,
just which question The question is what direction is that
momentum going in? And for kind of the last few years,
it's been down for Chinese economy, but you're you're continuing
(29:28):
despite you know, at one point seemed like almost you know,
daily announcements of new stimulus. Now it's back to like
weekly announcements of new stimulus. There's just not that much
going on in the Chinese economy and they can't figure
out what buttons depressed in order to get things moving there.
Speaker 2 (29:46):
Yeah, there, you're right there.
Speaker 4 (29:48):
There was almost daily announcements of those changes to policy.
And the question that we asked at the time, is
are they going to follow through and take stimulut of
steps that would be required to add actually juice the
economy to a significant degree, which the Chinese have historically,
especially Huging Ping, incredibly unwilling to do. And they involve
(30:09):
things like we have in the United States, such as
safety net programs that don't really exist there. And the
answer seems to be that we're willing to subsidize certain industries,
We're willing to make big investments, have banks make investments
in certain areas that we control, but we are not
going to take the step of creating a social safety
net that would allow individuals to invest more readily or
(30:32):
or let them feel more confident in doing so. And
that's a pretty big distinction between China and a lot
of the West.
Speaker 3 (30:39):
Well, and even if you look under the hood at
some of the stimulus that they're doing, a lot of
it is, hey, like we're gonna, you know, prop up
some of our state owned enterprises and help you know
them deal with their levels of debt. And it's kind
of like, well, that's not really stimulus, that's bail out
trying to shuffle the chairs on the deck of the Titanic, like,
what are we really doing here? So I'm they may
(31:04):
know what they need to do in order to help
things economically, but they're just unwilling because of ideology. I think,
as you noted to do so, or perhaps they see
it as let's hold back some dry powder for what
could be a looming fight with the United States under
a Trump administration.
Speaker 4 (31:22):
I kind of doubt that, but you know, could that
be part of it too. I guess if, hey, if
we're going to be in a tariff battle with the
United States come twenty twenty five, then let's save some
of this dry powder of stimulus that we might actually
need over the next few years.
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Speaker 3 (32:44):
Two different teriff related pieces both in the Wall Street Journal.
The first one titled Americans are stockpiling to get ahead
of tariffs. The second one CEOs want Trump to change
course on tariffs He isn't budging. Let's tackle the first
piece here. First, you've got people that are going out
and stockpiling goods because they are concerned about tariffs impacting
(33:04):
them at a household level. And again, in terms of
like the stuff that you're seeing people doing here, I'll
just quote from the piece because it's kind of wild
Gerard Sarik is stocking his eight hundred square foot basement
with as many bags of coffee, bottles of olive oil,
and bulk packs of paper towels that will fit in
there in preparation for Trump's taking office. What is it
(33:28):
with the paper products?
Speaker 2 (33:29):
I don't know. We go every crisis now people start
buying up toilet paper. What are we doing here? Bring
me your finest imported paper towels.
Speaker 4 (33:40):
I don't get that one at all. I had a
conversation with a client yesterday who lives in Vermont and
therefore drives a Super yes and it's ten years old,
it's starting to rust out. She's saying, you know, we're
thinking maybe we'll just make this purchase over the next
couple of months here because I don't know what tariffs
are gonna look like.
Speaker 2 (33:59):
I don't want that price to go up. And yeah,
I went through my mind.
Speaker 4 (34:01):
I'm like, all right, that Super is almost definitely mostly
manufactured here in North America. But could she be right that, yeah,
with looming tariffs on Mexico and Canada, that that price
could go up? I suppose maybe, I still doubt it,
but clearly this is front and center for people's mindsets
at the moment it.
Speaker 2 (34:20):
Is and again the individual behavior.
Speaker 3 (34:23):
Look, we all have things that we think are gonna,
you know, get more expensive or I totally understand this
because when we did see in the first Trump term, hey,
you know, one of the things he came out with
at that point was it was a tariff on imported
washing machines, and the prices did go up legitimately.
Speaker 2 (34:40):
So this is a thing.
Speaker 3 (34:42):
And quite honestly, I've been saying this since the election.
Look at this is going to be a different Trump
term than the first one. And the second piece about
how he and his staff are talking about No, this
is serious. We're going to be moving forward with these
tariffs because this is what we believe to be the
right thing. I think we have to understand that this
(35:04):
is the case. So I'm not saying go out and
buy up all the paper towels because for obvious reasons.
But what I am saying is, yeah, especially if you're
talking like big tip ticket purchases, I do kind of
get it. Where if they are things that are imported, Yeah,
there's some reasonability there as far as you know those considerations,
(35:28):
Do you start buying next year's Christmas presents a year
in advance. Probably not, because the cool ones for the
grandkids aren't available yet for next year.
Speaker 4 (35:36):
Are we getting to I mean, you've insinuated this, and
I wonder just how direct I think the Trump administration
is being fairly direct with CEOs of companies.
Speaker 2 (35:45):
They're being direct with everyone, Mike.
Speaker 4 (35:47):
So that's my question is do they come out and
say something along the line take a note from JFK
like ask not what your country can do for you,
but what you can do for your country, Like are
we heading for that type of apps of the American
public of Look, things are going to get more expensive,
and acknowledgment that, hey, prices are going to go up
in the short term based on what I'm proposing doing,
(36:09):
and I want you all to hold on because this
is what I envision for the future of the American economy.
That's the piece that they're talking directly about what they're
going to do, but at the same time not acknowledging
the possibility that it does mean higher prices. And frankly,
what we're seeing on the purchase side of things, or
at least I don't know that we're seeing any direct
(36:31):
evidence of big bulk purchases being made in advance. But
that's right there speaking to inflation expectations. If people are
buying subrews because they're worried about prices going up, then
guess what prices of subrews will go up because people
expect them to.
Speaker 2 (36:46):
And look, this is something. The closest that I think we've.
Speaker 3 (36:49):
Come is back in October Elon Musk, who you know,
he's not in the incoming administration because the Department of
Government Efficiency is not a real department of the government actually,
but he said he was, you know, in an interview
he said, yeah, this could cause some temporary hardship but
lead to long term prosperity. And this is what I
(37:11):
think the incoming administration believes is, hey, we're going to
try to do the hard work in order to make
things better for the long run, even if it hurts
in the short term. Now, they haven't come out and
say it said that directly, as you noted, but this
is what I think they believe. Are they actually right,
I don't know. I mean, this is this is a
(37:33):
hard you know, this is a hard thing to try
to do.
Speaker 1 (37:36):
It.
Speaker 3 (37:36):
It's got a ton of moving parts and the order
the sequencing and the magnitude of it all matters in
order to make sure that you're doing it right. So
I don't know that I can sit here and say yes,
it's definitely going to work, or no, it isn't right.
But I don't think they're being coy about this and
like pretending they're not going to do anything. I think
from the conversations that I've had with people that have
(37:58):
been engaged with the incoming administration, they've they've largely said, yeah,
they're serious about this stuff, and you need to prepare
for it. So I I.
Speaker 2 (38:09):
When when people tell me who they are, I try
to believe.
Speaker 3 (38:12):
Them, and then you see what they actually do, and
that's that's how you can actually tell what's going on.
Speaker 2 (38:17):
Quick break here.
Speaker 3 (38:17):
We got more coming up an hour two on the
Financial Exchange
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(01:07):
This is the Financial Exchange with Chuck Zada and Mike Armstrong.
Speaker 2 (01:13):
Last full week before the Christmas holiday.
Speaker 3 (01:15):
It's Chuck, Mike, and Tucker with you, and we'll kick
things off with a little bit of FED discussion because
we've got Federal Reserve with a meeting this week. Jay
Powell about to pop on the purple tie and say, hey,
here's what I'm gonna be doing with rates for the
next little bit.
Speaker 2 (01:34):
What's expected here.
Speaker 4 (01:35):
Mike, Well, first things first will be well, quite honestly,
this is one of those meetings, and I guess many
of these meetings where pay more attention to what I
say than what I do.
Speaker 2 (01:46):
Oh good, there's a ninety.
Speaker 4 (01:49):
Chance of a rate cut, so we're getting a quarter
percent of rates coming down on the short end. The
question will be where are your viewpoints? Where are the
committee's viewpoints on rates for twenty twenty five? And the
most recent dot plot that was done the day after
the election showed that the I think median forecast was
(02:12):
for four rate cuts in twenty twenty five, and that
seems unlikely to be maintained after this next meeting. The
interesting question that I don't know how he's going to
answer will be what is the Federal Reserve now doing
in terms of their assumptions for modeling out policy changes
(02:34):
from Congress. I think there's some meat on that bone,
because last time he could get away with the I've
got the quote underlined here. We don't guess, we don't speculate,
and we don't assume. But at this stage, if you
are not speculating that, for instance, tax rates are at
(02:54):
least going to stay where they are, then you're making
a pretty big assumption about what Congress does. And what
I mean by this is, according to today's laws, tax
rates will go up in twenty twenty six. If you're
actually modeling that out in your forecasts, then you're probably
coming up with a pretty inaccurate outcome of where this
(03:15):
economy goes over the next four years. And so I
think that's an interesting question, is, hey, how have your
thoughts developed on policy over the next six weeks, given
what we now know about the makeup of Congress, the
White House and conjecture coming out of all those.
Speaker 2 (03:29):
I bet he says nothing on that.
Speaker 3 (03:31):
I think he's going to continue to say, we don't
assume or speculate because look, while you while you're going
to get something on the tax side, it's very unclear
what format it's going to take. And the reason that
I say this is just looking at, you know, the
stuff that is coming out now where hey, in the House,
you've got a whole bunch of Northeastern Republicans that are
(03:53):
saying you need to do something about the salt deduction. Well,
in order to make the salt deduction even you know,
somewhat paid for, you got to figure out where the
revenue is coming from on the other side, or where
you're cutting the spending. And this gets into this whole
big budgetary mix where you're kind of like, oh, like, yeah,
we'd love to cut federal spending, but we got four
(04:14):
hundred and thirty five different House members that all want
projects in their district in order to get government money,
and no one wants to actually give that up. So
I'm not saying this is good or bad. It just
is sure, And that's the reality of the situation on this.
What I find interesting is that in this piece from
the Wall Street Journal by Nick tim Rouse, who Nick tim.
Speaker 2 (04:36):
Rouse is the Fed whisper.
Speaker 4 (04:38):
Yes, he just whispers to the Fed, Well, he whispers,
the FED seemingly whispers to him, and then he's hated
with a megaphone and says, I'm Nick Timrose of the
Wall Street Journal.
Speaker 2 (04:50):
He actually doesn't sound like that.
Speaker 3 (04:51):
But you I think there's some interesting stuff in here
that is basically telling you what the FED is going
to to say at the upcoming meeting, which is, Hey,
we're going to cut here, but we are seeing way
too many signs that inflation is still you know, cooking.
The labor market is not deteriorated the way we anticipated
(05:14):
it deteriorating in September, and as such, we're gonna put
a lot of plans on hold for any cuts over
the next three to six months. And if you think
cuts are coming, you probably have to wait until the
second half of twenty five before you're gonna get them.
That's what this piece from Tim Morouse is suggesting to me.
Speaker 4 (05:33):
Yeah, people are some others are describing this as trying
to pull off a hawkish cut, yes, which doesn't really
make much sense because you're cutting interest rates but trying
to be hawkish. But that's that's what I think Jerome
Powell is going to try and pull off. Here is Hey,
we're on this path of lower rates. We still think
it's justifiable, but let's hold off on making any plans
for twenty twenty five at this stage.
Speaker 3 (05:54):
Well, you look at what you've done now to this point,
and you've again if you just kind of assumed that
the Fed is going to end up with a cut
at the December meeting, which is priced into markets, at
this point, you take a look at and you say, Okay,
the effective FED funds raise is going to be going
from you know, five and a third basically down to
(06:16):
four and a third over the last three months.
Speaker 2 (06:18):
It's one percent in rate cuts that you've delivered there.
Speaker 3 (06:23):
In a typical recessionary cutting cycle, you typically have to
do somewhere between three hundred and four hundred basis points,
and rate.
Speaker 2 (06:32):
Cuts you can get away with like two fifty.
Speaker 3 (06:34):
But you're basically saying, hey, if this is a recession,
we've done somewhere between like twenty five to forty percent
of the work needed in order to stem that tide.
And given that we're not seeing much out there that
is truly indicating recession right now, that's probably enough at
the moment.
Speaker 2 (06:52):
Yeah, like that, it's really.
Speaker 3 (06:54):
Clear to be able for the FED to be able
to message that and say yeah, we're five with this. Now,
is that number actually going to end up being fine? No,
because there are still a million different policy permutations that
we have no idea about as far as how they're
going to be implemented, what's going to be implemented, and
(07:15):
when they're going to be implemented. We still don't have
any real clarity on the tariff.
Speaker 2 (07:20):
Side of the equation. Don't know what's going on there,
Am I wrong? Nope.
Speaker 3 (07:25):
We still don't know what's going on on the immigration
side of things as far as hey, you know, what
is the plan for how many people are going to
be deported and when agreed? And on the tax side, yeah,
there's there's chatter about a tax bill and getting something done,
but we still don't have any idea whether that is
simply an extension of the current cuts, whether there's anything
(07:47):
deeper there. And so the fiscal side is kind of
messy too in terms of what does it look like.
Speaker 4 (07:53):
Yeah, I would argue the only thing that is relatively
clear on the tax side is that rates won't be
going up twenty twenty six, and even that's not a
sure thing. But that seems relatively clear to me is
that rates which are due to go up in twenty
twenty six according to current law, probably won't beyond that.
Who's gonna get a tax cut, who's not? Will corporate
(08:15):
taxes stay the same, Will people pee taxes on social
Security tips over time, different sorts of wages.
Speaker 2 (08:21):
I think all of that's up in the air.
Speaker 4 (08:23):
The only thing I feel relatively confident about is that
tax rates across the US probably won't be heading up
in twenty twenty six like their dute do too. And
that you said probably only because you're still not fully
cat I'm I'm like ninety percent of the way there.
But even there, there's you know, there's always some degree
of doubt.
Speaker 2 (08:43):
There's some question on it.
Speaker 3 (08:44):
Certainly, so I think that when you look at the
needle that the FED is going to try to thread here.
If I were Jay Powell, the messaging would be very simple.
We saw deterioration in the economy back in September, back
in the late part of the summer, and so we
moved quickly to make sure it didn't get worse. Then
they can even try to take a little bit of
(09:05):
credit for this, which listen you don't get to be
Chair of the Fed without taking credit for something. Due
to our actions, the economy has strengthened in the last
few months. See what I did there? Yeah, you see
see what I did. As such, we do not believe
that further cuts are appropriate at this time, but we
reserve the right to implement them if necessary. Currently, we
(09:31):
view the risks to our dual mandate of higher inflation
and higher unemployment of you know, maintaining low inflation and
low unemployment as being equal as opposed to tilted towards
the employment side. Several months ago, would anyone like to
ask me any questions?
Speaker 2 (09:51):
Why are eggs so expensive? Uh? Freaking bird flew man? Like,
what the hell?
Speaker 1 (09:56):
Like?
Speaker 2 (09:56):
That's that's basically it. Yeah.
Speaker 4 (09:58):
Yeah, There's so many other factors that come into here.
We're gonna cover later about how people may be pulling
purchases up front ahead of time because they're worried about tariffs.
And so I continue to agree there's gonna be a
lot of pressure for Jerome Powell to you know, lay
down a stake in terms of where he thinks things
go in twenty twenty five. And I do tend to
(10:19):
agree that by and large. You can't possibly know at
this stage what teriffs might look like, what immigration might
look like, what taxes look like, and those will all
be highly impactful on inflation come twenty twenty five.
Speaker 3 (10:33):
Let's take a quick break here when we come back,
so we talked about the Powell Trump relationship, or if
we'd done enough Powell talk for today.
Speaker 4 (10:41):
I want to talk just briefly about the timing of
things when it comes to that relationship and what some
are going to interpret it as, and then we'll we
can move on from the Fed talk after that.
Speaker 2 (10:52):
Let's do that when we return.
Speaker 1 (10:55):
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Speaker 5 (11:19):
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Speaker 3 (11:49):
Piece in the New York Times to day, Powell's FED
appears headed for another collision with Trump. This implies that
there was a collision before, which I thought they generally
got along pretty well during his first term, So I'm
not really sure what the first collision was. Yeah, like yeah,
Trump would always say, hey, like Powell's got to you know,
(12:10):
do this, do that, But he says that about everyone.
Speaker 4 (12:13):
The only thing you can call a collision would be
on this time the campaign trail, Like that would be
the only one. And it's only a collision if Jerome
Powell engages with it. So I tend to agree a
collision might be a an exaggeration here, But here's where
things are going to show and where some are going
to call politics on the FED. The FED started cutting
(12:36):
rates in September before the election, and they did a
big rate cut of fifty basis points. They have subsequently
now cut rates the day after the election and we'll
probably do so on Wednesday of this week. Then Donald
Trump is going to take office in January, and then
the Federal Reserve is going to start meeting afterwards. And
there is a fairly significant chance that the timing all
(13:00):
that is going to work out so that Jerome Powell
pauses rate cuts pretty much the same exact time that
Donald Trump takes office. Sure it's not a sure thing,
but it's very possible that that is what occurs. And
you know, Donald Trump is being called a low rate guy.
Guess what, any president in US history can be described
as a low rate guy because they all want lower rates.
Speaker 3 (13:23):
No one sits there in the White House and says,
you know what, it would make this economy better higher
interest rates.
Speaker 2 (13:29):
Right.
Speaker 4 (13:29):
There are some that say, hey, Federal Reserve needs to
do his job. I'm going to stay out of it.
But if you ask them what they want, they want
lower rates because it stimulates the economy. It's a very clear,
you know, set of priorities. And so this is where
it's lining up. And I think for those that understand
what the Fed's job is and watch what's going on
(13:51):
the economy, it makes a fair bit of sense, right,
you know, the September rate cut might have been too big,
might have been unjustified, and I think that's debatable. But overall,
the direction of where they went over the last three
months made perfect sense given the data, and may make
sense in January to stop cutting. But the timing is
going to look suspicious to those that don't pay a
(14:12):
lot of attention, and so that's where we're heading. Well,
then they should pay better attention because it's it's not suspicious.
It's not and we will spend all of our time
clarifying it, and they should pay more attention.
Speaker 2 (14:23):
But let's be really.
Speaker 4 (14:24):
Clear, like how many people could pickt uro own power
out of the lineup?
Speaker 2 (14:29):
I would guess of average everyday Americans.
Speaker 4 (14:32):
Yeah, like what portion of Americans could pick your own
power out of the lineup?
Speaker 2 (14:35):
Tucker?
Speaker 3 (14:35):
If I give you an over under a four percent
taking the over the under over, it's tiny over an
under of ten percent under, so like seven over eight
and a half got it.
Speaker 4 (14:49):
So that is merely My point is, it's not political.
It doesn't look political to me. But when you look
at the timing of all that, plenty of pundits are
going to be all over the TV stations in the
news telling you that the only reason Jerome Powell has
stopped cutting rates is because he hates Donald Trump. And
I genuinely don't think anything could be further from the truth,
but that's probably what you.
Speaker 3 (15:10):
Look I hate even engaging with this line of thinking
because it's dumb. What benefit does ja Powell get from
making his boss upset at him? Not even his boss,
but like the because again, the FED is independent, and
he says that, like, he can't fire me. But what
does Powell get out of that. His term is up
(15:31):
before like Trump's out of office, so it's not like
he's gonna be renewed anyways. Not saying it makes sense.
Speaker 2 (15:40):
I don't know.
Speaker 3 (15:40):
I look at this and the other thing, just from
a thought exercise perspective, is Okay, let's say that the
FED decides, you know what, we're gonna do what President
Trump wants, We're gonna cut interest rates more. What I
remember that the interest rates that most Americans are act
actually concerned about are long term ones that the FED
(16:03):
doesn't control. Because the big concern on interest rates is
how much does it cost to buy a car?
Speaker 2 (16:08):
How much does it cost to buy a house?
Speaker 3 (16:10):
And car loans typically track like anywhere from like the
three to five year treasury plus you know, a whole bunch,
and mortgages typically track the ten year give or take,
you know, two to three percent on the on the upside.
So ultimately, the thing that's kind of interesting about all
this is, look, if the FED engaged in a bunch
(16:31):
of cutting right now. Let's say they went out and said, Hey,
you know what, December, we're gonna front run this. Actually
President Trump wants us to cut interest rates more great,
We're gonna take the FED funds rate down to two.
Speaker 2 (16:43):
Long term rates are going up. Long term rates are
going up.
Speaker 3 (16:45):
And the reason why I want everyone to understand this,
if the FED cuts to two percent right now, it
basically says, yeah, we're gonna try to juice the economy
and make it cheaper for people to buy things. In
doing so, it generates a bunch of economic activity, which
in turn potentially pushes up both growth and inflation, which
means long term rates probably move up. If the Fed
(17:07):
does something like that, we don't really the last forty
years in the US, we haven't had to deal with
this because inflation has been kind of non existent for
that time. But if you talk to anyone who lives
in a place like Brazil, or you talk to anyone
who lives in a place like Vietnam or Thailand, places
(17:28):
that are not as developed and that have more risk
associated with their currencies. The ways that central banks have
to behave is one where hey, if you cut at
the wrong time when there's too much growth or inflation,
you actually lose control of the long end of the
yield curve because that growth or inflation is gonna get
(17:48):
out of control. We haven't had to deal with it
in the US because the growth has been slowing because
we're getting older and the population is not growing as quickly,
and inflation has largely not been a problem over the
last forty years for any number of reasons that we
can speculate on, but ultimately it doesn't matter. It just
hasn't been a problem intoday's world, where inflation is kind
(18:11):
of plateauing, you know, right around three percent, you say, yeah,
I'm gonna cut interest rates. It doesn't necessarily move the
long end down. It's it's not something where the long
end is inherently correlated in that fashion. There look no
further if you want evidence of this in the US J.
Powell mid September September nineteenth, I believe it was, maybe
(18:34):
it was the sixteenth. It was one of those two says, Hey,
I'm cutting interest rates by half a percent. The ten
year treasury since then is up two thirds of a percent.
There's my evidence right right there. It's what's happened in
the US for the last three months. Fed started cutting.
What's happened to mortgage rates? They've gone up. They've gone up. So, yeah,
(18:59):
you can't cut your way out of this situation that
we're in right now. If a recession materializes, sure really works,
go for it, have a couple of cuts. But otherwise, yeah,
it's it's a different environment. That's why I think Powell's
gonna signal, yeah, we're halting cuts because he kind of
wants to stop the runaway of you know that that
(19:20):
ten year because it's it's kind of troubling him. I
think to take a quick break here. When we come back,
we got Wall Street Watch after this.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter. Act
TFE show breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets. So
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:01):
Well FED meeting week is upon US and markets are
in positive territory. Aside from the FED Wallstree will be
monitoring other economic data points due out this week, including
retail sales tomorrow, housing starts and building permits on Wednesday,
jobless claims on Thursday, and the core PC index on Friday.
At the moment that now is up by forty eight
(20:22):
points are a tenth of a percent. SMP five hundred
is up by four tenths of a percent or twenty
five points. In the NASZAC is up by three quarters
of a percent or one hundred and fifty points. RUSTED
two thousand and up by four tenths of a percent.
Ten Youar Treasure Reel down by one basis point at
four point three eight percent, and crude oil is down
(20:43):
by about a third of a percent, rating just above
seventy one dollars a barrel. Shares in super micro Computer
down by four percent after Bloomberg reported on Friday that
the data center center company had hired investment bank Evercore
ISI to help it raise equity and decktcal capital. This
comes after its auditor resigned previously in the fall, Concerns
(21:04):
have now increased that super Micro might be delisted by
the Nasdaq. Speaking of the Nasdaq, shares in micro Strategy
jumping by nearly five percent following news of the company's
addition to the NASDAQ one hundred. Elsewhere, Honeyware honey Well
up by three percent after the industry giants said its
board is exploring the possibility of separating its aero space division.
(21:29):
After its twenty four percent leap on Friday on the
heels of better than expected quarterly results. Broadcom shares are
up another eight percent today. Ford Stock was downgraded by
Jeffries to underperform from hold, with firm mentioned concerns of
an inventory overhang along with valuation. Ford shares it down
by three percent and for notable earnings this week. Micron
(21:51):
Technology will report on Wednesday, followed by FedEx and Nike
on Thursday. I'm Tucker Silvan, That's Wall Street Watch Mike.
Speaker 3 (22:01):
Every month we get the University of Michigan's Consumer Survey.
One of the things that the most famous thing that
they survey in that survey survey is confidence, where they
basically say, you know, how confident are you in the
economy now? And in the future and YadA, YadA. What
we also get from this is they do break out
(22:23):
their survey responses by political party, so you can see
exactly how, you know, different political parties are viewing different
items and also talking about, hey, you know, are you
planning on spending more or or not?
Speaker 2 (22:37):
So.
Speaker 3 (22:37):
Unsurprisingly, the latest consumer confidence data shows that Republicans' views
of their finances and the economy jump forty five points
from about sixty to one hundred and five in November
compared to October. Likewise, democrats outlook fell by the same
(22:58):
exact amount to play eight point seven, which means here's
here's what this means.
Speaker 2 (23:04):
If you are someone who.
Speaker 3 (23:06):
Voted Republican, your economy got twice as good overnight, and
if you are a Democrat, your economy got twice as bad,
which is again I'm I'm saying this facetiously, but ultimately
what it means is that we're not actually viewing the
economy even halfway objectively because quite honestly, in real terms,
(23:31):
the economy can't change that much in a month.
Speaker 4 (23:34):
So if we are to take all this at face value,
is this survey useful today? It's a big one, right,
Like you know, it's an amazing data series because it
goes all the way back to what nineteen forty something,
nineteen sixty something.
Speaker 2 (23:54):
It is a.
Speaker 4 (23:55):
Long standing data series that you can readily use to
check america feelings on the economy compared to any point
in history. It doesn't need to be adjusted for inflation.
It is a nice, long, continuous data series that has
been in existence for a long time. It's been so
(24:16):
and it's been Let's be clear, it's been useless for
the last five years in terms of indicating longer than that,
anything about the state of the economy longer than that.
Speaker 3 (24:24):
It's probably been borderline useless for the last twenty years,
aside from a couple of you know, instances here and there.
I'm looking at the long term, long ish term data
on this. Let me see if I can go all
the way back. No, that one's not going to be
the right thing. I'm looking back to two thousand. So
(24:47):
two thousand comes along, and basically through September eleventh, you
had Republicans and Democrats basically saying the same things about
the economy YEP. Immediately after that and through the remainder
of of Bush two point Zeros term you had Republicans
saying the economy was good and Democrats saying the economy
(25:07):
was bad for the entire next six and a half
years pretty consistently. Finally, everyone bottoms out in late two
thousand and eight because everyone had to be like, man,
this really is the worst, and yeah, okay, we got
accurate readings there where pretty much everyone said the economy
was horrible. You then continue through Obama's term, and during
(25:31):
that time, Democrats still said the economy was bad, but
they were rating it much more highly than Republicans. And
then you get to Trump's first term, Republicans say everything's great,
Democrats say everything's bad. You get to Biden's term, Democrats
say everything's great, Republicans say everything's bad. So it hasn't
had much meaningful signal in the last twenty five years now.
Speaker 4 (25:55):
And you also can't do much with it because it's
not as though we can point to anything here where
it shows oh yeah, and when Republicans say it's bad,
they invest less to their portfolio in stocks. For example, Right,
there's no correlation here. People just say, oh, I don't
like the way the economy is heading, but I'm not
going to change anything that I'm doing. So I'm getting
(26:17):
to the point where I don't know how useful something
like Michigan sentiment is other than being a coincident indicator
of when the entire economy really sucks. Yeah, it doesn't
even lead anything.
Speaker 3 (26:31):
No, you try to figure out what it means, and
basically all you find is that everyone's just rooting for
their own laundry, which is it's fine, like it is
what it is. But basically, whichever party owns the presidency,
like it's not even like the House or Senate matter,
it's it's quite literally whoever has the presidency, people in
(26:52):
that party say the economy's good, yeah, and people in
the other one say it's bad.
Speaker 4 (26:55):
Pretty difficult to objectively look at twenty twenty four and say, wow,
what a crap economy.
Speaker 2 (27:00):
This was, Well, you cat you have that.
Speaker 3 (27:02):
You go back at this historically over any time and
be like, yeah, like, this isn't really an accurate picture
in the last twenty five years here and look it
is what it is in terms of hey, this used
to have some signal and it just doesn't.
Speaker 2 (27:16):
Really at this point. But you know, the.
Speaker 3 (27:22):
It's really just not something that is producing a great
signal at this point, because it literally changes on a
dime every time you have a change of who's in
power in the presidency.
Speaker 4 (27:33):
Do you think there's anything to these other trends that
are being teased out here that there's a discussion of, Hey,
do members of a party who took power spend differently
in the aftermath of that? There's a study in Australia
where the winners supporters were ten to fifteen percent more
likely to buy a car according to polls. Here, when
(27:54):
a voter's party matches the presidents, they're more likely to
buy or sell a house as an example. I don't
know that I actually buy any of that. I don't know,
you know, like I don't know. Maybe, like do we
see housing activity? This will be a really interesting one
to measure, Like do we see a bunch of housing
(28:15):
activity tick up in deeply red states?
Speaker 2 (28:19):
Maybe, right, that'll be an interesting one to take a
look at.
Speaker 3 (28:22):
I guess yeah, Look, we'll be able to see it
over the next twelve months.
Speaker 2 (28:26):
But it's just, uh, I don't know.
Speaker 3 (28:29):
Let's take a quick break here when we come back,
when we talk a little bit about China's economy, because
it's bad.
Speaker 1 (28:35):
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(28:57):
This is the Financial Exchange Radio Network.
Speaker 3 (29:07):
We got a piece in the Wall Street Journal. It's
titled China's Economy loses momentum. This implies that the Chinese
economy have momentum originally. In fact, every object has momentums,
just which question The question is what direction is that
momentum going in? And for kind of the last few years,
it's been down for Chinese economy, but you're you're continuing
(29:28):
despite you know, at one point seemed like almost you know,
daily announcements of new stimulus. Now it's back to like
weekly announcements of new stimulus. There's just not that much
going on in the Chinese economy and they can't figure
out what buttons depressed in order to get things moving there.
Speaker 2 (29:46):
Yeah, there, you're right there.
Speaker 4 (29:48):
There was almost daily announcements of those changes to policy.
And the question that we asked at the time, is
are they going to follow through and take stimulut of
steps that would be required to add actually juice the
economy to a significant degree, which the Chinese have historically,
especially Huging Ping, incredibly unwilling to do. And they involve
(30:09):
things like we have in the United States, such as
safety net programs that don't really exist there. And the
answer seems to be that we're willing to subsidize certain industries,
We're willing to make big investments, have banks make investments
in certain areas that we control, but we are not
going to take the step of creating a social safety
net that would allow individuals to invest more readily or
(30:32):
or let them feel more confident in doing so. And
that's a pretty big distinction between China and a lot
of the West.
Speaker 3 (30:39):
Well, and even if you look under the hood at
some of the stimulus that they're doing, a lot of
it is, hey, like we're gonna, you know, prop up
some of our state owned enterprises and help you know
them deal with their levels of debt. And it's kind
of like, well, that's not really stimulus, that's bail out
trying to shuffle the chairs on the deck of the Titanic, like,
what are we really doing here? So I'm they may
(31:04):
know what they need to do in order to help
things economically, but they're just unwilling because of ideology. I think,
as you noted to do so, or perhaps they see
it as let's hold back some dry powder for what
could be a looming fight with the United States under
a Trump administration.
Speaker 4 (31:22):
I kind of doubt that, but you know, could that
be part of it too. I guess if, hey, if
we're going to be in a tariff battle with the
United States come twenty twenty five, then let's save some
of this dry powder of stimulus that we might actually
need over the next few years.
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Speaker 1 (32:33):
The proceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal or investment services.
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Speaker 3 (32:44):
Two different teriff related pieces both in the Wall Street Journal.
The first one titled Americans are stockpiling to get ahead
of tariffs. The second one CEOs want Trump to change
course on tariffs He isn't budging. Let's tackle the first
piece here. First, you've got people that are going out
and stockpiling goods because they are concerned about tariffs impacting
(33:04):
them at a household level. And again, in terms of
like the stuff that you're seeing people doing here, I'll
just quote from the piece because it's kind of wild
Gerard Sarik is stocking his eight hundred square foot basement
with as many bags of coffee, bottles of olive oil,
and bulk packs of paper towels that will fit in
there in preparation for Trump's taking office. What is it
(33:28):
with the paper products?
Speaker 2 (33:29):
I don't know. We go every crisis now people start
buying up toilet paper. What are we doing here? Bring
me your finest imported paper towels.
Speaker 4 (33:40):
I don't get that one at all. I had a
conversation with a client yesterday who lives in Vermont and
therefore drives a Super yes and it's ten years old,
it's starting to rust out. She's saying, you know, we're
thinking maybe we'll just make this purchase over the next
couple of months here because I don't know what tariffs
are gonna look like.
Speaker 2 (33:59):
I don't want that price to go up. And yeah,
I went through my mind.
Speaker 4 (34:01):
I'm like, all right, that Super is almost definitely mostly
manufactured here in North America. But could she be right that, yeah,
with looming tariffs on Mexico and Canada, that that price
could go up? I suppose maybe, I still doubt it,
but clearly this is front and center for people's mindsets
at the moment it.
Speaker 2 (34:20):
Is and again the individual behavior.
Speaker 3 (34:23):
Look, we all have things that we think are gonna,
you know, get more expensive or I totally understand this
because when we did see in the first Trump term, hey,
you know, one of the things he came out with
at that point was it was a tariff on imported
washing machines, and the prices did go up legitimately.
Speaker 2 (34:40):
So this is a thing.
Speaker 3 (34:42):
And quite honestly, I've been saying this since the election.
Look at this is going to be a different Trump
term than the first one. And the second piece about
how he and his staff are talking about No, this
is serious. We're going to be moving forward with these
tariffs because this is what we believe to be the
right thing. I think we have to understand that this
(35:04):
is the case. So I'm not saying go out and
buy up all the paper towels because for obvious reasons.
But what I am saying is, yeah, especially if you're
talking like big tip ticket purchases, I do kind of
get it. Where if they are things that are imported, Yeah,
there's some reasonability there as far as you know those considerations,
(35:28):
Do you start buying next year's Christmas presents a year
in advance. Probably not, because the cool ones for the
grandkids aren't available yet for next year.
Speaker 4 (35:36):
Are we getting to I mean, you've insinuated this, and
I wonder just how direct I think the Trump administration
is being fairly direct with CEOs of companies.
Speaker 2 (35:45):
They're being direct with everyone, Mike.
Speaker 4 (35:47):
So that's my question is do they come out and
say something along the line take a note from JFK
like ask not what your country can do for you,
but what you can do for your country, Like are
we heading for that type of apps of the American
public of Look, things are going to get more expensive,
and acknowledgment that, hey, prices are going to go up
in the short term based on what I'm proposing doing,
(36:09):
and I want you all to hold on because this
is what I envision for the future of the American economy.
That's the piece that they're talking directly about what they're
going to do, but at the same time not acknowledging
the possibility that it does mean higher prices. And frankly,
what we're seeing on the purchase side of things, or
at least I don't know that we're seeing any direct
(36:31):
evidence of big bulk purchases being made in advance. But
that's right there speaking to inflation expectations. If people are
buying subrews because they're worried about prices going up, then
guess what prices of subrews will go up because people
expect them to.
Speaker 2 (36:46):
And look, this is something. The closest that I think we've.
Speaker 3 (36:49):
Come is back in October Elon Musk, who you know,
he's not in the incoming administration because the Department of
Government Efficiency is not a real department of the government actually,
but he said he was, you know, in an interview
he said, yeah, this could cause some temporary hardship but
lead to long term prosperity. And this is what I
(37:11):
think the incoming administration believes is, hey, we're going to
try to do the hard work in order to make
things better for the long run, even if it hurts
in the short term. Now, they haven't come out and
say it said that directly, as you noted, but this
is what I think they believe. Are they actually right,
I don't know. I mean, this is this is a
(37:33):
hard you know, this is a hard thing to try
to do.
Speaker 1 (37:36):
It.
Speaker 3 (37:36):
It's got a ton of moving parts and the order
the sequencing and the magnitude of it all matters in
order to make sure that you're doing it right. So
I don't know that I can sit here and say yes,
it's definitely going to work, or no, it isn't right.
But I don't think they're being coy about this and
like pretending they're not going to do anything. I think
from the conversations that I've had with people that have
(37:58):
been engaged with the incoming administration, they've they've largely said, yeah,
they're serious about this stuff, and you need to prepare
for it. So I I.
Speaker 2 (38:09):
When when people tell me who they are, I try
to believe.
Speaker 3 (38:12):
Them, and then you see what they actually do, and
that's that's how you can actually tell what's going on.
Speaker 2 (38:17):
Quick break here.
Speaker 3 (38:17):
We got more coming up an hour two on the
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