February 7, 2025 • 38 mins
Mike Armstrong and Marc Fandetti explain how tariffs could and likely will increase the price you pay for insurance. State Farm was all in on California, until just before the fires hit. Amazon shares fall after sales outlook is weaker than expected. Tesla car sales in China fall over 11% as competition heats up. Bessent calms markets by leaving US dollar and debt plans intact. Paul LaMonica, Barron's, joins the show to chat about Etsy.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Mike Armstrong and Mark Vandetti. Your exclusive look
at business and financial news affecting your day, your city,
(00:43):
your world. Stay informed and up to date about economic
and market trends, plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting das V five K dot Boston and
making a donation Today. Face is the Financial Exchange with
(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Happy Friday, and pardon me, welcome back to
the Financial Exchange. We have markets in selloff mode this
morning on the on the tale of two news stories today.
The first was the jobs report released this morning at
eight thirty am. Generally a good news story there, with
one hundred and forty three thousand jobs created in the
(01:31):
month of January, unemployment rate edging down to four point
zero percent, up from a twelve month previous understanding high
at four point three percent. You know, major job growth
across sectors. Go ahead.
Speaker 3 (01:44):
Mark, it's been so low for so long. I don't
think we appreciate exactly how extraordinary unemployment at or around
for never mind below four percent is. We were there
a little bit in the very late twenty tens, but
you have to go all the way back to the
late nineties, and that was briefer than the current episode,
and then before that to the late nineteen sixties. It's
(02:05):
really extraordinary.
Speaker 2 (02:06):
Yeah, unemployment rate as low as it is right now.
To your point, we got there briefly prior to COVID.
We never got there before the Great Recession. We did
get there prior to the dot com bubble. But than that, yeah,
other than that, getting down to those levels. To Mark's point,
last time that happened was late nineteen.
Speaker 3 (02:25):
Sixty and it went on for several years. The sixties
was a remarkable run and it ended very badly. The
Fed kept policy too easy for too long, and current
policy makers are very conscious of that mistake. Obviously.
Speaker 2 (02:35):
So if I continue to read stories from people saying
watch out because this labor marker doesn't as strong as
it looks, just give me a break.
Speaker 3 (02:42):
Like the White House came out with a statement this morning.
Speaker 2 (02:44):
I don't think that's what Connor Sen sounds like. By
the way, I'm sorry, that's interesting voice for Connor.
Speaker 3 (02:49):
If Connor was a listener, he's tuned out permanently. Between
me and you dumping on him. I've got to correct,
or at least point out that this is flatly inaccurate,
because there were some news channels which I won't name,
that are just going to report this uncritically. The White
House said this morning, today's jobs report reveals that the
Biden economy was far worse than anyone thought. I'm not
going to read the rest of it because that pretty
(03:11):
much captures the tone, but that is so utterly ignorant.
You don't have to give Biden credit for the low
unemployment rated watch. It would have happened had Trump been reelected.
To economic growth and right, I mean plus or minus
a half of percent. Probably maybe Biden ran the economy
a little too hot with that last stimulus package. But
(03:31):
there's very little the president, any president, can do to
influence the forces that drive economic growth and thus unemployment
and even inflation unless you make a big unforced error.
This type of response I think is unhelpful, and they'll
probably just keep repeating it, and then it'll get amplified
by their cheerleaders at their favorite news network, and enough
(03:53):
people will accept it that it'll become somehow truth and
it's not really it's really quite inaccurate revisions that we're
sad to see this.
Speaker 4 (04:02):
It's so dumb, said it's it's I'm not surprised if
this is where we are. It's said, it's it's dumb
because it's dishonest, and it also overused term, but it is.
It also just furthers the emotional investing that people do
all the time. Labor market again, revisions came out not
substantial changes in twenty twenty four. It looks like on average,
there are about twenty thousand fewer jobs created per month
(04:24):
in twenty twenty four than was previously understood.
Speaker 2 (04:27):
Not a huge shift. The big piece of information from Michigan,
the University of Michigan does their monthly consumer sentiment survey.
They're the big change that we saw was expectations for
inflation bumping up by a full percentage point from three
point three percent all the way up to four point
three percent. That is a meaning now that is bad news.
Speaker 3 (04:44):
If the White House started to comment on something, they
should have commented on that. That is playing in that
on the last Guy plane.
Speaker 2 (04:50):
Bad news. The markets have been kind of all over.
When we started talking just three minutes ago, the Naszac
was off by more than one percent, the SMP was
closing in right now, Dow off two hundred and twenty
one points or half a percent, SMP off thirty points
or half a percent, in the Nasdaq off one hundred
and seventy points, a little more than eight tenths of
one percent. Bond yields up on all this data, so
(05:13):
we'll see where things go. But it's been fairly shoppy
in early trading so far. Speaking of all these inflation expectations,
just one other area. We've been talking a lot about
insurance recently because of the la wildfires, and just another
area of inflation and teriffs that I hadn't really considered
peace from the Wall Street Journal, teriffs could lead to
higher insurance prices for US consumers and businesses. And on
(05:37):
the surface, this doesn't make any sense, right, we don't
import our insurance costs from Canada or Mexico. They would
not face any sort of direct tariff. But when you
think about what insurance is, which is providing you with
money when things are destroyed or go wrong. If all
of a sudden it costs a whole lot more to
build those things that get destroyed, then yeah, you can
see those insurance costs go up. And I would like
(06:00):
they say that the primary reason auto insurance rates have
gone up so much over the last several years has
been because of the cost of repairing vehicles has gone
through the roof over the course of the last dec.
Speaker 3 (06:10):
I hadn't made that connection myself. I was an interesting angle.
Speaker 2 (06:13):
Yeah, nor had I. So it's just a different angle
that I hadn't really considered. And yeah, if you see
lumber costs go through the roof. Then it's going to
be more costly to rebuild a home. It's going to
be more costly to repair a car because of the
parts coming from Mexico and Canada that could face tariffs. Again.
I have some doubts as to whether or not those
tariffs are ever going to go into place. But just
(06:34):
one more piece that we wouldn't necessarily expect prices to
move because insurance is a domestic industry.
Speaker 3 (06:40):
This all just makes the Fed's job. I know we
said this at least I did, probably too many times
in the last hour, but their job got a lot
more complicated this morning, not just because of this story,
but the unusually strong employment numbers and the consistently strong
strength in the labor market. A big jump in a
huge jump in inflation expectations. We know expectations feed into
(07:02):
the inflation process and the looming and this is probably
going to be a persistent threat of tariffs for the
next several years, no matter who the president is. They're
now a prominent tool in the chief executive's toolkit.
Speaker 2 (07:22):
I was going to ask a question, but it looks
like somebody's already answered it. Online I'm going to ask, anyway,
do you think State Farm will have a Super Bowl
commercial this year?
Speaker 5 (07:30):
I saw that they weren't like they initially planned to
with Old Jake from State Farm thinking, but I think
they backed off on it.
Speaker 2 (07:37):
Yeah, So I was wondering about this with Vinnie Penn
this morning openly on air. Hey, you know, will they
actually air a Super Bowl ad? And I don't know
who this source is. Sportico is reporting that State Farm
pulled their twenty twenty five Super Bowl ad, probably entirely
because of the Los Angeles wildfire. State firm State Farm
(07:58):
was all in on California. They were the largest issuer
of insurance in twenty twenty two in State Farm was
in the state of California, accounting for more than twenty
percent of that California market. And then promptly in twenty
twenty five they began pumping the brakes, and maybe pumping
isn't the right word. They began slamming on the brakes
(08:20):
in their insurance market, and you saw them non renew
or cancel thousands of policies. Just months before the January fire,
the insurer canceled around thirty thousand homeowners, including ninety five
hundred in the neighborhood that burned last month. Many of
those ended up on the state run insure of last resort.
(08:41):
And you know, as always there are questions after one
of these types of crises, state farms getting a very
close look in terms of their practices. Now, one I
don't state Farm didn't know that a wildfire was coming
to California months before they started canceling policies. They also
weren't canceling policies in as far as I know, in
the middle of fires raging in the area. So I
(09:03):
don't think either of those two things were happening. But
the allegations are that, look, this company, which by the way,
State Farm Insurance of California is a completely different subsidiary
without access to the assets of State Farm the insurance company,
which that's concerning and misleading. They spun off their Florida
(09:25):
and California businesses because they said, wow, these things could
just go belly up if you know what hits the fan.
But the California market in particular was being pretty aggressive
with issuing policies of the course the last few years.
Raken and Doe and then found themselves quickly in a
place where they could not sustain that if a big
wildfire came around. The only piece of this that I
(09:47):
find pretty concerning and maybe somewhat misleading is the fact
that the California unit of State Farm gets to license
the brand, the logo, and the name of State Farm
while being a completely different insurance company. So State Farm,
the nation's largest home and auto insurance company, has more
than ninety million customers nationwide, a million home policies in California,
(10:10):
and a strong credit rating and a surplus of well
over one hundred billion. The California unit of State Farm,
which is a completely separate entity that can go bankrupt
on its own, was heavily in the red even before
the latest fires, So that part, to me, is pretty questionable,
and I do blame State Farm, but I also blame
(10:30):
the California State regulator for again allowing this type of practice,
refusing to update premiums, refusing to let insurers use the
most up to date mapping and forecasting software when it
comes to wildfire risk. And yeah, State Farm is going
to bear a lot of the blame here, but frankly,
(10:51):
I think a lot of it lands with the insurance commissioner.
Speaker 3 (10:53):
I think it's an example of a problem that the market,
if you let it work, could fix. It would result
in some uncomfortably high premiums.
Speaker 2 (11:00):
Some really difficult truths, right exactly.
Speaker 3 (11:03):
We're all going to be faced with this over the
next few decades, not to the extent that California is
or some other markets that are subject to extreme forces
of nature that are being amplified.
Speaker 2 (11:14):
By Yeah, this is not a solution that has there
are some problems that have no real market solution. And
there's are ones, let's see.
Speaker 3 (11:27):
Not getting into public goods and like national defense and
all the all the classic examples.
Speaker 2 (11:31):
It's electricity, I guess access to water and electricity.
Speaker 3 (11:35):
So those I would call those public public and the
main ones that need a monopoly to provide.
Speaker 2 (11:41):
Yeah.
Speaker 3 (11:41):
But other than that, and it could just be because
it's my religion. I don't think there's much that markets
can't figure out. You may not, like you said, Mike,
the solutions might be uncomfortable, they might be inequitable, but
the market will fix it.
Speaker 2 (11:52):
Yeah, And that has, more than much else, been the
main problem in California and Florida, which is the state
has basically encouraged non market solutions allowing people to build
in areas that are very risky and should otherwise be
unaffordable to build and live.
Speaker 3 (12:11):
Yeah, that's what the price signals meant to do. It's
meant to tell you no, no, don't build there.
Speaker 2 (12:16):
Let's take a quick break. When we come back, going
to have a little bit of trivia next on the
Financial Exchange, followed by Amazon's earnings. That's next.
Speaker 1 (12:24):
Miss any of the show. The Financial Exchange Show podcast
is available on Apple, Spotify, and iHeartRadio. Hit the subscribe
button and leave us a five star review. This is
the Financial Exchange Radio Network. Find daily interviews and full
shows of the Financial Exchange on our YouTube page. Like
us on YouTube and get caught up on anything and
(12:46):
everything you might have missed. This is the Financial Exchange
Radio Network.
Speaker 5 (12:53):
Signed up for trivia here on the Financial Exchange and
Amazon has been one of the most dominant players in
US stocks over the past ten years, but that wasn't
always the case. Amazon was on a roller coaster ride
for a decade until the stock started its meteoritic rise
in twenty twelve. Trivia question today for you. What year
did Amazon go public?
Speaker 2 (13:15):
Once again?
Speaker 5 (13:15):
What year did Amazon go public. Be the eighth person
today it texts us at six one seven three six
two thirteen eighty five with the correct answer, and you
win a Financial Exchange showed T shirt once again. The
eighth correct response to text us at six one seven
three six two thirteen eighty five. We'll get that T shirt.
(13:36):
See complete contest rules at Financial Exchange show dot com.
Speaker 2 (13:39):
Am I like overheating right now? Or was that the
fastest you've ever spoken? Tucker?
Speaker 5 (13:44):
Sorry, that was quick.
Speaker 2 (13:45):
No, no, not the temperature you were just not wrapping out?
Speaker 5 (13:48):
Now I am hot when you said hot?
Speaker 1 (13:50):
Now, I am hot?
Speaker 2 (13:51):
Fair enough, so I turn on the air conducted. Amazon stock,
by the way down about three and three quarters of
percent this morning on yesterday's earning news. Overall, they joined
the crowd of giant tech companies that in total plan
to spend over three hundred billion dollars on AI in
twenty twenty five. That includes the likes of Amazon, Meta, Microsoft,
(14:13):
and Alphabet, who have all reported their earnings so far.
Any key takeaways on these earnings calls for you for
you Mark, not Matt. Your name's not Matt.
Speaker 3 (14:24):
Don't have is there a Matt?
Speaker 2 (14:26):
I was quickly going to speaking to a Matt yesterday
and we've got a mat around here somewhere. Well, yeah,
he's never done radio.
Speaker 3 (14:32):
But nonetheless, okay, Mark, all right, it is interesting that
they can't keep up with demand for AI infused cloud
server based services. The issue is not that people don't
want what they're selling. It's that people want more of
the latest and they can't make it fast enough. That's
(14:54):
my kind of it, and this is true of all
the big cloud providers.
Speaker 2 (14:59):
Yeah right, I think there's Yeah, they missed slightly on
those earnings, and you're right, it is mainly from a
capacity issue rather than a demand issue, and so that
is telling and interesting. The biggest takeaway that I have
from all of this, you know, I was very curious
about what types of questions we're going to be asked
and how these companies were going to direct answers to
(15:20):
the question of what does the deep seek innovation due
to your business. They were all asked that question, and
I think by and large the answer was, we don't
know yet, but we're going to keep pouring money into
investment because this is where this is where the money
is going to be made, regardless of the innovations on
deep seek.
Speaker 3 (15:39):
And if deep Seak has indeed found a short cut,
granted it's standing on the shoulders of what other a
alpus call them engines have done, but it's a shortcut, nevertheless,
which could significantly reduce the capacity demands of something like
this and thus spending demand. It's a little odd to
(16:00):
me that they're not hedging a bit. Well, maybe we
don't need one hundred billion, maybe we only need twenty
five fifty or some sort of moderately more conservative estimate
over the same timeframe. Why are they not hedging at all?
Speaker 2 (16:14):
Yeah?
Speaker 3 (16:15):
Why are they still going full full, full steam?
Speaker 2 (16:17):
I think the old model. I think that the answer
that they would provide you would be Look, this shortcut
that deep Seek found, if it ends up being as
true as they are claiming, opens up the demand for
even more AI at a cheaper price, and we will
be the beneficiaries because we will be the ones providing
the computing power to a larger range of customers. I'm
(16:38):
just not sure I buy that argument yet, but that
seems to be the case. Is they're saying, Look, lower
prices just means more demand, more consumers buying this stuff,
and you know, more people wanting to do this because
you'll be more accessible, not less, and therefore the total
pie will grow. I call that into question a little
bit because the fact to the matter was, up until
(17:02):
we knew what we think we know about Deepseek, which
came out now two weeks ago, the status quo was
if you are not a multi trillion dollar company, you
can't afford to play that. That was the truth of
it is, if you don't have a few trillion dollars
not in market cap, or a few billion dollars to
spend on R and D and the latest and greatest
(17:24):
employees to be able to research this stuff, then you're
not going to have any role in developing the next
AI tool. And so Microsoft, Meta, Google, Amazon all sat
there in a place where there wasn't much competition from
the development of the eventual AI tools that people want
to use. I think, and this is very early to
(17:47):
be able to guess, but I think that this innovation
opens up the door for many companies that are a
lot smaller to compete. And that's what's fascinating to me,
which I think is a good thing for development, for innovation,
and potentially a terrible thing for existing dominance tech players,
(18:09):
but only potentially, not certainly.
Speaker 3 (18:11):
I guess maybe they're so committed they feel like they
can't turn back, or the market expects them to continue again,
full steam ahead with what i'll call the old model,
even though they might be premature.
Speaker 2 (18:21):
Yeah, and I think I think By and Lawge you're
right in terms of why they responded the way they
did is because what else are you gonna say. We're
already hundreds of millions, billions of dollars into this. We
can't suddenly seem like they're well, let's changed course.
Speaker 3 (18:34):
Are they? Are they whistling? I'm asking a rhetorical question here,
but are they just whistling past the graveyard on this
Their plants haven't changed in the past six weeks, but
the landscape may have changed dramatically.
Speaker 2 (18:44):
Maybe, But I have no evidence that they actually believe
that they're whistling past the graveyard. I don't think they're
just wondering.
Speaker 3 (18:49):
If that's not motivated. I'll play psychologists here and say,
is this motivated reasoning? Can you just are you choosing
not to see that all this sunk cost is something
you may have to walk away from, or that somebody
be able to replicate what you've done much more cheaply.
Speaker 2 (19:03):
That's about the ten trillion dollar question, is it Mark?
It's about the ten trillion dollar question that we can't
possibly answer. So that's the rap on the big tech
earnings that we saw so far, and a lot more
to come obviously in coming weeks and months as they
navigate the new technology. Let's take a quick break when
we come back, a little bit of Tesla news, further
(19:25):
bad news in terms of sales numbers. We'll cover that next.
Speaker 1 (19:41):
Bringing the latest financial news straight to your radio. Every day,
it's the Financial Exchange on the Financial Exchange Radio Network.
The Financial Exchange streams live on YouTube. Like our page
and stay up to date on breaking business news all
morning long. This is the financi Chill Exchange Radio Network.
Speaker 5 (20:07):
All Right, trivia question today was what year did Amazon
go public? I'll be nineteen ninety seven, ipoed on May
fifteenth of that year at eighteen dollars a share.
Speaker 2 (20:19):
Yeah.
Speaker 5 (20:20):
Greg from Fitchburg, mass is our winner today. Excuse me
taking on my Financial Exchange Show T shirt. Congrats to
Greg and we play trivia every day here on the
Financial Exchange. See complete contest rules at Financial Exchange Show
dot com.
Speaker 2 (20:36):
Tesla, which is down a little bit today about one
and a quarter percent, is being reported that their Chinese
vehicle sales fell eleven and a half percent for probably
several reasons, but one of them being intense competition from
Chinese rival BYD, which saw two hundred and ninety six
(20:57):
thousand sales of pure electric and plug in hybrid Vida
last month, which is up forty seven percent year over year. Furthermore,
earlier this week were reported that Tesla's sales in Germany
pluged plunged fifty nine percent in January. So my main
question is very simply this, If you can't sell your
(21:17):
cars in Europe, and you can't sell them in China,
where are you going to sell these cars? Because I
don't think you're going to have, you know, great results
selling electric cars in Africa where the infrastructure is no good.
I don't think you're going to have a lot of
results in Latin America would be my guess. And US
sales have been plateauing on evs for years, So why
(21:40):
why should I be optimistic about your future? Is my
main question when it comes to Tesla, who stock, by
the way, is up now ninety seven percent over the
course the last twelve months.
Speaker 3 (21:48):
Yeah, the amazing thing is that Tesla management has convinced
shareholders that none of this matters. An analysts too, Apparently
most of them have buy ratings on this company. Is
it a car company? Is it an AI company? Is
it a is it a yeah, cab company, and an
autopiloted cab company.
Speaker 2 (22:07):
We damn well better have some robots and self driving
cars post haste if this is going to continue. But
I don't know. Maybe I'm missing the boat on US sales,
but I've voiced this before. I'm worried about Tesla's US
sales because half the country doesn't like this administration very much,
not half, maybe forty percent.
Speaker 3 (22:28):
To endear himself to anybody's yeah, he seems to be
trying to alienate the maximum number of people.
Speaker 2 (22:38):
Well, I don't know about that. I think he is
doing a pretty successful job of coozing up to conservatives.
Speaker 3 (22:45):
Yeah, but historically.
Speaker 2 (22:46):
They don't buy evs, So I just I don't know
what this means for Tesla. It's a lot of looming questions,
and I think it is an important pivot point for Tesla.
Maybe they are on the verge of a technological breakthrough
that I haven't seen, but a bit of a boy
who cried Wolfe syndrome when it comes to Tesla on
those innovative breakthroughs, because they've been promising a lot of
(23:06):
technological stuff for a decade.
Speaker 3 (23:08):
Since when has ideological appeal ever been a good business strategy?
I can't think of a company and he's not trying overtly.
I don't think. Although he is effectively doing this, he's
not overtly marketing to people who are more what he
would call conservative. I would call myself conservative. I don't
know what these people are. They're not traditional conservatives, but anyway,
(23:30):
I'm splitting hairs. It's just an odd marketing strategy, Mike.
I've never seen a company say shop here unless you're libertarian.
Speaker 2 (23:38):
Yeah, seems like a weird, weird decision.
Speaker 5 (23:41):
The calendar has turned and the cold is here to stay.
So now's the perfect time to plan that getaway to
the US Virgin Islands. Act now and take advantage of
a special promotion to Sant Croix, experience a vibe like
no other, and receive a two hundred and fifty dollars
per person airfare credit and a free hotel night when
you book a five night minimum stay with any participating
(24:04):
hotel before June thirtieth. Saint Croiz known for its incredible
history and spectacular architecture, along with world class cuisine, incredible
golf courses, and a wide variety of water sports. From
the moment you arrive, you'll fall naturally in rhythm with
the heartbeat of the islands. There's no money to exchange,
and travel from New England could not be easier. America's
(24:25):
Caribbean paradise is waiting for you. Experience a vibe like
no other on the island of Saint Croix. Go to
visit USVII dot com and use the code Vibe twenty
twenty five for more information and book your trip today.
That's visit USVII dot com and code Vibe twenty twenty five.
Speaker 2 (24:43):
Scott Besson seems to be attempting to calm markets, and
I have to say that so far the commentary from
Besson himself has been about the most consistent and kind
of as anticipating. We talked a lot about this Treasury
Secretary pick leading up to it, but very consistent and
very straightforward in terms of his goals when it comes
(25:03):
to the Treasury. The furthest out that I think he's
had to go is commenting on Elon Musk's and Doja's
access to the Treasury Department. But you know, he has
not massively pivoted in terms of where they're going to
issue new debt. He has not massively pivoted on his
view on the Federal Reserve or commenting on it, and
so seems to be delivering some degree of calm to market.
Speaker 3 (25:24):
Treasury secretary should be seen. Name five of them historically,
I'm not and I'm not I'm going to put you
on the spot.
Speaker 2 (25:31):
Yelling, yell, n yelling, and manouche are the three that okay,
So that's.
Speaker 3 (25:37):
Probably most people don't pay too much attention to it.
Does anybody remember who? I don't know? George W. Bush's
first Treasury secretary. It was a failure. He lasted like
a year. Nobody remembers it. Was the chairman of el Coach,
do you no? I remember only that he was the
chairman of and it was viewed as being apoll O'Neil
was his name. Excuse me, but you'd be hard pressed
(25:59):
who was Will Clintons first Treasury secretary. Bob Rubin was
the famous one. No nobody remembers Lloyd Benson's Treasury secretary
for like a year and a half. My point is,
it shouldn't matter. It should be a job twyet, door
go ahead.
Speaker 2 (26:10):
It should be a quiet job where you are making
sure the plumbing of the US economy works. There you go.
Speaker 3 (26:16):
That's what I'm just gonna say.
Speaker 2 (26:17):
That's that's all they have to do. And Bob's job,
by the way, Clinton's, it's all you have to do.
Speaker 3 (26:22):
Clinton's next to last Treasury secretary got it absolutely right.
He presided over orderly issue ince and management of US debt,
and when asked something that was outside of his lane,
specifically the US dollar, which is not exactly outside of
his lane, his response was always the same. And I
know I say this every time I'm on, but Bob
Rubin used to say, a strong US dollar is in
(26:43):
the United States interest, full stop, end of sentence, no
further commentary.
Speaker 2 (26:46):
And if I were not mistaken, best just repeated that yesterday.
Didn't he smart?
Speaker 3 (26:50):
He knows he's a finance guy, and he when asked
about the Federal Reserve. The Clinton administration, which set the
tone for this in the modern era, used to famously
respond with, we don't come on the Federal Reserve. It's
an independent entity. I suspect Bessant would respond with something similar,
and he tried to sort of walk back some of
some other administration officials comments about Fed independence, he said,
(27:12):
Besson said something like, and I thought this was pretty
deft on his part. Oh, no, no, we meant we
want influence over longer term interest story, which is a
perfectly conventional thing to say. So so far, like you said,
I think he's off to a by the standards of
some of the policy swings we've seen over the past
few weeks, off to a pretty good start.
Speaker 2 (27:32):
Another tax announcement that falls into the same range of
Scott Besant and Treasury and his previous roles. The Trump
administration is apparently and I very much doubt this goes anywhere,
taking aim once again at the private equity favorite tax
perk of carried interests. So, to make a long story short,
(27:52):
carried interest is a bit of a tax loophole that
allows those who work in deal making areas such as
private equities such as venture capital and hedge funds, to
avoid paying ordinary income taxes on the majority of their
earnings and instead pay capital gains taxes, and if you
are at all familiar with the tax code, you'll know
that capital gains are always taxed at a lower tax
(28:14):
rate than ordinary income. This has been looked at and
attempted to be amended by Democrat administrations, very few Republican administrations,
but once again getting a look from the Trump administration.
And I just find it again interesting that in terms
of economic stuff that we've heard about thus far from
the Trump administration, it's been budget cuts, tax increases, and
(28:39):
tariff increases. You want to know why markets are shaky,
where's the tax cuts? Where are the market shaky? They
haven't been shaky by the reason when they're when they're
responding to things like tariff increases, it's because it's not
being accompanied by it. And I'm just I'm surprised that
you're hearing the reporting on the do away with carried interest,
(29:01):
which I'm.
Speaker 3 (29:01):
Fining to cut something, Michael, raise revenue, signing like that.
Speaker 2 (29:04):
If you're going to raise revenue, I think this is
a great place to go.
Speaker 3 (29:06):
After nobody's going to defend private equity.
Speaker 2 (29:08):
But it's not being accompanied by and by the way,
this is going to allow us to waive the taxes
on Social Security like we were hoping to do so.
It'll be fascinating.
Speaker 3 (29:18):
That is why they're doing it, though, to pay for
his other tax cuts promise.
Speaker 2 (29:21):
But those tax cut promises are not coming to fruition
as quickly as I think they were home.
Speaker 3 (29:26):
I'll give the Trump administration credit on this. It is
a loophole. Many, as you mentioned, have talked about reforming it,
including him in his first term. Ye didn't muster the
will to were weren't able to for whatever reason. I'd
be shocked if this actually went through. Private equity is
quite influence and they throw around a lot of money.
But these are exactly the types of, as you put it,
loophole that they should be looking at closing. Good good
(29:48):
for them. Unfortunately, he's going to open about fifty other
loopholes with taxes on tips and raising the salt cap
and whatever the heck else he was promising in the
last six week giveaway bonanza of the campaign. They're gonna
open up twenty loopholes for everyone they close. But good
for them. This is a sensible one to try to close.
Speaker 2 (30:04):
Let's take a quick break when we come back. Paul
Lamonica from Baron's joining us to talk Etsy next to
the Financial Exchange.
Speaker 1 (30:11):
This is your home for the most comprehensive coverage of
the economy and the trends on Wall Street. This He's
the Financial Exchange Radio Network. The Financial Exchange Show podcast
drops every day on Apple, Spotify, and iHeartRadio. Hit that
subscribe button and leave us a five star review. You're
listening to the Financial Exchange Radio Network, Ladies and gentlemen
(30:35):
the weekend.
Speaker 5 (30:38):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts. By making a donation, you
can support the Veteran Advancement Program, which offers permanent and
transitional affordable housing to veterans and their dependents. The DAV
of Massachusetts is the only DAV department in the country
to lead a veterans housing initiative for single bets and
(31:00):
those with families. Visit DAV five k dot Boston to
make a donation today and make note for this year's
five K to be held on Saturday, November eighth. That's
DAV five k dot Boston.
Speaker 2 (31:12):
Joining us now is Paul Lamonica from Baron's talking to
us about Etsy and in order to talk about Etsy. Paul,
we got to talk a little bit about these new
rules on Chinese imports. I'm hoping you can do a
better job than I did yesterday of attempting to explain
the deminimus exemption of imports into the United States. Thanks
for coming on.
Speaker 6 (31:32):
Yeah, thank you very much.
Speaker 1 (31:33):
Yeah.
Speaker 6 (31:34):
I mean, at the end of the day, really there
had been this exemption on quote unquote cheaper goods, you know,
goods costing under eight hundred dollars, you know, had been
allowed to enter the US duty free. And Trump is
getting rid of that exemption. So the companies that had
benefited from that, a lot of Chinese e commerce companies
(31:56):
like Shine and Timu owned by PDD and Ali Express
by Ali Baba. You know, they could get hit and
that might be a benefit for you know, US company Etsy,
which you know does not have to worry about these
tariffs and as much or competition as maybe as much
(32:16):
competition from some of these Chinese e commerce giants.
Speaker 2 (32:20):
Paul, after the Super Bowl commercial, I think it was
three years ago, I did test out I don't remember
if it was Temu or Shane and bought a winter
coat that I pretty much never wear anymore. But do
we have a sense for just how much these companies
were selling products in the United States dollar wise? And
you know, if these new exemptions go in, I assume
(32:41):
that we'll take a massive hit and and truly open
up a door for the likes of Amazon and Ets.
Do you know how big these sales were?
Speaker 6 (32:48):
Yeah, I mean I don't have the numbers in front
of me right now about what the amount of sales
in the US is, but needless to say that, you know,
consumers had been flocking to the sites. You know, you know,
you were obviously not the only one looking for you know,
cheap apparel. You know, the lore of bargain goods is
(33:08):
something that investors, I'm sorry, consumers always like. You know,
it's a reason why you know, companies like Walmart and
you know, TJX, George Marshall's and TJ Max why they're
continuing to thrive as well. You know, there's been a
lot of talk about how even wealthier consumers are looking
to save a buck as well. So anyone that can
(33:30):
offer you know, merchandise at the discount has been benefiting.
And you know Etsy obviously does that as well, but
now they potentially have you know, a lot less competition
going forward, or maybe it's going to be tougher for competition.
Speaker 2 (33:43):
So obviously Etsie's been around now for quite some time.
But for those that aren't intimately familiar with it or
haven't used the platform before, what's the typical type of
thing people shop for on there? It's a it's a
network of marketplaces, but it seems on the surface quite
a bit different than say in Amazon.
Speaker 6 (34:00):
Yeah, I mean collectibles, handmade goods, or remember a couple
of years ago, Etsy stock got hit when Amazon announced
a marketplace that was similar to Etsy. But you know,
it's a lot of people setting up shops selling you know,
a handmade handcraft goods that are you know, are not
(34:20):
necessarily going to be you know, a huge, you know,
you know, expensive type of item, but you know it's
the classic volume game, and you know, and ets he
gets a cut from the sellers. So that is why
this is the company that has done really well in
the past couple of years. But you know, I think,
(34:43):
you know, the hope is that etsie stock can finally
get a boost as well.
Speaker 2 (34:48):
To that point, the ETSI stock down about twenty five
percent over the course of the last year, presumably on
a lot of this new competition. Any conjecture from analysts
or just your to date what we've seen in terms
of a versal there.
Speaker 6 (35:01):
Yeah, Etsy has you know, made you know, a bit
of a comeback recently. I think on the hopes that
you know, the crackdown on Chinese competitors will help. Stock's
not that expensive. It's about twenty two times earnings estimates,
so about in line with the market multiple. And you know,
some analysts are saying that you know that there's even
(35:24):
you know, US companies that it competes with that you
know it will be able to benefit at their expense.
You know, one analyst in the story I wrote, you'll
mention that Wayfair, the home furnishings retailer, you know, they
could get hit by tariffs more than say Etsy is.
They have about fifteen to twenty percent of sales exposure
you know, goods from China. Etsy doesn't really have that
(35:47):
much exposure. And you know Etsy is you know, a
cheaper stock than some other e commerce companies like you know, Chewi,
which is another company that some analysts have said they
think will be able to hold up better because of tariffs,
because pet food and drugs for pets are largely made
in the US, supposed to abroad.
Speaker 2 (36:09):
Paul Amnica from Barons joining US today talk a bit
about Etsy and the changes to tariffs on Chinese made goods. Paul,
thanks so much for joining us. Appreciate it. Touch you next,
thank you have a good one. I want to talk
about fishing. Mark That all right by you? The pH
kind of fishing. The tests on fishing if you are
out of the workforce, they are getting so entertaining and unique,
(36:34):
but apparently making a lot of people fairly angry. So
if you don't know what I'm talking about, if you
have been out of the workforce for a few years,
you might not be familiar. But the attempts by bad
actors to gain access to company systems and take them over,
lock them down, and then demand ransom for unlocking them
(36:55):
have gotten so successful and so rampant that companies now
test their employees. And I actually just got one of
these this morning. It was it looked like a password
reset that I had requested from a system that I use,
and it said, you know, we got your password reset request,
click this link to reset your password. I looked at
(37:16):
the email address that it clearly wasn't from a system
that I used, so reported it as spam, and a
little congratulations went up on my screen, saying, hey, good job,
this was actually a test from your IT department. But
those IT departments are getting fairly creative. One of them
sent an email to a professor at a university saying
that there was an ebola outbreak at their university. Another
(37:39):
one sent a phishing test. What was it? Some? Oh yeah.
A NASA staffer apparently was brought to tears from a
phishing test promising the employee chance to win a trip
to the Kennedy Space Center to view the final launch
of the Space Shuttle, which was pretty cool. But I
have to tell you.
Speaker 3 (37:58):
I had a launch of the Space Shuttle.
Speaker 2 (38:00):
I have to tell you I don't think you should
be upset about this because this is actually what's required
to prevent this stuff. It's horrifying and I'm all in
favor of it. Quick break for the entire weekend. Market's
pretty strongly negative territory now with the NASDAC off more
than a full percentage point, we'll be back at it
on Monday. Have a great weekend, everybody,
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Mike Armstrong and Mark Vandetti. Your exclusive look
at business and financial news affecting your day, your city,
(00:43):
your world. Stay informed and up to date about economic
and market trends, plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting das V five K dot Boston and
making a donation Today. Face is the Financial Exchange with
(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Happy Friday, and pardon me, welcome back to
the Financial Exchange. We have markets in selloff mode this
morning on the on the tale of two news stories today.
The first was the jobs report released this morning at
eight thirty am. Generally a good news story there, with
one hundred and forty three thousand jobs created in the
(01:31):
month of January, unemployment rate edging down to four point
zero percent, up from a twelve month previous understanding high
at four point three percent. You know, major job growth
across sectors. Go ahead.
Speaker 3 (01:44):
Mark, it's been so low for so long. I don't
think we appreciate exactly how extraordinary unemployment at or around
for never mind below four percent is. We were there
a little bit in the very late twenty tens, but
you have to go all the way back to the
late nineties, and that was briefer than the current episode,
and then before that to the late nineteen sixties. It's
(02:05):
really extraordinary.
Speaker 2 (02:06):
Yeah, unemployment rate as low as it is right now.
To your point, we got there briefly prior to COVID.
We never got there before the Great Recession. We did
get there prior to the dot com bubble. But than that, yeah,
other than that, getting down to those levels. To Mark's point,
last time that happened was late nineteen.
Speaker 3 (02:25):
Sixty and it went on for several years. The sixties
was a remarkable run and it ended very badly. The
Fed kept policy too easy for too long, and current
policy makers are very conscious of that mistake. Obviously.
Speaker 2 (02:35):
So if I continue to read stories from people saying
watch out because this labor marker doesn't as strong as
it looks, just give me a break.
Speaker 3 (02:42):
Like the White House came out with a statement this morning.
Speaker 2 (02:44):
I don't think that's what Connor Sen sounds like. By
the way, I'm sorry, that's interesting voice for Connor.
Speaker 3 (02:49):
If Connor was a listener, he's tuned out permanently. Between
me and you dumping on him. I've got to correct,
or at least point out that this is flatly inaccurate,
because there were some news channels which I won't name,
that are just going to report this uncritically. The White
House said this morning, today's jobs report reveals that the
Biden economy was far worse than anyone thought. I'm not
going to read the rest of it because that pretty
(03:11):
much captures the tone, but that is so utterly ignorant.
You don't have to give Biden credit for the low
unemployment rated watch. It would have happened had Trump been reelected.
To economic growth and right, I mean plus or minus
a half of percent. Probably maybe Biden ran the economy
a little too hot with that last stimulus package. But
(03:31):
there's very little the president, any president, can do to
influence the forces that drive economic growth and thus unemployment
and even inflation unless you make a big unforced error.
This type of response I think is unhelpful, and they'll
probably just keep repeating it, and then it'll get amplified
by their cheerleaders at their favorite news network, and enough
(03:53):
people will accept it that it'll become somehow truth and
it's not really it's really quite inaccurate revisions that we're
sad to see this.
Speaker 4 (04:02):
It's so dumb, said it's it's I'm not surprised if
this is where we are. It's said, it's it's dumb
because it's dishonest, and it also overused term, but it is.
It also just furthers the emotional investing that people do
all the time. Labor market again, revisions came out not
substantial changes in twenty twenty four. It looks like on average,
there are about twenty thousand fewer jobs created per month
(04:24):
in twenty twenty four than was previously understood.
Speaker 2 (04:27):
Not a huge shift. The big piece of information from Michigan,
the University of Michigan does their monthly consumer sentiment survey.
They're the big change that we saw was expectations for
inflation bumping up by a full percentage point from three
point three percent all the way up to four point
three percent. That is a meaning now that is bad news.
Speaker 3 (04:44):
If the White House started to comment on something, they
should have commented on that. That is playing in that
on the last Guy plane.
Speaker 2 (04:50):
Bad news. The markets have been kind of all over.
When we started talking just three minutes ago, the Naszac
was off by more than one percent, the SMP was
closing in right now, Dow off two hundred and twenty
one points or half a percent, SMP off thirty points
or half a percent, in the Nasdaq off one hundred
and seventy points, a little more than eight tenths of
one percent. Bond yields up on all this data, so
(05:13):
we'll see where things go. But it's been fairly shoppy
in early trading so far. Speaking of all these inflation expectations,
just one other area. We've been talking a lot about
insurance recently because of the la wildfires, and just another
area of inflation and teriffs that I hadn't really considered
peace from the Wall Street Journal, teriffs could lead to
higher insurance prices for US consumers and businesses. And on
(05:37):
the surface, this doesn't make any sense, right, we don't
import our insurance costs from Canada or Mexico. They would
not face any sort of direct tariff. But when you
think about what insurance is, which is providing you with
money when things are destroyed or go wrong. If all
of a sudden it costs a whole lot more to
build those things that get destroyed, then yeah, you can
see those insurance costs go up. And I would like
(06:00):
they say that the primary reason auto insurance rates have
gone up so much over the last several years has
been because of the cost of repairing vehicles has gone
through the roof over the course of the last dec.
Speaker 3 (06:10):
I hadn't made that connection myself. I was an interesting angle.
Speaker 2 (06:13):
Yeah, nor had I. So it's just a different angle
that I hadn't really considered. And yeah, if you see
lumber costs go through the roof. Then it's going to
be more costly to rebuild a home. It's going to
be more costly to repair a car because of the
parts coming from Mexico and Canada that could face tariffs. Again.
I have some doubts as to whether or not those
tariffs are ever going to go into place. But just
(06:34):
one more piece that we wouldn't necessarily expect prices to
move because insurance is a domestic industry.
Speaker 3 (06:40):
This all just makes the Fed's job. I know we
said this at least I did, probably too many times
in the last hour, but their job got a lot
more complicated this morning, not just because of this story,
but the unusually strong employment numbers and the consistently strong
strength in the labor market. A big jump in a
huge jump in inflation expectations. We know expectations feed into
(07:02):
the inflation process and the looming and this is probably
going to be a persistent threat of tariffs for the
next several years, no matter who the president is. They're
now a prominent tool in the chief executive's toolkit.
Speaker 2 (07:22):
I was going to ask a question, but it looks
like somebody's already answered it. Online I'm going to ask, anyway,
do you think State Farm will have a Super Bowl
commercial this year?
Speaker 5 (07:30):
I saw that they weren't like they initially planned to
with Old Jake from State Farm thinking, but I think
they backed off on it.
Speaker 2 (07:37):
Yeah, So I was wondering about this with Vinnie Penn
this morning openly on air. Hey, you know, will they
actually air a Super Bowl ad? And I don't know
who this source is. Sportico is reporting that State Farm
pulled their twenty twenty five Super Bowl ad, probably entirely
because of the Los Angeles wildfire. State firm State Farm
(07:58):
was all in on California. They were the largest issuer
of insurance in twenty twenty two in State Farm was
in the state of California, accounting for more than twenty
percent of that California market. And then promptly in twenty
twenty five they began pumping the brakes, and maybe pumping
isn't the right word. They began slamming on the brakes
(08:20):
in their insurance market, and you saw them non renew
or cancel thousands of policies. Just months before the January fire,
the insurer canceled around thirty thousand homeowners, including ninety five
hundred in the neighborhood that burned last month. Many of
those ended up on the state run insure of last resort.
(08:41):
And you know, as always there are questions after one
of these types of crises, state farms getting a very
close look in terms of their practices. Now, one I
don't state Farm didn't know that a wildfire was coming
to California months before they started canceling policies. They also
weren't canceling policies in as far as I know, in
the middle of fires raging in the area. So I
(09:03):
don't think either of those two things were happening. But
the allegations are that, look, this company, which by the way,
State Farm Insurance of California is a completely different subsidiary
without access to the assets of State Farm the insurance company,
which that's concerning and misleading. They spun off their Florida
(09:25):
and California businesses because they said, wow, these things could
just go belly up if you know what hits the fan.
But the California market in particular was being pretty aggressive
with issuing policies of the course the last few years.
Raken and Doe and then found themselves quickly in a
place where they could not sustain that if a big
wildfire came around. The only piece of this that I
(09:47):
find pretty concerning and maybe somewhat misleading is the fact
that the California unit of State Farm gets to license
the brand, the logo, and the name of State Farm
while being a completely different insurance company. So State Farm,
the nation's largest home and auto insurance company, has more
than ninety million customers nationwide, a million home policies in California,
(10:10):
and a strong credit rating and a surplus of well
over one hundred billion. The California unit of State Farm,
which is a completely separate entity that can go bankrupt
on its own, was heavily in the red even before
the latest fires, So that part, to me, is pretty questionable,
and I do blame State Farm, but I also blame
(10:30):
the California State regulator for again allowing this type of practice,
refusing to update premiums, refusing to let insurers use the
most up to date mapping and forecasting software when it
comes to wildfire risk. And yeah, State Farm is going
to bear a lot of the blame here, but frankly,
(10:51):
I think a lot of it lands with the insurance commissioner.
Speaker 3 (10:53):
I think it's an example of a problem that the market,
if you let it work, could fix. It would result
in some uncomfortably high premiums.
Speaker 2 (11:00):
Some really difficult truths, right exactly.
Speaker 3 (11:03):
We're all going to be faced with this over the
next few decades, not to the extent that California is
or some other markets that are subject to extreme forces
of nature that are being amplified.
Speaker 2 (11:14):
By Yeah, this is not a solution that has there
are some problems that have no real market solution. And
there's are ones, let's see.
Speaker 3 (11:27):
Not getting into public goods and like national defense and
all the all the classic examples.
Speaker 2 (11:31):
It's electricity, I guess access to water and electricity.
Speaker 3 (11:35):
So those I would call those public public and the
main ones that need a monopoly to provide.
Speaker 2 (11:41):
Yeah.
Speaker 3 (11:41):
But other than that, and it could just be because
it's my religion. I don't think there's much that markets
can't figure out. You may not, like you said, Mike,
the solutions might be uncomfortable, they might be inequitable, but
the market will fix it.
Speaker 2 (11:52):
Yeah, And that has, more than much else, been the
main problem in California and Florida, which is the state
has basically encouraged non market solutions allowing people to build
in areas that are very risky and should otherwise be
unaffordable to build and live.
Speaker 3 (12:11):
Yeah, that's what the price signals meant to do. It's
meant to tell you no, no, don't build there.
Speaker 2 (12:16):
Let's take a quick break. When we come back, going
to have a little bit of trivia next on the
Financial Exchange, followed by Amazon's earnings. That's next.
Speaker 1 (12:24):
Miss any of the show. The Financial Exchange Show podcast
is available on Apple, Spotify, and iHeartRadio. Hit the subscribe
button and leave us a five star review. This is
the Financial Exchange Radio Network. Find daily interviews and full
shows of the Financial Exchange on our YouTube page. Like
us on YouTube and get caught up on anything and
(12:46):
everything you might have missed. This is the Financial Exchange
Radio Network.
Speaker 5 (12:53):
Signed up for trivia here on the Financial Exchange and
Amazon has been one of the most dominant players in
US stocks over the past ten years, but that wasn't
always the case. Amazon was on a roller coaster ride
for a decade until the stock started its meteoritic rise
in twenty twelve. Trivia question today for you. What year
did Amazon go public?
Speaker 2 (13:15):
Once again?
Speaker 5 (13:15):
What year did Amazon go public. Be the eighth person
today it texts us at six one seven three six
two thirteen eighty five with the correct answer, and you
win a Financial Exchange showed T shirt once again. The
eighth correct response to text us at six one seven
three six two thirteen eighty five. We'll get that T shirt.
(13:36):
See complete contest rules at Financial Exchange show dot com.
Speaker 2 (13:39):
Am I like overheating right now? Or was that the
fastest you've ever spoken? Tucker?
Speaker 5 (13:44):
Sorry, that was quick.
Speaker 2 (13:45):
No, no, not the temperature you were just not wrapping out?
Speaker 5 (13:48):
Now I am hot when you said hot?
Speaker 1 (13:50):
Now, I am hot?
Speaker 2 (13:51):
Fair enough, so I turn on the air conducted. Amazon stock,
by the way down about three and three quarters of
percent this morning on yesterday's earning news. Overall, they joined
the crowd of giant tech companies that in total plan
to spend over three hundred billion dollars on AI in
twenty twenty five. That includes the likes of Amazon, Meta, Microsoft,
(14:13):
and Alphabet, who have all reported their earnings so far.
Any key takeaways on these earnings calls for you for
you Mark, not Matt. Your name's not Matt.
Speaker 3 (14:24):
Don't have is there a Matt?
Speaker 2 (14:26):
I was quickly going to speaking to a Matt yesterday
and we've got a mat around here somewhere. Well, yeah,
he's never done radio.
Speaker 3 (14:32):
But nonetheless, okay, Mark, all right, it is interesting that
they can't keep up with demand for AI infused cloud
server based services. The issue is not that people don't
want what they're selling. It's that people want more of
the latest and they can't make it fast enough. That's
(14:54):
my kind of it, and this is true of all
the big cloud providers.
Speaker 2 (14:59):
Yeah right, I think there's Yeah, they missed slightly on
those earnings, and you're right, it is mainly from a
capacity issue rather than a demand issue, and so that
is telling and interesting. The biggest takeaway that I have
from all of this, you know, I was very curious
about what types of questions we're going to be asked
and how these companies were going to direct answers to
(15:20):
the question of what does the deep seek innovation due
to your business. They were all asked that question, and
I think by and large the answer was, we don't
know yet, but we're going to keep pouring money into
investment because this is where this is where the money
is going to be made, regardless of the innovations on
deep seek.
Speaker 3 (15:39):
And if deep Seak has indeed found a short cut,
granted it's standing on the shoulders of what other a
alpus call them engines have done, but it's a shortcut, nevertheless,
which could significantly reduce the capacity demands of something like
this and thus spending demand. It's a little odd to
(16:00):
me that they're not hedging a bit. Well, maybe we
don't need one hundred billion, maybe we only need twenty
five fifty or some sort of moderately more conservative estimate
over the same timeframe. Why are they not hedging at all?
Speaker 2 (16:14):
Yeah?
Speaker 3 (16:15):
Why are they still going full full, full steam?
Speaker 2 (16:17):
I think the old model. I think that the answer
that they would provide you would be Look, this shortcut
that deep Seek found, if it ends up being as
true as they are claiming, opens up the demand for
even more AI at a cheaper price, and we will
be the beneficiaries because we will be the ones providing
the computing power to a larger range of customers. I'm
(16:38):
just not sure I buy that argument yet, but that
seems to be the case. Is they're saying, Look, lower
prices just means more demand, more consumers buying this stuff,
and you know, more people wanting to do this because
you'll be more accessible, not less, and therefore the total
pie will grow. I call that into question a little
bit because the fact to the matter was, up until
(17:02):
we knew what we think we know about Deepseek, which
came out now two weeks ago, the status quo was
if you are not a multi trillion dollar company, you
can't afford to play that. That was the truth of
it is, if you don't have a few trillion dollars
not in market cap, or a few billion dollars to
spend on R and D and the latest and greatest
(17:24):
employees to be able to research this stuff, then you're
not going to have any role in developing the next
AI tool. And so Microsoft, Meta, Google, Amazon all sat
there in a place where there wasn't much competition from
the development of the eventual AI tools that people want
to use. I think, and this is very early to
(17:47):
be able to guess, but I think that this innovation
opens up the door for many companies that are a
lot smaller to compete. And that's what's fascinating to me,
which I think is a good thing for development, for innovation,
and potentially a terrible thing for existing dominance tech players,
(18:09):
but only potentially, not certainly.
Speaker 3 (18:11):
I guess maybe they're so committed they feel like they
can't turn back, or the market expects them to continue again,
full steam ahead with what i'll call the old model,
even though they might be premature.
Speaker 2 (18:21):
Yeah, and I think I think By and Lawge you're
right in terms of why they responded the way they
did is because what else are you gonna say. We're
already hundreds of millions, billions of dollars into this. We
can't suddenly seem like they're well, let's changed course.
Speaker 3 (18:34):
Are they? Are they whistling? I'm asking a rhetorical question here,
but are they just whistling past the graveyard on this
Their plants haven't changed in the past six weeks, but
the landscape may have changed dramatically.
Speaker 2 (18:44):
Maybe, But I have no evidence that they actually believe
that they're whistling past the graveyard. I don't think they're
just wondering.
Speaker 3 (18:49):
If that's not motivated. I'll play psychologists here and say,
is this motivated reasoning? Can you just are you choosing
not to see that all this sunk cost is something
you may have to walk away from, or that somebody
be able to replicate what you've done much more cheaply.
Speaker 2 (19:03):
That's about the ten trillion dollar question, is it Mark?
It's about the ten trillion dollar question that we can't
possibly answer. So that's the rap on the big tech
earnings that we saw so far, and a lot more
to come obviously in coming weeks and months as they
navigate the new technology. Let's take a quick break when
we come back, a little bit of Tesla news, further
(19:25):
bad news in terms of sales numbers. We'll cover that next.
Speaker 1 (19:41):
Bringing the latest financial news straight to your radio. Every day,
it's the Financial Exchange on the Financial Exchange Radio Network.
The Financial Exchange streams live on YouTube. Like our page
and stay up to date on breaking business news all
morning long. This is the financi Chill Exchange Radio Network.
Speaker 5 (20:07):
All Right, trivia question today was what year did Amazon
go public? I'll be nineteen ninety seven, ipoed on May
fifteenth of that year at eighteen dollars a share.
Speaker 2 (20:19):
Yeah.
Speaker 5 (20:20):
Greg from Fitchburg, mass is our winner today. Excuse me
taking on my Financial Exchange Show T shirt. Congrats to
Greg and we play trivia every day here on the
Financial Exchange. See complete contest rules at Financial Exchange Show
dot com.
Speaker 2 (20:36):
Tesla, which is down a little bit today about one
and a quarter percent, is being reported that their Chinese
vehicle sales fell eleven and a half percent for probably
several reasons, but one of them being intense competition from
Chinese rival BYD, which saw two hundred and ninety six
(20:57):
thousand sales of pure electric and plug in hybrid Vida
last month, which is up forty seven percent year over year. Furthermore,
earlier this week were reported that Tesla's sales in Germany
pluged plunged fifty nine percent in January. So my main
question is very simply this, If you can't sell your
(21:17):
cars in Europe, and you can't sell them in China,
where are you going to sell these cars? Because I
don't think you're going to have, you know, great results
selling electric cars in Africa where the infrastructure is no good.
I don't think you're going to have a lot of
results in Latin America would be my guess. And US
sales have been plateauing on evs for years, So why
(21:40):
why should I be optimistic about your future? Is my
main question when it comes to Tesla, who stock, by
the way, is up now ninety seven percent over the
course the last twelve months.
Speaker 3 (21:48):
Yeah, the amazing thing is that Tesla management has convinced
shareholders that none of this matters. An analysts too, Apparently
most of them have buy ratings on this company. Is
it a car company? Is it an AI company? Is
it a is it a yeah, cab company, and an
autopiloted cab company.
Speaker 2 (22:07):
We damn well better have some robots and self driving
cars post haste if this is going to continue. But
I don't know. Maybe I'm missing the boat on US sales,
but I've voiced this before. I'm worried about Tesla's US
sales because half the country doesn't like this administration very much,
not half, maybe forty percent.
Speaker 3 (22:28):
To endear himself to anybody's yeah, he seems to be
trying to alienate the maximum number of people.
Speaker 2 (22:38):
Well, I don't know about that. I think he is
doing a pretty successful job of coozing up to conservatives.
Speaker 3 (22:45):
Yeah, but historically.
Speaker 2 (22:46):
They don't buy evs, So I just I don't know
what this means for Tesla. It's a lot of looming questions,
and I think it is an important pivot point for Tesla.
Maybe they are on the verge of a technological breakthrough
that I haven't seen, but a bit of a boy
who cried Wolfe syndrome when it comes to Tesla on
those innovative breakthroughs, because they've been promising a lot of
(23:06):
technological stuff for a decade.
Speaker 3 (23:08):
Since when has ideological appeal ever been a good business strategy?
I can't think of a company and he's not trying overtly.
I don't think. Although he is effectively doing this, he's
not overtly marketing to people who are more what he
would call conservative. I would call myself conservative. I don't
know what these people are. They're not traditional conservatives, but anyway,
(23:30):
I'm splitting hairs. It's just an odd marketing strategy, Mike.
I've never seen a company say shop here unless you're libertarian.
Speaker 2 (23:38):
Yeah, seems like a weird, weird decision.
Speaker 5 (23:41):
The calendar has turned and the cold is here to stay.
So now's the perfect time to plan that getaway to
the US Virgin Islands. Act now and take advantage of
a special promotion to Sant Croix, experience a vibe like
no other, and receive a two hundred and fifty dollars
per person airfare credit and a free hotel night when
you book a five night minimum stay with any participating
(24:04):
hotel before June thirtieth. Saint Croiz known for its incredible
history and spectacular architecture, along with world class cuisine, incredible
golf courses, and a wide variety of water sports. From
the moment you arrive, you'll fall naturally in rhythm with
the heartbeat of the islands. There's no money to exchange,
and travel from New England could not be easier. America's
(24:25):
Caribbean paradise is waiting for you. Experience a vibe like
no other on the island of Saint Croix. Go to
visit USVII dot com and use the code Vibe twenty
twenty five for more information and book your trip today.
That's visit USVII dot com and code Vibe twenty twenty five.
Speaker 2 (24:43):
Scott Besson seems to be attempting to calm markets, and
I have to say that so far the commentary from
Besson himself has been about the most consistent and kind
of as anticipating. We talked a lot about this Treasury
Secretary pick leading up to it, but very consistent and
very straightforward in terms of his goals when it comes
(25:03):
to the Treasury. The furthest out that I think he's
had to go is commenting on Elon Musk's and Doja's
access to the Treasury Department. But you know, he has
not massively pivoted in terms of where they're going to
issue new debt. He has not massively pivoted on his
view on the Federal Reserve or commenting on it, and
so seems to be delivering some degree of calm to market.
Speaker 3 (25:24):
Treasury secretary should be seen. Name five of them historically,
I'm not and I'm not I'm going to put you
on the spot.
Speaker 2 (25:31):
Yelling, yell, n yelling, and manouche are the three that okay,
So that's.
Speaker 3 (25:37):
Probably most people don't pay too much attention to it.
Does anybody remember who? I don't know? George W. Bush's
first Treasury secretary. It was a failure. He lasted like
a year. Nobody remembers it. Was the chairman of el Coach,
do you no? I remember only that he was the
chairman of and it was viewed as being apoll O'Neil
was his name. Excuse me, but you'd be hard pressed
(25:59):
who was Will Clintons first Treasury secretary. Bob Rubin was
the famous one. No nobody remembers Lloyd Benson's Treasury secretary
for like a year and a half. My point is,
it shouldn't matter. It should be a job twyet, door
go ahead.
Speaker 2 (26:10):
It should be a quiet job where you are making
sure the plumbing of the US economy works. There you go.
Speaker 3 (26:16):
That's what I'm just gonna say.
Speaker 2 (26:17):
That's that's all they have to do. And Bob's job,
by the way, Clinton's, it's all you have to do.
Speaker 3 (26:22):
Clinton's next to last Treasury secretary got it absolutely right.
He presided over orderly issue ince and management of US debt,
and when asked something that was outside of his lane,
specifically the US dollar, which is not exactly outside of
his lane, his response was always the same. And I
know I say this every time I'm on, but Bob
Rubin used to say, a strong US dollar is in
(26:43):
the United States interest, full stop, end of sentence, no
further commentary.
Speaker 2 (26:46):
And if I were not mistaken, best just repeated that yesterday.
Didn't he smart?
Speaker 3 (26:50):
He knows he's a finance guy, and he when asked
about the Federal Reserve. The Clinton administration, which set the
tone for this in the modern era, used to famously
respond with, we don't come on the Federal Reserve. It's
an independent entity. I suspect Bessant would respond with something similar,
and he tried to sort of walk back some of
some other administration officials comments about Fed independence, he said,
(27:12):
Besson said something like, and I thought this was pretty
deft on his part. Oh, no, no, we meant we
want influence over longer term interest story, which is a
perfectly conventional thing to say. So so far, like you said,
I think he's off to a by the standards of
some of the policy swings we've seen over the past
few weeks, off to a pretty good start.
Speaker 2 (27:32):
Another tax announcement that falls into the same range of
Scott Besant and Treasury and his previous roles. The Trump
administration is apparently and I very much doubt this goes anywhere,
taking aim once again at the private equity favorite tax
perk of carried interests. So, to make a long story short,
(27:52):
carried interest is a bit of a tax loophole that
allows those who work in deal making areas such as
private equities such as venture capital and hedge funds, to
avoid paying ordinary income taxes on the majority of their
earnings and instead pay capital gains taxes, and if you
are at all familiar with the tax code, you'll know
that capital gains are always taxed at a lower tax
(28:14):
rate than ordinary income. This has been looked at and
attempted to be amended by Democrat administrations, very few Republican administrations,
but once again getting a look from the Trump administration.
And I just find it again interesting that in terms
of economic stuff that we've heard about thus far from
the Trump administration, it's been budget cuts, tax increases, and
(28:39):
tariff increases. You want to know why markets are shaky,
where's the tax cuts? Where are the market shaky? They
haven't been shaky by the reason when they're when they're
responding to things like tariff increases, it's because it's not
being accompanied by it. And I'm just I'm surprised that
you're hearing the reporting on the do away with carried interest,
(29:01):
which I'm.
Speaker 3 (29:01):
Fining to cut something, Michael, raise revenue, signing like that.
Speaker 2 (29:04):
If you're going to raise revenue, I think this is
a great place to go.
Speaker 3 (29:06):
After nobody's going to defend private equity.
Speaker 2 (29:08):
But it's not being accompanied by and by the way,
this is going to allow us to waive the taxes
on Social Security like we were hoping to do so.
It'll be fascinating.
Speaker 3 (29:18):
That is why they're doing it, though, to pay for
his other tax cuts promise.
Speaker 2 (29:21):
But those tax cut promises are not coming to fruition
as quickly as I think they were home.
Speaker 3 (29:26):
I'll give the Trump administration credit on this. It is
a loophole. Many, as you mentioned, have talked about reforming it,
including him in his first term. Ye didn't muster the
will to were weren't able to for whatever reason. I'd
be shocked if this actually went through. Private equity is
quite influence and they throw around a lot of money.
But these are exactly the types of, as you put it,
loophole that they should be looking at closing. Good good
(29:48):
for them. Unfortunately, he's going to open about fifty other
loopholes with taxes on tips and raising the salt cap
and whatever the heck else he was promising in the
last six week giveaway bonanza of the campaign. They're gonna
open up twenty loopholes for everyone they close. But good
for them. This is a sensible one to try to close.
Speaker 2 (30:04):
Let's take a quick break when we come back. Paul
Lamonica from Baron's joining us to talk Etsy next to
the Financial Exchange.
Speaker 1 (30:11):
This is your home for the most comprehensive coverage of
the economy and the trends on Wall Street. This He's
the Financial Exchange Radio Network. The Financial Exchange Show podcast
drops every day on Apple, Spotify, and iHeartRadio. Hit that
subscribe button and leave us a five star review. You're
listening to the Financial Exchange Radio Network, Ladies and gentlemen
(30:35):
the weekend.
Speaker 5 (30:38):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts. By making a donation, you
can support the Veteran Advancement Program, which offers permanent and
transitional affordable housing to veterans and their dependents. The DAV
of Massachusetts is the only DAV department in the country
to lead a veterans housing initiative for single bets and
(31:00):
those with families. Visit DAV five k dot Boston to
make a donation today and make note for this year's
five K to be held on Saturday, November eighth. That's
DAV five k dot Boston.
Speaker 2 (31:12):
Joining us now is Paul Lamonica from Baron's talking to
us about Etsy and in order to talk about Etsy. Paul,
we got to talk a little bit about these new
rules on Chinese imports. I'm hoping you can do a
better job than I did yesterday of attempting to explain
the deminimus exemption of imports into the United States. Thanks
for coming on.
Speaker 6 (31:32):
Yeah, thank you very much.
Speaker 1 (31:33):
Yeah.
Speaker 6 (31:34):
I mean, at the end of the day, really there
had been this exemption on quote unquote cheaper goods, you know,
goods costing under eight hundred dollars, you know, had been
allowed to enter the US duty free. And Trump is
getting rid of that exemption. So the companies that had
benefited from that, a lot of Chinese e commerce companies
(31:56):
like Shine and Timu owned by PDD and Ali Express
by Ali Baba. You know, they could get hit and
that might be a benefit for you know, US company Etsy,
which you know does not have to worry about these
tariffs and as much or competition as maybe as much
(32:16):
competition from some of these Chinese e commerce giants.
Speaker 2 (32:20):
Paul, after the Super Bowl commercial, I think it was
three years ago, I did test out I don't remember
if it was Temu or Shane and bought a winter
coat that I pretty much never wear anymore. But do
we have a sense for just how much these companies
were selling products in the United States dollar wise? And
you know, if these new exemptions go in, I assume
(32:41):
that we'll take a massive hit and and truly open
up a door for the likes of Amazon and Ets.
Do you know how big these sales were?
Speaker 6 (32:48):
Yeah, I mean I don't have the numbers in front
of me right now about what the amount of sales
in the US is, but needless to say that, you know,
consumers had been flocking to the sites. You know, you know,
you were obviously not the only one looking for you know,
cheap apparel. You know, the lore of bargain goods is
(33:08):
something that investors, I'm sorry, consumers always like. You know,
it's a reason why you know, companies like Walmart and
you know, TJX, George Marshall's and TJ Max why they're
continuing to thrive as well. You know, there's been a
lot of talk about how even wealthier consumers are looking
to save a buck as well. So anyone that can
(33:30):
offer you know, merchandise at the discount has been benefiting.
And you know Etsy obviously does that as well, but
now they potentially have you know, a lot less competition
going forward, or maybe it's going to be tougher for competition.
Speaker 2 (33:43):
So obviously Etsie's been around now for quite some time.
But for those that aren't intimately familiar with it or
haven't used the platform before, what's the typical type of
thing people shop for on there? It's a it's a
network of marketplaces, but it seems on the surface quite
a bit different than say in Amazon.
Speaker 6 (34:00):
Yeah, I mean collectibles, handmade goods, or remember a couple
of years ago, Etsy stock got hit when Amazon announced
a marketplace that was similar to Etsy. But you know,
it's a lot of people setting up shops selling you know,
a handmade handcraft goods that are you know, are not
(34:20):
necessarily going to be you know, a huge, you know,
you know, expensive type of item, but you know it's
the classic volume game, and you know, and ets he
gets a cut from the sellers. So that is why
this is the company that has done really well in
the past couple of years. But you know, I think,
(34:43):
you know, the hope is that etsie stock can finally
get a boost as well.
Speaker 2 (34:48):
To that point, the ETSI stock down about twenty five
percent over the course of the last year, presumably on
a lot of this new competition. Any conjecture from analysts
or just your to date what we've seen in terms
of a versal there.
Speaker 6 (35:01):
Yeah, Etsy has you know, made you know, a bit
of a comeback recently. I think on the hopes that
you know, the crackdown on Chinese competitors will help. Stock's
not that expensive. It's about twenty two times earnings estimates,
so about in line with the market multiple. And you know,
some analysts are saying that you know that there's even
(35:24):
you know, US companies that it competes with that you
know it will be able to benefit at their expense.
You know, one analyst in the story I wrote, you'll
mention that Wayfair, the home furnishings retailer, you know, they
could get hit by tariffs more than say Etsy is.
They have about fifteen to twenty percent of sales exposure
you know, goods from China. Etsy doesn't really have that
(35:47):
much exposure. And you know Etsy is you know, a
cheaper stock than some other e commerce companies like you know, Chewi,
which is another company that some analysts have said they
think will be able to hold up better because of tariffs,
because pet food and drugs for pets are largely made
in the US, supposed to abroad.
Speaker 2 (36:09):
Paul Amnica from Barons joining US today talk a bit
about Etsy and the changes to tariffs on Chinese made goods. Paul,
thanks so much for joining us. Appreciate it. Touch you next,
thank you have a good one. I want to talk
about fishing. Mark That all right by you? The pH
kind of fishing. The tests on fishing if you are
out of the workforce, they are getting so entertaining and unique,
(36:34):
but apparently making a lot of people fairly angry. So
if you don't know what I'm talking about, if you
have been out of the workforce for a few years,
you might not be familiar. But the attempts by bad
actors to gain access to company systems and take them over,
lock them down, and then demand ransom for unlocking them
(36:55):
have gotten so successful and so rampant that companies now
test their employees. And I actually just got one of
these this morning. It was it looked like a password
reset that I had requested from a system that I use,
and it said, you know, we got your password reset request,
click this link to reset your password. I looked at
(37:16):
the email address that it clearly wasn't from a system
that I used, so reported it as spam, and a
little congratulations went up on my screen, saying, hey, good job,
this was actually a test from your IT department. But
those IT departments are getting fairly creative. One of them
sent an email to a professor at a university saying
that there was an ebola outbreak at their university. Another
(37:39):
one sent a phishing test. What was it? Some? Oh yeah.
A NASA staffer apparently was brought to tears from a
phishing test promising the employee chance to win a trip
to the Kennedy Space Center to view the final launch
of the Space Shuttle, which was pretty cool. But I
have to tell you.
Speaker 3 (37:58):
I had a launch of the Space Shuttle.
Speaker 2 (38:00):
I have to tell you I don't think you should
be upset about this because this is actually what's required
to prevent this stuff. It's horrifying and I'm all in
favor of it. Quick break for the entire weekend. Market's
pretty strongly negative territory now with the NASDAC off more
than a full percentage point, we'll be back at it
on Monday. Have a great weekend, everybody,
Popular Podcasts
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.