May 19, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss treasuries and the dollar falling on the news that Moody's downgrades US debt. Bessent calls Moody's as a 'lagging indicator' of US fiscal health. The GOP tax plan doesn't address cutting the deficit. Trump attacks Walmart for tariff-related price increases. Why are we as a country trying to spend our way out of debt?
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Episode Transcript
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Speaker 1 (00:00):
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(01:06):
and Mike Armstrong.
Speaker 2 (01:12):
Alrighty, it is Chuck, Mike and Tucker with you, and
we are holding in our hands right now, just a
whole bunch of no longer triple A raided by Moody's
US government debts.
Speaker 3 (01:29):
Very when did.
Speaker 2 (01:31):
They get rid of bearer bonds? It had to be
after die Hard, because that's what I was gonna go nineties.
I'm curious when it was, because you can't actually hold
US treasuries in your hands anymore, but you used to
be able to back when you add bearra bonds, which
quite honestly, as the name implied, was just hey, if
(01:52):
you are holding it, you own it.
Speaker 3 (01:54):
Like to the deal. Eighty two was the last ones
that they had.
Speaker 4 (01:57):
Yeah, the issuance and did in eighty two. I assume
that you could still have a bearer bond after that,
but they didn't get issued anymore.
Speaker 2 (02:08):
So realistically, the longest duration that they were was probably
thirty years. So the last US treasury that could have
been in bear form went away by twenty twelve.
Speaker 3 (02:16):
Is that right?
Speaker 2 (02:16):
That would seem I don't even know if they were
issued in that explain what a bear I mean, it's
really the holder of the Bond Ohn, Yeah, I just did.
Speaker 3 (02:23):
Okay, sorry, Yeah, it's okay. You were googling or something.
I was. Yeah.
Speaker 2 (02:27):
But so in any case, over the weekend, actually it
was Friday, at around four thirty, Moodies, who is one
of the three major US rating agencies aside from Standard
and Pores and Fitch, decided to say, hey, you know what,
we don't think the US deficit picture is that sustainable anymore,
and as such, we are going to downgrade you from
(02:52):
the highest possible rating to one level below.
Speaker 3 (02:55):
There where you have been Moodies. So this is the
thing about.
Speaker 2 (02:58):
Moodies is they are widely viewed by Wall Street as
the class clown of rating agencies.
Speaker 3 (03:06):
And it's not to.
Speaker 2 (03:07):
Say like they don't have smart people working there. I'm
sure they do. It's nothing about like the individuals at Moody's.
It's much more look S and p downgraded the US
back in was a twenty eleven or twenty twelve. I
can't remember which one.
Speaker 4 (03:20):
Now. You told me twenty eleven earlier today, So I'm
gonna go with what you told me earlier.
Speaker 3 (03:24):
I'm just pulling it up just to make sure. Okay,
here we go.
Speaker 2 (03:26):
So the S andp downgraded him back in twenty eleven, which,
by the way, also happened. I think it was like
eight thirty on a Friday when they did this, So
this wasn't that was.
Speaker 3 (03:37):
A big deal. They were first to the scene.
Speaker 2 (03:39):
This wasn't Moody's trying. It wasn't Moody's trying to like
slip this by like a Friday news. This is just
like when this happens because of the magnitude of it,
they don't want to do it during active trading because
of the stuff that it can cost. So they do
it on a Friday so that banks and traders have
a little bit of time over the weekend to actually
think about it and figure out what they want to
(04:00):
do with it.
Speaker 4 (04:01):
And when this happened in twenty eleven, it was pretty noteworthy.
I think we were on the heels of the Great Recession.
There was a somewhat new idea that hey, you know,
lawmakers might not extend the debt ceiling, and you know, hey,
this could be an actual threat to the US economy.
We had just loaded up on a whole lot of
(04:22):
debt in order to combat to the effects of the
Great Recession, and so this was pretty newsworthy in groundbreaking
that Hey, a major agency is downgrading what is generally
seen as the safest asset that exists.
Speaker 2 (04:35):
There was a lot going on then, though, So like
the thing that you come back to if you look
after this is people will be like, oh, like stock
sold off, but bonds rallied, Like who would have thought it?
Speaker 3 (04:44):
Well.
Speaker 2 (04:45):
Part of the reason that bond's rallied was that the
EU was kind of in the process of, you know,
having its every ten years overfalling apart.
Speaker 3 (04:53):
What do we do?
Speaker 2 (04:54):
That was like right in the midst of the Greek
debt crisis and this and that, and so investors were
like trying to figure out what's actual safe to hold.
And so again I don't think that you can like
read into this and be like, oh, well, bonds got
bought up then and stock sold off, So that's what's
gonna happen now. Completely different environment in so many different ways.
A great So you had that back in twenty eleven.
(05:16):
And the big thing that SMP cited then was it
questions about US governance and policy making stability that's gotten
better since twenty eleven if they could only see us now.
So I think that number one like SMP was first
to the party on this. Was it right wrong or
anything else?
Speaker 3 (05:35):
I have no idea.
Speaker 2 (05:35):
I'm not going to like say, like whether or not
they should have or should not, because obviously the United
States has not defaulted in the fourteen years since then.
But they they did this, and it is what it is.
Other ones that you saw since then back in twenty thirteen,
I'm not going to count like the non major rating agencies.
I don't even know what business there is for non
(05:57):
major ones, but apparently there's enough that there's actually like
five or six of these guys out there. It's just
no one really pays attention to the other ones. But
in twenty thirteen, Fitch warned that it might cut the
US credit rating again, talking about political brinkmanship about the
debt ceiling. In twenty fourteen, after the debt ceiling was punted,
(06:19):
Fitch said, hey, we're you know, upgrading our outlook. We're
not going to change, you know, the triple A rating.
In twenty nineteen, Fitch said, hey, we might you know,
have to do something about this, And in twenty twenty three,
with the debt ceialing crisis that happened, then Fitch put
the US on negative credit watch and then downgraded the
US from triple A to double A plus. So last Friday,
(06:41):
Moodies comes in and says, gosh, it's twenty twenty five.
We should get in this party too, And so they
downgraded the US debt from triple A to what they
call double A one. They all have like their own
unique little things, but double A one is effectively the
same as double A plus from and do A plus
from SMP.
Speaker 4 (07:02):
So I want to continue this, but I want to
talk about where this does matter because like two weeks ago,
for example, Whirlpool, the maker of washing machines, they owned
Kitchen Aid may Tag, they were cut to junk status
by SMP. Real world implications for Whirlpool immediately. If you're
(07:23):
cut to junk status from investment grade quality, there are
a whole bunch of investors out there, many many investors
out there who by prospect us are not allowed to
own your debt. Yes, many mutual fund managers must sell
your bonds immediately.
Speaker 3 (07:37):
What does that do?
Speaker 4 (07:38):
And it makes it immediately more expensive in the future
to refinance your debt, to raise new debt offerings, etc.
Because you are given this brand of junk status, which
is a certain threshold and below if you are an
issuer of that debt. That is very fundamentally different than
what we're talking about with the United States here.
Speaker 3 (07:59):
In a couple of different respects.
Speaker 2 (08:00):
The first is, no one goes out and purchases you know,
even when Wharlpool was you know, double B or something
like that, No one goes out and purchases Whirlpool bonds,
being like, you know what, I made a bunch of dollars.
I need somewhere safe to put this money for ten years.
Let me go put it in Warlpool debt. Because if
you're rated double be to begin with, even before you
(08:21):
get downgraded from there, odds are that there are some
questions about exactly what your next ten years look like.
You're on the lowest level next to junk correct so like,
and there might even be mutual funds in the investment
grade space that say, yeah, we're gonna shy away from
you because we have these specific concerns that we've researched.
So it's not just like you hit a cliff, like
people have already kind of shied away from you a
(08:42):
little bit in a number of cases. In this case,
and I'll go back to what happened during you know
that the previous downgrades. One of the concerns out there is, hey,
are there you know, insurance companies or pension plans that
have to you know, liquidate because they can only hold
triple A rated you know, solid for debt and all
that most of those guys did back during all those
(09:03):
previous not all those previous downgrades, but the two previous
ones change the rules.
Speaker 3 (09:07):
They just said, yeah, you know what.
Speaker 2 (09:08):
We can hold double A plus now. And why is
because they want to own US treasuries.
Speaker 4 (09:14):
Yes, and they want to own US treasuries for a
few reasons. One would be it's still considered to be,
if not the most credit worthy, then one of the
most credit worthy items that you can own.
Speaker 3 (09:24):
But two, it's also the most liquid.
Speaker 4 (09:26):
Well, and as a result of us having like a
twenty seven trillion dollar you know, twenty nine trillion, where
are we now in terms of the total debt whatever.
It's an incredibly liquid market for you to hold something
that is quite considered quite safe.
Speaker 2 (09:41):
Let's also not forget the third piece of this, which
is when you're you're on a big boat with the cannon,
you don't turn the cannon around and point it at
your own hull. And if every insurance company simply said,
you know what, we can't hold triple A rated debt anymore,
you know double we can't hold US treasuries because they
(10:01):
went from triple A to double A plus, then every
insurance company instantly goes out of business because all of
their collateral is worthless. So like part of it is
they can't actually do that because they would have no
one to sell too.
Speaker 4 (10:15):
That's an interesting analogy, Chuck, when you're talking about the
US debt ceiling pointing a canon at your ship's own hull. Yes, well,
it also applies to those who try to vote against
raising the debt ceiling.
Speaker 2 (10:26):
In light of what happened at the Brooklyn Bridge a
few days ago. You know, we're all kind of in
nautical mode these days again, kind of like we were
back in the uh the winter of twenty twenty two
when the ever Given got stuck in the Suez Canal.
And so hey, I'm I'm just playing to the zeitgeist
here with what everyone's focused on. So big thing, the
(10:48):
actual downgrade of the US debt by Moodies, non event.
But and this is a big, big butt. I appreciate that, Tucker.
I appreciate that what this gets at is something that
(11:10):
everybody knows right now, and everybody knows that. Everybody knows this,
which is that you can't run deficits at seven percent
annually and expect to be able to get away with
it without any consequences. And the Moodies has no unique
insight into this. But the timing is interesting just because
(11:30):
everyone's paying attention here right now, and what are the
consequences as a result of that? In that, Hey, could
any interested party who wants to say, yeah, we want
to use this as a rationale for changing what we
previously did, that now is in play as what people
(11:53):
can use for Hey, you know what, We're a company
based out of name any foreign country that's not the
United States. We previously held, you know, one hundred percent
of our you know, excess cash in dollars because we
transact mostly in dollars. We're gonna be looking for alternatives
(12:13):
for you know, portions of this just to balance the
risks that are present to us.
Speaker 4 (12:18):
So Besant said over the weekend. I believe it was
that the downgrade is a lagging indicator and while that's.
Speaker 2 (12:24):
By the way, I gotta tell you, calling Moody's a
lagging indicator it's good insult, especially from him. It's kind
of like, who's the guy that got called a medium
talent on SNL.
Speaker 3 (12:39):
Was a chevy Chase by Bill Murray? I think it was.
Speaker 2 (12:42):
I forget who it was, but it was just like
just this biting thing, just like, oh, like, you're not awfully,
You're just like a medium talent. I think it was
chevy Chase who got called that by Bill Murray.
Speaker 3 (12:51):
Yeah.
Speaker 5 (12:51):
Bill Murray's yelling that at chevy Chase medium talent.
Speaker 2 (12:54):
This is basically like Scott Bessen't calling Moody's medium talent.
In the financial business, the last thing you want to
be called is a lagging indicator.
Speaker 3 (13:04):
Yeah, so I do not.
Speaker 2 (13:06):
I thought that was great, by the way, I think
it was a good insult, and in and of itself,
I don't think it matters. I'm with you there, but
it is another straw that has been piling onto the
US fiscal situation that who am I to say? Maybe
it does correlate and coincide this time with a real
(13:27):
problem and change to the state of our I'm not
even calling it reserve currency, just our special status that
the United States has had for the better part of
a century. To take a quick break, I want to
dig more into Beston's comments and kind of talk a
little bit about them, this downgrade and the tax plan
(13:48):
that Congress is trying to put together.
Speaker 1 (13:49):
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Speaker 2 (14:51):
All right, so, I want to talk a little bit
more about what Scott Bessen said over the weekend, just
because I think it is again just interesting in the
context of where we stand today on the deficits and
best one was asked about, you know, the Moody's downgrade,
(15:13):
and he gave the you know the Moodies as a
lagging indicator, you know line, which I.
Speaker 3 (15:18):
Gotta tell you, like it's a good line.
Speaker 2 (15:20):
But then I want to read this quote here he says, quote,
we didn't get here in the past one hundred days.
It's the Biden administration and the spending that we've seen
over the past four years that we inherited, and we
are determined to bring spending down and grow the economy.
So here's what I'll say on this. This is a
problem that now goes back twenty five years. It goes
(15:40):
back to two thousand and two, which really two thousand
and three, but for obvious reasons, in the wake of
the bursting of the tech bubble and September eleventh, the
Bush too first term, the second Bush's first term was
not going well by his third year, and so he said, look,
(16:03):
I got to do something in order to you know,
boost the economy enter you know, things like medicare Part D,
A whole bunch of spending comes in. And here's where
deficits have been. I'll actually go back to nineteen ninety
just to give some context.
Speaker 3 (16:16):
Here.
Speaker 2 (16:17):
Here are the annual deficits percentage wise relative to GDP.
I'll start in nineteen ninety three point seven percent, in
ninety four point four and ninety one, obviously looking at
the Gulf wur going on a lot of spending, four
point five percent in ninety two, three seven, and ninety three,
two eight, two one one three zero point three percent.
(16:38):
That is ninety four through ninety seven. We then had
four years of surpluses ninety eight, ninety nine, two thousand,
and two thousand and one all were surpluses, which, if
you've listen to our show, you know my feelings about surpluses.
They're not actually good things because it literally means you've
taken in more taxes than you know what to do with.
Speaker 3 (16:53):
And no one was the last time. Uh correct. I'm
not saying rung giant deficits.
Speaker 2 (16:57):
I'm just saying tax surpluses are is literally giving one
to politicians that they don't know.
Speaker 3 (17:01):
What to do with.
Speaker 2 (17:04):
Just doesn't seem like the best idea to me, but
your mileage may vary. Two thousand and two one point
four percent, then three point three, three point four, two
point four, one point eight, one point one, three point one.
Speaker 3 (17:15):
There's two thousand and eight.
Speaker 2 (17:16):
Even through two thousand and eight, we were basically running
like two to three percent deficits. That was the norm typically,
and that's a pretty sustainable place to be.
Speaker 3 (17:26):
Actually. You might say, well, you know, why is that
the case? And the answer is pretty much. Look, if you're.
Speaker 2 (17:31):
Growing your economy by five percent nominally and your debts
increasing by three percent a year, your debt's actually shrinking
relative to GDP each year, it's not a bad place
to be. You can actually build an economy sustainably like that.
Here's what we've done since then. Nine point eight percent,
eight point six percent, eight point three six point six,
(17:51):
four point zero two point eight two point four three
point one.
Speaker 3 (17:54):
That's through twenty sixteen.
Speaker 2 (17:56):
We had three years then out of there where we
were anywhere close to three percent deficits. YEP twenty seventeen,
three point four, twenty eighteen, three point eight, twenty nineteen,
four point six, twenty twenty COVID fourteen point seven, twenty
twenty one. Also COVID eleven point eight, twenty two, five
point three, twenty three, six point two, twenty four, six
(18:16):
point seven. So here, here's where we are now is
in the last fifteen years, in particular, since two thousand
and nine, the only years that we could credibly say
we were close to, you know, a three percent annual deficit.
We're twenty fourteen through twenty seventeen. Everything else we were
close to the four percent or above. And so this
(18:38):
is a problem that's fifteen years in the making. Really,
I call it twenty five years because you know Bush
two kind of kicked this off. But we've been through
five administrations now where there has been no major shift
in the trajectory of the deficit other than up Bush two, Obama,
Trump one, Biden and now Trump two. When I say
(19:00):
Trump too, because if you look at you know, kind
of the numbers so far for the first four months,
you're not seeing any meaningful shift in spending from the
previous year.
Speaker 4 (19:09):
And we'll get into the tax bill that has been proposed,
but we're talking about an extra three trillion plus at it.
Speaker 2 (19:17):
So I think this gets to the point where, again
when you start running like six percent deficits year after year,
the math starts to get complicated. We'll talk about why
that's the case and how this impacts the tax bill
after this.
Speaker 1 (19:40):
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Street Watch a complete look at what's moving market so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Markets are negative territory to begin the week, with treasury
yields jumping higher, in the dollar weakening, and reaction to
Moody's downgrade of the country's credit rating citing large fiscal deficits.
At the moment, the Dow down by only forty points,
SMP five hundred is down over a third of a percent,
or twenty three points. NASDAC down by six tenths of
(20:20):
a percent, Russell two thousands down one percent. At the
moment ten your treasury yield is up by seven basis
points now at four point five to one percent, and
crude oil up about a quarter percent higher. Training it's
sixty two dollars and sixty two cents a barrel. Walmart
down by about three quarters of a percent after President
Trump called out the retailer over the weekend, saying the
(20:42):
retail giant should eat the tariffs and not raise prices
for the more. Treasury Secretary best And told Meet the
Press yesterday that Walmart's CEO Doug McMillan told him the
retailer would absorb some of the levies. Meanwhile, in video,
Annow's plans to deepen its partnerships with partnerships with Taiwan.
These companies including fox Con, with which it plans to
(21:03):
build an AI computer. The chip maker also said its
new envy Link Fusion program will allow customers and partners
to use non Invidia central processing units and graphics processing
units together with its Nvidia products and its Envy Link.
In video, pulling back by about a quarter percent. Elsewhere,
Ageneron said it will acquire virtually all of twenty three
(21:26):
meters assets for two hundred and fifty six million dollars
after coming out on top at a bankruptcy auction for
the startup that stock, Regeneron is down by one percent.
JP Morgan downgraded Netflix to neutral from overweight, citing the
stock's recent outperformance and noted there is no change to
its long term bullish view. Netflix down by three quarters
(21:48):
of a percent after shedding twenty three percent last week.
United Health shares are slightly rebounding by three percent today.
Bath and body Works as a new CEO, naming Daniel
Heath to the new roll. Heath was most recently Nike's
Chief Strategy and Transformation officer. Bath and body Works down
by one percent, and tomorrow morning we'll see retailer earnings
(22:11):
from Home Depot. I'm Tucker Silvan. That's Wall Street Watch.
Speaker 2 (22:15):
All right, So we've got we've got three stories here,
and I'm feeling a little bit.
Speaker 3 (22:23):
You guys remember.
Speaker 2 (22:24):
The Always Sunny episode where Charlie Dave becomes a conspiracy theorist.
Speaker 3 (22:28):
Sure, That's how I'm feeling right now. Okay, I'm like
all strung out.
Speaker 2 (22:32):
I got like a big wall of like all different
papers behind me with like you know, pieces of yarn
going between them and stuff like that, and I'm trying.
Speaker 3 (22:39):
To explain it to everyone.
Speaker 2 (22:40):
But these next three stories dovetail here, and I want
to talk more about what Besson said. I want to
talk about the tax bill, and I want to talk
about Walmart and the tariffs.
Speaker 4 (22:51):
I can connect two of the three, but go on.
Speaker 2 (22:53):
Okay, So a couple things that Besson said that caught
my eye. The first is talking about the tariffs, and
they asked him, look like, what's what's kind of the
next plan? He said, Look, we've got, you know, so
many negotiations going on, but if someone's not negotiating in
good faith, they're going to get a letter saying here's
(23:15):
the rate. So I would expect that everyone would come
and negotiate in good faith. Those that get the letter
will face the tarifrate that the White House announced on
April second. So I mentioned earlier like I loved that
quote from Bessent about calling Mood he's a lagging indicator.
Does anyone out there actually believe that the White House
(23:36):
is going to impose the April second tariff rates on
countries that like don't play ball because they tried that
for twelve hours and it didn't work.
Speaker 4 (23:46):
Yeah, I would say not. No, I don't think any
of the negotiators believe it. I don't believe it, and
certainly I don't believe it with any trade partner that
is significant in terms of anything.
Speaker 3 (23:57):
There's a credibility issue there.
Speaker 2 (23:58):
I mean, look China, for all to talk about how
the US has the biggest problems with China out of anyone.
China is below their liberation day rate. It was fifty
four percent, they're at thirty.
Speaker 4 (24:10):
I mean, frankly, China is below most countries liberation day rate.
Speaker 2 (24:14):
Whatever the point is, I don't think there's much credibility
on that side to be like, yes, we're going to
raise the raids back to where they were stated on
April second.
Speaker 4 (24:24):
To the point, I think they could even announce it
and nobody would believe them.
Speaker 2 (24:29):
Yeah, I don't think anyone would believe what would happen
because they already tried it once and pulled it back
the same day they were supposed to be implemented. Yeah,
because the market was throwing up all over itself. So
that's that's point one that I found interesting. It dovetails
with this piece on the tariffs and Walmart, because obviously
the Trump administration does not want tariff's equals price hikes
(24:53):
to be something that is in the minds of the
American people. The unfortunate thing is that tariffs are price hikes,
and it's just a question of whether Walmart eats them
as the Trump administration would like them to we'll get
back to that in a second, or passes them on
as Walmart said they were going to. In reality, it's
going to be a combination of both. It's not all
of one or all of another. But here's the piece
(25:15):
that I think we need to continue to hone in on,
which is Walmart and other retailers. They don't have wide margins.
The margins are four percent. There is not a lot
of juice there for Walmart to eat them. Even if
Walmart said, hey, we'd love to eat as much of
this as possible, they can't eat all of it.
Speaker 4 (25:33):
So here's the quote from President Trump over the weekend
Walmart billions of dollars last year between Walmart and China.
They should, as is said, eat the tariffs and not
charge valued customers anything. I'll be watching, and so will
your customers. Yes, of course, they made billions of dollars
last year that represented, according to the data I had
a five point six percent operating margin on their entire business.
(25:57):
So yes, we may billions of dollars, but had expenses
been substantially higher, that could have been eliminated quickly. Because
our margins are in the single digit percentages that that.
Speaker 3 (26:09):
Doesn't they made dollars on volume. It's correct.
Speaker 2 (26:14):
Look, if if you want a company where hey, they
could certainly pass them through and eat them. Talk to
me about Visa, Sure, okay, Visa, And it's not to
be like, you know, picking on them. But Visa has
revenue of thirty seven billion dollars. They made nineteen billion
dollars on that they're operating margins are north of fifty percent. Yes, Like,
this is one of those companies where I look at
(26:35):
it and I'm like, what is it you say you do here?
Speaker 3 (26:38):
You know, like it's called the monopoly, chuck, and you
need to respect it.
Speaker 2 (26:41):
I appreciate that it's not quite a monopoly because there
are a couple of tripoly maybe yeah, it's maybe a
quadruply or if that's a thing, But it's it's there's
not much competition, and they all effectively.
Speaker 3 (26:54):
Collude without colluding. Correct.
Speaker 2 (26:56):
So where I'm going with this is you have this
tariff situation that I continue to come back to and
say they want to raise revenue from tariffs because all
the other stuff is gone.
Speaker 3 (27:08):
At this point.
Speaker 2 (27:09):
If you wanted to bring back manufacturing to the US,
you have to keep the tariffs in place.
Speaker 3 (27:14):
More than twelve hours. Agreed.
Speaker 2 (27:16):
If you want to, you know, dramatically alter you know,
the flow of goods around the world, you have to
keep them in place more than a month.
Speaker 4 (27:25):
And if you want to have China change its practices
around how they treat American businesses doing business, and chinam
in place more than the month place.
Speaker 3 (27:32):
Yeah, so I agree with you.
Speaker 4 (27:34):
It seems to me that revenue generation in order to
offset tax changes is important to the administration.
Speaker 2 (27:41):
This gets me to my third point. And this is
a great quote from Besson here, which I think also
validates something I said last week. So of course I
think it's a great quote. To go back to your
question about the Moody's downgrade.
Speaker 3 (27:54):
Who cares?
Speaker 2 (27:55):
Qatar doesn't, Saudi doesn't, the UAE doesn't. They're all pushing
money and they've made ten year investment plans. Remember President
Trump went on this big trip to the Middle East
last week and secured you know, these these investments that
are going to be made in the United States. They
never specified what the investments were going to be. Now,
(28:19):
when someone normally hears, oh, we're gonna make an investment
in your country, you typically think, oh, you're gonna build
a factory or you're gonna build a building. Are you're
gonna you know, do And I wondered, I think it
was on Friday. Hey, what if the investment they're making
is not an equity investment or you know, a construction
of anything in the United States. What if it's just, yeah,
(28:42):
we're gonna buy your bonds and you're gonna let us
pump as much oil as we can in order to
keep oil prices low for you, and in return, we
get a bunch of high end chips that we can
do whatever we want with.
Speaker 3 (28:55):
And that's a hint that that was the case, right.
Speaker 2 (28:57):
Like it if if Beson is talking about this Katari investment,
the Saudi investment, the UAE investment, in the context of
the Moody's announcement, doesn't it suggest that the much of
that investment could come in the form of purchases of
US bonds rather than building a factory or investing in
US companies.
Speaker 3 (29:17):
Seems to it could be. And so this gets me then,
Oh wow, I know, I'm totally Charlie Dane, I know,
so if you look over here.
Speaker 2 (29:27):
So this gets me then to the tax bill, because
it is painfully clear now and again the details are
going to be what they are. The tax bill is
not going to reduce the deficit. It is going to
increase it. It's a matter of how much.
Speaker 4 (29:42):
It was clear from day one, guys, there hasn't been
a tax bill that has raised that has reduced the
deficit since pre Reagan.
Speaker 2 (29:49):
I always take an open mind until I start to
see the details because I don't I don't want to
come in preconditioned to say this is going to be X,
Y or Z. But here's where we're going on this.
The best case scenario for the tax bill right now
is that it maintains six percent deficits.
Speaker 3 (30:07):
It's the best case.
Speaker 2 (30:09):
The worst case ones are closer to eight percent. And
so where I'm going with this is they need the
revenue from the tariffs in order to try to make
the math math. And part of this is also securing
commitments from foreign countries with a boatload of money to say, hey,
(30:29):
if the math doesn't math, are you still with us
on this? And here's what we can give you an
order for you to be with us.
Speaker 3 (30:37):
That is where I am. I don't know. I think
connect those dots. I don't have anything left.
Speaker 4 (30:42):
I think you did it well mighty to listen to
the tape to see if I can follow it again
the second day.
Speaker 3 (30:47):
But I hear you, I don't have anything else to say.
I'm done one thing. I'll say.
Speaker 4 (30:55):
You know what I don't want to own as a company,
hold on Blockbuster, one that reduces their profit margins intentionally
to kiss up to the White House. So I don't
think Walmart's gonna do that.
Speaker 2 (31:09):
Here's the thing, Okay, here's one other thing to watch,
just because you brought it up. And I do think
this is gonna be interesting. When the tax bill finally passes,
they're gonna pass something like I don't know exactly what it's.
It's going to pass in some way, shape or form,
probably in the next three to four months. When the
tax tax bill finally passes and everything that these companies
(31:31):
want is codified into law. Now that Walmart and Home
Depot and Apple have gotten what they want from Congress,
what do they say about their spending plans? Then I'm
just curious, just curious. Let's take a quick break when
we come out come back, we'll talk about why Europe
(31:53):
is out as a vacation destination and road trips are
in Man where We're going in the old volks bus.
Speaker 3 (32:01):
Who knows but where we're going. We don't need roads.
Speaker 1 (32:04):
Right after this, breaking business and financial news first throughout
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Speaker 2 (32:37):
I thought I was done with the the Scott Bessant interview.
I have one other thing that I want to come
back to in terms of what he was talking about.
Speaker 3 (32:50):
Over the weekend.
Speaker 2 (32:51):
And you know, he was asked, look, how are you
going to get the US out of this situation? And
there are two ways when talking about a high debtity
DP ratio, there are two ways that you can do it.
The first is by saying we are going to cut
the deficit. That's what they were saying for the last
six months or so. Second is what Scott said over
(33:13):
the weekend. I'll quote, we are going to grow the
GDP faster than the debt growth and that will stabilize
the debt to GDP, which is the most important number.
Speaker 4 (33:22):
So the agree is they're not gonna cut deficits. They're
gonna run it hot.
Speaker 2 (33:27):
They're gonna run it hot and hope that you can
get to like eight percent nominal GDP and six percent
annually annual you know, debt on GDP and shrink it
that way.
Speaker 3 (33:41):
Is it gonna work? I don't know, but I want
to be really clear, it's not. Really. It has never.
Speaker 4 (33:46):
Worked in forty five years of tax cuts.
Speaker 3 (33:52):
Well, no, not saying it will work.
Speaker 2 (33:53):
It won't work this time, but it So this approach
is what the US basically did after World War Two, yep.
And it did work then, yep. But it was also
a very different economy then.
Speaker 4 (34:03):
I mean saying, the last forty five years, when you've
done this sort of thing, it has not done what
they are describing.
Speaker 2 (34:08):
So maybe it does this time. Well, this isn't talking
even just about tax cuts caught. This is this is
literally just, hey, we don't want there's no way that
we can cut the deficit right, and so we're just
gonna try to shrink it through growing.
Speaker 3 (34:20):
The economy faster. Can it work? Yes?
Speaker 2 (34:24):
It also has you know, really high risks associated with
it in that look, even in the successful example after
World War Two in early nineteen fifty one, the US
was seeing twenty one percent annualized inflation. Now there's your again.
It worked in that, like the US debt situation was
much more under control after that. But how many of
(34:48):
you listening were working in nineteen forty nine. The answer
is none of you. I don't think we have. I
don't think we have many one hundred and two year
old people listening right now, but not many. There's a couple, yeah,
you know, and we love them.
Speaker 3 (35:02):
But that's what it is.
Speaker 5 (35:04):
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Speaker 2 (36:15):
By the way, this calculus, if I'm reading this right,
is pretty much the same decision that the Biden administration made.
Speaker 3 (36:23):
Oh.
Speaker 2 (36:23):
The difference being the Biden administration said we're not going
to cut taxes, but we're going to increase spending. Yep,
here's the IRA with a bunch of green money coming.
Speaker 4 (36:31):
Out, arguably why you didn't get a recession back in
twenty twenty two.
Speaker 2 (36:34):
But also exacerbated inflation and people felt generally uncomfortable with
how things were going. This is another gamble along the
same lines. Will it work better or worse? I have
no idea, but this is why I continue to go
back to in the last twenty five years, there has
not been an administration that has been able to credibly
take on the deficit, Whereas the really interesting thing is
(36:58):
you would get basically the eighties, nineties and basically the
eighties and nineties, and it was the opposite. Reagan didn't
like it, raised taxes, had to Bush raised taxes cost him.
Clinton cut spending, had to Like you could look at
three presidents in row and be like, at least they
thought they had to at the time they did, I
(37:20):
mean like they did do it. And since that point
in time, the entire narrative has shifted, which is deficits
don't matter, deficit somebody else's problem.
Speaker 3 (37:31):
Yeah, which it looked really interesting school.
Speaker 2 (37:35):
Here's the thing, to be completely honest, it basically has
been to this point over the last eight years. If
a great gamp, if every time you got concerned about
the deficit for the last eighty years you said, short
that idea, it's not going to be a problem.
Speaker 3 (37:48):
Yep, you were right.
Speaker 2 (37:50):
Maybe it will be this time too, But there the
math is just not mathing, is where I'm kind of getting.
And it's been building for twenty five year now, Like
this is not a Donald Trump thing, this is not
a George W. Bush thing, It's not a Baraco but
it's in all of the like, we've all gotten to
this point together and.
Speaker 3 (38:13):
We're in uncharted territory.
Speaker 2 (38:14):
I don't know exactly how this plays out over the
next This is like a ten to fifteen year thing
that you're gonna have to see unfold. We'll take a
quick break here when we come back our two in
just a bit.
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(01:06):
and Mike Armstrong.
Speaker 2 (01:12):
Alrighty, it is Chuck, Mike and Tucker with you, and
we are holding in our hands right now, just a
whole bunch of no longer triple A raided by Moody's
US government debts.
Speaker 3 (01:29):
Very when did.
Speaker 2 (01:31):
They get rid of bearer bonds? It had to be
after die Hard, because that's what I was gonna go nineties.
I'm curious when it was, because you can't actually hold
US treasuries in your hands anymore, but you used to
be able to back when you add bearra bonds, which
quite honestly, as the name implied, was just hey, if
(01:52):
you are holding it, you own it.
Speaker 3 (01:54):
Like to the deal. Eighty two was the last ones
that they had.
Speaker 4 (01:57):
Yeah, the issuance and did in eighty two. I assume
that you could still have a bearer bond after that,
but they didn't get issued anymore.
Speaker 2 (02:08):
So realistically, the longest duration that they were was probably
thirty years. So the last US treasury that could have
been in bear form went away by twenty twelve.
Speaker 3 (02:16):
Is that right?
Speaker 2 (02:16):
That would seem I don't even know if they were
issued in that explain what a bear I mean, it's
really the holder of the Bond Ohn, Yeah, I just did.
Speaker 3 (02:23):
Okay, sorry, Yeah, it's okay. You were googling or something.
I was. Yeah.
Speaker 2 (02:27):
But so in any case, over the weekend, actually it
was Friday, at around four thirty, Moodies, who is one
of the three major US rating agencies aside from Standard
and Pores and Fitch, decided to say, hey, you know what,
we don't think the US deficit picture is that sustainable anymore,
and as such, we are going to downgrade you from
(02:52):
the highest possible rating to one level below.
Speaker 3 (02:55):
There where you have been Moodies. So this is the
thing about.
Speaker 2 (02:58):
Moodies is they are widely viewed by Wall Street as
the class clown of rating agencies.
Speaker 3 (03:06):
And it's not to.
Speaker 2 (03:07):
Say like they don't have smart people working there. I'm
sure they do. It's nothing about like the individuals at Moody's.
It's much more look S and p downgraded the US
back in was a twenty eleven or twenty twelve. I
can't remember which one.
Speaker 4 (03:20):
Now. You told me twenty eleven earlier today, So I'm
gonna go with what you told me earlier.
Speaker 3 (03:24):
I'm just pulling it up just to make sure. Okay,
here we go.
Speaker 2 (03:26):
So the S andp downgraded him back in twenty eleven, which,
by the way, also happened. I think it was like
eight thirty on a Friday when they did this, So
this wasn't that was.
Speaker 3 (03:37):
A big deal. They were first to the scene.
Speaker 2 (03:39):
This wasn't Moody's trying. It wasn't Moody's trying to like
slip this by like a Friday news. This is just
like when this happens because of the magnitude of it,
they don't want to do it during active trading because
of the stuff that it can cost. So they do
it on a Friday so that banks and traders have
a little bit of time over the weekend to actually
think about it and figure out what they want to
(04:00):
do with it.
Speaker 4 (04:01):
And when this happened in twenty eleven, it was pretty noteworthy.
I think we were on the heels of the Great Recession.
There was a somewhat new idea that hey, you know,
lawmakers might not extend the debt ceiling, and you know, hey,
this could be an actual threat to the US economy.
We had just loaded up on a whole lot of
(04:22):
debt in order to combat to the effects of the
Great Recession, and so this was pretty newsworthy in groundbreaking
that Hey, a major agency is downgrading what is generally
seen as the safest asset that exists.
Speaker 2 (04:35):
There was a lot going on then, though, So like
the thing that you come back to if you look
after this is people will be like, oh, like stock
sold off, but bonds rallied, Like who would have thought it?
Speaker 3 (04:44):
Well.
Speaker 2 (04:45):
Part of the reason that bond's rallied was that the
EU was kind of in the process of, you know,
having its every ten years overfalling apart.
Speaker 3 (04:53):
What do we do?
Speaker 2 (04:54):
That was like right in the midst of the Greek
debt crisis and this and that, and so investors were
like trying to figure out what's actual safe to hold.
And so again I don't think that you can like
read into this and be like, oh, well, bonds got
bought up then and stock sold off, So that's what's
gonna happen now. Completely different environment in so many different ways.
A great So you had that back in twenty eleven.
(05:16):
And the big thing that SMP cited then was it
questions about US governance and policy making stability that's gotten
better since twenty eleven if they could only see us now.
So I think that number one like SMP was first
to the party on this. Was it right wrong or
anything else?
Speaker 3 (05:35):
I have no idea.
Speaker 2 (05:35):
I'm not going to like say, like whether or not
they should have or should not, because obviously the United
States has not defaulted in the fourteen years since then.
But they they did this, and it is what it is.
Other ones that you saw since then back in twenty thirteen,
I'm not going to count like the non major rating agencies.
I don't even know what business there is for non
(05:57):
major ones, but apparently there's enough that there's actually like
five or six of these guys out there. It's just
no one really pays attention to the other ones. But
in twenty thirteen, Fitch warned that it might cut the
US credit rating again, talking about political brinkmanship about the
debt ceiling. In twenty fourteen, after the debt ceiling was punted,
(06:19):
Fitch said, hey, we're you know, upgrading our outlook. We're
not going to change, you know, the triple A rating.
In twenty nineteen, Fitch said, hey, we might you know,
have to do something about this, And in twenty twenty three,
with the debt ceialing crisis that happened, then Fitch put
the US on negative credit watch and then downgraded the
US from triple A to double A plus. So last Friday,
(06:41):
Moodies comes in and says, gosh, it's twenty twenty five.
We should get in this party too, And so they
downgraded the US debt from triple A to what they
call double A one. They all have like their own
unique little things, but double A one is effectively the
same as double A plus from and do A plus
from SMP.
Speaker 4 (07:02):
So I want to continue this, but I want to
talk about where this does matter because like two weeks ago,
for example, Whirlpool, the maker of washing machines, they owned
Kitchen Aid may Tag, they were cut to junk status
by SMP. Real world implications for Whirlpool immediately. If you're
(07:23):
cut to junk status from investment grade quality, there are
a whole bunch of investors out there, many many investors
out there who by prospect us are not allowed to
own your debt. Yes, many mutual fund managers must sell
your bonds immediately.
Speaker 3 (07:37):
What does that do?
Speaker 4 (07:38):
And it makes it immediately more expensive in the future
to refinance your debt, to raise new debt offerings, etc.
Because you are given this brand of junk status, which
is a certain threshold and below if you are an
issuer of that debt. That is very fundamentally different than
what we're talking about with the United States here.
Speaker 3 (07:59):
In a couple of different respects.
Speaker 2 (08:00):
The first is, no one goes out and purchases you know,
even when Wharlpool was you know, double B or something
like that, No one goes out and purchases Whirlpool bonds,
being like, you know what, I made a bunch of dollars.
I need somewhere safe to put this money for ten years.
Let me go put it in Warlpool debt. Because if
you're rated double be to begin with, even before you
(08:21):
get downgraded from there, odds are that there are some
questions about exactly what your next ten years look like.
You're on the lowest level next to junk correct so like,
and there might even be mutual funds in the investment
grade space that say, yeah, we're gonna shy away from
you because we have these specific concerns that we've researched.
So it's not just like you hit a cliff, like
people have already kind of shied away from you a
(08:42):
little bit in a number of cases. In this case,
and I'll go back to what happened during you know
that the previous downgrades. One of the concerns out there is, hey,
are there you know, insurance companies or pension plans that
have to you know, liquidate because they can only hold
triple A rated you know, solid for debt and all
that most of those guys did back during all those
(09:03):
previous not all those previous downgrades, but the two previous
ones change the rules.
Speaker 3 (09:07):
They just said, yeah, you know what.
Speaker 2 (09:08):
We can hold double A plus now. And why is
because they want to own US treasuries.
Speaker 4 (09:14):
Yes, and they want to own US treasuries for a
few reasons. One would be it's still considered to be,
if not the most credit worthy, then one of the
most credit worthy items that you can own.
Speaker 3 (09:24):
But two, it's also the most liquid.
Speaker 4 (09:26):
Well, and as a result of us having like a
twenty seven trillion dollar you know, twenty nine trillion, where
are we now in terms of the total debt whatever.
It's an incredibly liquid market for you to hold something
that is quite considered quite safe.
Speaker 2 (09:41):
Let's also not forget the third piece of this, which
is when you're you're on a big boat with the cannon,
you don't turn the cannon around and point it at
your own hull. And if every insurance company simply said,
you know what, we can't hold triple A rated debt anymore,
you know double we can't hold US treasuries because they
(10:01):
went from triple A to double A plus, then every
insurance company instantly goes out of business because all of
their collateral is worthless. So like part of it is
they can't actually do that because they would have no
one to sell too.
Speaker 4 (10:15):
That's an interesting analogy, Chuck, when you're talking about the
US debt ceiling pointing a canon at your ship's own hull. Yes, well,
it also applies to those who try to vote against
raising the debt ceiling.
Speaker 2 (10:26):
In light of what happened at the Brooklyn Bridge a
few days ago. You know, we're all kind of in
nautical mode these days again, kind of like we were
back in the uh the winter of twenty twenty two
when the ever Given got stuck in the Suez Canal.
And so hey, I'm I'm just playing to the zeitgeist
here with what everyone's focused on. So big thing, the
(10:48):
actual downgrade of the US debt by Moodies, non event.
But and this is a big, big butt. I appreciate that, Tucker.
I appreciate that what this gets at is something that
(11:10):
everybody knows right now, and everybody knows that. Everybody knows this,
which is that you can't run deficits at seven percent
annually and expect to be able to get away with
it without any consequences. And the Moodies has no unique
insight into this. But the timing is interesting just because
(11:30):
everyone's paying attention here right now, and what are the
consequences as a result of that? In that, Hey, could
any interested party who wants to say, yeah, we want
to use this as a rationale for changing what we
previously did, that now is in play as what people
(11:53):
can use for Hey, you know what, We're a company
based out of name any foreign country that's not the
United States. We previously held, you know, one hundred percent
of our you know, excess cash in dollars because we
transact mostly in dollars. We're gonna be looking for alternatives
(12:13):
for you know, portions of this just to balance the
risks that are present to us.
Speaker 4 (12:18):
So Besant said over the weekend. I believe it was
that the downgrade is a lagging indicator and while that's.
Speaker 2 (12:24):
By the way, I gotta tell you, calling Moody's a
lagging indicator it's good insult, especially from him. It's kind
of like, who's the guy that got called a medium
talent on SNL.
Speaker 3 (12:39):
Was a chevy Chase by Bill Murray? I think it was.
Speaker 2 (12:42):
I forget who it was, but it was just like
just this biting thing, just like, oh, like, you're not awfully,
You're just like a medium talent. I think it was
chevy Chase who got called that by Bill Murray.
Speaker 3 (12:51):
Yeah.
Speaker 5 (12:51):
Bill Murray's yelling that at chevy Chase medium talent.
Speaker 2 (12:54):
This is basically like Scott Bessen't calling Moody's medium talent.
In the financial business, the last thing you want to
be called is a lagging indicator.
Speaker 3 (13:04):
Yeah, so I do not.
Speaker 2 (13:06):
I thought that was great, by the way, I think
it was a good insult, and in and of itself,
I don't think it matters. I'm with you there, but
it is another straw that has been piling onto the
US fiscal situation that who am I to say? Maybe
it does correlate and coincide this time with a real
(13:27):
problem and change to the state of our I'm not
even calling it reserve currency, just our special status that
the United States has had for the better part of
a century. To take a quick break, I want to
dig more into Beston's comments and kind of talk a
little bit about them, this downgrade and the tax plan
(13:48):
that Congress is trying to put together.
Speaker 1 (13:49):
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(14:10):
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Speaker 5 (14:15):
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(14:37):
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Speaker 2 (14:51):
All right, so, I want to talk a little bit
more about what Scott Bessen said over the weekend, just
because I think it is again just interesting in the
context of where we stand today on the deficits and
best one was asked about, you know, the Moody's downgrade,
(15:13):
and he gave the you know the Moodies as a
lagging indicator, you know line, which I.
Speaker 3 (15:18):
Gotta tell you, like it's a good line.
Speaker 2 (15:20):
But then I want to read this quote here he says, quote,
we didn't get here in the past one hundred days.
It's the Biden administration and the spending that we've seen
over the past four years that we inherited, and we
are determined to bring spending down and grow the economy.
So here's what I'll say on this. This is a
problem that now goes back twenty five years. It goes
(15:40):
back to two thousand and two, which really two thousand
and three, but for obvious reasons, in the wake of
the bursting of the tech bubble and September eleventh, the
Bush too first term, the second Bush's first term was
not going well by his third year, and so he said, look,
(16:03):
I got to do something in order to you know,
boost the economy enter you know, things like medicare Part D,
A whole bunch of spending comes in. And here's where
deficits have been. I'll actually go back to nineteen ninety
just to give some context.
Speaker 3 (16:16):
Here.
Speaker 2 (16:17):
Here are the annual deficits percentage wise relative to GDP.
I'll start in nineteen ninety three point seven percent, in
ninety four point four and ninety one, obviously looking at
the Gulf wur going on a lot of spending, four
point five percent in ninety two, three seven, and ninety three,
two eight, two one one three zero point three percent.
(16:38):
That is ninety four through ninety seven. We then had
four years of surpluses ninety eight, ninety nine, two thousand,
and two thousand and one all were surpluses, which, if
you've listen to our show, you know my feelings about surpluses.
They're not actually good things because it literally means you've
taken in more taxes than you know what to do with.
Speaker 3 (16:53):
And no one was the last time. Uh correct. I'm
not saying rung giant deficits.
Speaker 2 (16:57):
I'm just saying tax surpluses are is literally giving one
to politicians that they don't know.
Speaker 3 (17:01):
What to do with.
Speaker 2 (17:04):
Just doesn't seem like the best idea to me, but
your mileage may vary. Two thousand and two one point
four percent, then three point three, three point four, two
point four, one point eight, one point one, three point one.
Speaker 3 (17:15):
There's two thousand and eight.
Speaker 2 (17:16):
Even through two thousand and eight, we were basically running
like two to three percent deficits. That was the norm typically,
and that's a pretty sustainable place to be.
Speaker 3 (17:26):
Actually. You might say, well, you know, why is that
the case? And the answer is pretty much. Look, if you're.
Speaker 2 (17:31):
Growing your economy by five percent nominally and your debts
increasing by three percent a year, your debt's actually shrinking
relative to GDP each year, it's not a bad place
to be. You can actually build an economy sustainably like that.
Here's what we've done since then. Nine point eight percent,
eight point six percent, eight point three six point six,
(17:51):
four point zero two point eight two point four three
point one.
Speaker 3 (17:54):
That's through twenty sixteen.
Speaker 2 (17:56):
We had three years then out of there where we
were anywhere close to three percent deficits. YEP twenty seventeen,
three point four, twenty eighteen, three point eight, twenty nineteen,
four point six, twenty twenty COVID fourteen point seven, twenty
twenty one. Also COVID eleven point eight, twenty two, five
point three, twenty three, six point two, twenty four, six
(18:16):
point seven. So here, here's where we are now is
in the last fifteen years, in particular, since two thousand
and nine, the only years that we could credibly say
we were close to, you know, a three percent annual deficit.
We're twenty fourteen through twenty seventeen. Everything else we were
close to the four percent or above. And so this
(18:38):
is a problem that's fifteen years in the making. Really,
I call it twenty five years because you know Bush
two kind of kicked this off. But we've been through
five administrations now where there has been no major shift
in the trajectory of the deficit other than up Bush two, Obama,
Trump one, Biden and now Trump two. When I say
(19:00):
Trump too, because if you look at you know, kind
of the numbers so far for the first four months,
you're not seeing any meaningful shift in spending from the
previous year.
Speaker 4 (19:09):
And we'll get into the tax bill that has been proposed,
but we're talking about an extra three trillion plus at it.
Speaker 2 (19:17):
So I think this gets to the point where, again
when you start running like six percent deficits year after year,
the math starts to get complicated. We'll talk about why
that's the case and how this impacts the tax bill
after this.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving market so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Markets are negative territory to begin the week, with treasury
yields jumping higher, in the dollar weakening, and reaction to
Moody's downgrade of the country's credit rating citing large fiscal deficits.
At the moment, the Dow down by only forty points,
SMP five hundred is down over a third of a percent,
or twenty three points. NASDAC down by six tenths of
(20:20):
a percent, Russell two thousands down one percent. At the
moment ten your treasury yield is up by seven basis
points now at four point five to one percent, and
crude oil up about a quarter percent higher. Training it's
sixty two dollars and sixty two cents a barrel. Walmart
down by about three quarters of a percent after President
Trump called out the retailer over the weekend, saying the
(20:42):
retail giant should eat the tariffs and not raise prices
for the more. Treasury Secretary best And told Meet the
Press yesterday that Walmart's CEO Doug McMillan told him the
retailer would absorb some of the levies. Meanwhile, in video,
Annow's plans to deepen its partnerships with partnerships with Taiwan.
These companies including fox Con, with which it plans to
(21:03):
build an AI computer. The chip maker also said its
new envy Link Fusion program will allow customers and partners
to use non Invidia central processing units and graphics processing
units together with its Nvidia products and its Envy Link.
In video, pulling back by about a quarter percent. Elsewhere,
Ageneron said it will acquire virtually all of twenty three
(21:26):
meters assets for two hundred and fifty six million dollars
after coming out on top at a bankruptcy auction for
the startup that stock, Regeneron is down by one percent.
JP Morgan downgraded Netflix to neutral from overweight, citing the
stock's recent outperformance and noted there is no change to
its long term bullish view. Netflix down by three quarters
(21:48):
of a percent after shedding twenty three percent last week.
United Health shares are slightly rebounding by three percent today.
Bath and body Works as a new CEO, naming Daniel
Heath to the new roll. Heath was most recently Nike's
Chief Strategy and Transformation officer. Bath and body Works down
by one percent, and tomorrow morning we'll see retailer earnings
(22:11):
from Home Depot. I'm Tucker Silvan. That's Wall Street Watch.
Speaker 2 (22:15):
All right, So we've got we've got three stories here,
and I'm feeling a little bit.
Speaker 3 (22:23):
You guys remember.
Speaker 2 (22:24):
The Always Sunny episode where Charlie Dave becomes a conspiracy theorist.
Speaker 3 (22:28):
Sure, That's how I'm feeling right now. Okay, I'm like
all strung out.
Speaker 2 (22:32):
I got like a big wall of like all different
papers behind me with like you know, pieces of yarn
going between them and stuff like that, and I'm trying.
Speaker 3 (22:39):
To explain it to everyone.
Speaker 2 (22:40):
But these next three stories dovetail here, and I want
to talk more about what Besson said. I want to
talk about the tax bill, and I want to talk
about Walmart and the tariffs.
Speaker 4 (22:51):
I can connect two of the three, but go on.
Speaker 2 (22:53):
Okay, So a couple things that Besson said that caught
my eye. The first is talking about the tariffs, and
they asked him, look like, what's what's kind of the
next plan? He said, Look, we've got, you know, so
many negotiations going on, but if someone's not negotiating in
good faith, they're going to get a letter saying here's
(23:15):
the rate. So I would expect that everyone would come
and negotiate in good faith. Those that get the letter
will face the tarifrate that the White House announced on
April second. So I mentioned earlier like I loved that
quote from Bessent about calling Mood he's a lagging indicator.
Does anyone out there actually believe that the White House
(23:36):
is going to impose the April second tariff rates on
countries that like don't play ball because they tried that
for twelve hours and it didn't work.
Speaker 4 (23:46):
Yeah, I would say not. No, I don't think any
of the negotiators believe it. I don't believe it, and
certainly I don't believe it with any trade partner that
is significant in terms of anything.
Speaker 3 (23:57):
There's a credibility issue there.
Speaker 2 (23:58):
I mean, look China, for all to talk about how
the US has the biggest problems with China out of anyone.
China is below their liberation day rate. It was fifty
four percent, they're at thirty.
Speaker 4 (24:10):
I mean, frankly, China is below most countries liberation day rate.
Speaker 2 (24:14):
Whatever the point is, I don't think there's much credibility
on that side to be like, yes, we're going to
raise the raids back to where they were stated on
April second.
Speaker 4 (24:24):
To the point, I think they could even announce it
and nobody would believe them.
Speaker 2 (24:29):
Yeah, I don't think anyone would believe what would happen
because they already tried it once and pulled it back
the same day they were supposed to be implemented. Yeah,
because the market was throwing up all over itself. So
that's that's point one that I found interesting. It dovetails
with this piece on the tariffs and Walmart, because obviously
the Trump administration does not want tariff's equals price hikes
(24:53):
to be something that is in the minds of the
American people. The unfortunate thing is that tariffs are price hikes,
and it's just a question of whether Walmart eats them
as the Trump administration would like them to we'll get
back to that in a second, or passes them on
as Walmart said they were going to. In reality, it's
going to be a combination of both. It's not all
of one or all of another. But here's the piece
(25:15):
that I think we need to continue to hone in on,
which is Walmart and other retailers. They don't have wide margins.
The margins are four percent. There is not a lot
of juice there for Walmart to eat them. Even if
Walmart said, hey, we'd love to eat as much of
this as possible, they can't eat all of it.
Speaker 4 (25:33):
So here's the quote from President Trump over the weekend
Walmart billions of dollars last year between Walmart and China.
They should, as is said, eat the tariffs and not
charge valued customers anything. I'll be watching, and so will
your customers. Yes, of course, they made billions of dollars
last year that represented, according to the data I had
a five point six percent operating margin on their entire business.
(25:57):
So yes, we may billions of dollars, but had expenses
been substantially higher, that could have been eliminated quickly. Because
our margins are in the single digit percentages that that.
Speaker 3 (26:09):
Doesn't they made dollars on volume. It's correct.
Speaker 2 (26:14):
Look, if if you want a company where hey, they
could certainly pass them through and eat them. Talk to
me about Visa, Sure, okay, Visa, And it's not to
be like, you know, picking on them. But Visa has
revenue of thirty seven billion dollars. They made nineteen billion
dollars on that they're operating margins are north of fifty percent. Yes, Like,
this is one of those companies where I look at
(26:35):
it and I'm like, what is it you say you do here?
Speaker 3 (26:38):
You know, like it's called the monopoly, chuck, and you
need to respect it.
Speaker 2 (26:41):
I appreciate that it's not quite a monopoly because there
are a couple of tripoly maybe yeah, it's maybe a
quadruply or if that's a thing, But it's it's there's
not much competition, and they all effectively.
Speaker 3 (26:54):
Collude without colluding. Correct.
Speaker 2 (26:56):
So where I'm going with this is you have this
tariff situation that I continue to come back to and
say they want to raise revenue from tariffs because all
the other stuff is gone.
Speaker 3 (27:08):
At this point.
Speaker 2 (27:09):
If you wanted to bring back manufacturing to the US,
you have to keep the tariffs in place.
Speaker 3 (27:14):
More than twelve hours. Agreed.
Speaker 2 (27:16):
If you want to, you know, dramatically alter you know,
the flow of goods around the world, you have to
keep them in place more than a month.
Speaker 4 (27:25):
And if you want to have China change its practices
around how they treat American businesses doing business, and chinam
in place more than the month place.
Speaker 3 (27:32):
Yeah, so I agree with you.
Speaker 4 (27:34):
It seems to me that revenue generation in order to
offset tax changes is important to the administration.
Speaker 2 (27:41):
This gets me to my third point. And this is
a great quote from Besson here, which I think also
validates something I said last week. So of course I
think it's a great quote. To go back to your
question about the Moody's downgrade.
Speaker 3 (27:54):
Who cares?
Speaker 2 (27:55):
Qatar doesn't, Saudi doesn't, the UAE doesn't. They're all pushing
money and they've made ten year investment plans. Remember President
Trump went on this big trip to the Middle East
last week and secured you know, these these investments that
are going to be made in the United States. They
never specified what the investments were going to be. Now,
(28:19):
when someone normally hears, oh, we're gonna make an investment
in your country, you typically think, oh, you're gonna build
a factory or you're gonna build a building. Are you're
gonna you know, do And I wondered, I think it
was on Friday. Hey, what if the investment they're making
is not an equity investment or you know, a construction
of anything in the United States. What if it's just, yeah,
(28:42):
we're gonna buy your bonds and you're gonna let us
pump as much oil as we can in order to
keep oil prices low for you, and in return, we
get a bunch of high end chips that we can
do whatever we want with.
Speaker 3 (28:55):
And that's a hint that that was the case, right.
Speaker 2 (28:57):
Like it if if Beson is talking about this Katari investment,
the Saudi investment, the UAE investment, in the context of
the Moody's announcement, doesn't it suggest that the much of
that investment could come in the form of purchases of
US bonds rather than building a factory or investing in
US companies.
Speaker 3 (29:17):
Seems to it could be. And so this gets me then,
Oh wow, I know, I'm totally Charlie Dane, I know,
so if you look over here.
Speaker 2 (29:27):
So this gets me then to the tax bill, because
it is painfully clear now and again the details are
going to be what they are. The tax bill is
not going to reduce the deficit. It is going to
increase it. It's a matter of how much.
Speaker 4 (29:42):
It was clear from day one, guys, there hasn't been
a tax bill that has raised that has reduced the
deficit since pre Reagan.
Speaker 2 (29:49):
I always take an open mind until I start to
see the details because I don't I don't want to
come in preconditioned to say this is going to be X,
Y or Z. But here's where we're going on this.
The best case scenario for the tax bill right now
is that it maintains six percent deficits.
Speaker 3 (30:07):
It's the best case.
Speaker 2 (30:09):
The worst case ones are closer to eight percent. And
so where I'm going with this is they need the
revenue from the tariffs in order to try to make
the math math. And part of this is also securing
commitments from foreign countries with a boatload of money to say, hey,
(30:29):
if the math doesn't math, are you still with us
on this? And here's what we can give you an
order for you to be with us.
Speaker 3 (30:37):
That is where I am. I don't know. I think
connect those dots. I don't have anything left.
Speaker 4 (30:42):
I think you did it well mighty to listen to
the tape to see if I can follow it again
the second day.
Speaker 3 (30:47):
But I hear you, I don't have anything else to say.
I'm done one thing. I'll say.
Speaker 4 (30:55):
You know what I don't want to own as a company,
hold on Blockbuster, one that reduces their profit margins intentionally
to kiss up to the White House. So I don't
think Walmart's gonna do that.
Speaker 2 (31:09):
Here's the thing, Okay, here's one other thing to watch,
just because you brought it up. And I do think
this is gonna be interesting. When the tax bill finally passes,
they're gonna pass something like I don't know exactly what it's.
It's going to pass in some way, shape or form,
probably in the next three to four months. When the
tax tax bill finally passes and everything that these companies
(31:31):
want is codified into law. Now that Walmart and Home
Depot and Apple have gotten what they want from Congress,
what do they say about their spending plans? Then I'm
just curious, just curious. Let's take a quick break when
we come out come back, we'll talk about why Europe
(31:53):
is out as a vacation destination and road trips are
in Man where We're going in the old volks bus.
Speaker 3 (32:01):
Who knows but where we're going. We don't need roads.
Speaker 1 (32:04):
Right after this, breaking business and financial news first throughout
the day, only here on 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.
Speaker 2 (32:37):
I thought I was done with the the Scott Bessant interview.
I have one other thing that I want to come
back to in terms of what he was talking about.
Speaker 3 (32:50):
Over the weekend.
Speaker 2 (32:51):
And you know, he was asked, look, how are you
going to get the US out of this situation? And
there are two ways when talking about a high debtity
DP ratio, there are two ways that you can do it.
The first is by saying we are going to cut
the deficit. That's what they were saying for the last
six months or so. Second is what Scott said over
(33:13):
the weekend. I'll quote, we are going to grow the
GDP faster than the debt growth and that will stabilize
the debt to GDP, which is the most important number.
Speaker 4 (33:22):
So the agree is they're not gonna cut deficits. They're
gonna run it hot.
Speaker 2 (33:27):
They're gonna run it hot and hope that you can
get to like eight percent nominal GDP and six percent
annually annual you know, debt on GDP and shrink it
that way.
Speaker 3 (33:41):
Is it gonna work? I don't know, but I want
to be really clear, it's not. Really. It has never.
Speaker 4 (33:46):
Worked in forty five years of tax cuts.
Speaker 3 (33:52):
Well, no, not saying it will work.
Speaker 2 (33:53):
It won't work this time, but it So this approach
is what the US basically did after World War Two, yep.
And it did work then, yep. But it was also
a very different economy then.
Speaker 4 (34:03):
I mean saying, the last forty five years, when you've
done this sort of thing, it has not done what
they are describing.
Speaker 2 (34:08):
So maybe it does this time. Well, this isn't talking
even just about tax cuts caught. This is this is
literally just, hey, we don't want there's no way that
we can cut the deficit right, and so we're just
gonna try to shrink it through growing.
Speaker 3 (34:20):
The economy faster. Can it work? Yes?
Speaker 2 (34:24):
It also has you know, really high risks associated with
it in that look, even in the successful example after
World War Two in early nineteen fifty one, the US
was seeing twenty one percent annualized inflation. Now there's your again.
It worked in that, like the US debt situation was
much more under control after that. But how many of
(34:48):
you listening were working in nineteen forty nine. The answer
is none of you. I don't think we have. I
don't think we have many one hundred and two year
old people listening right now, but not many. There's a couple, yeah,
you know, and we love them.
Speaker 3 (35:02):
But that's what it is.
Speaker 5 (35:04):
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Speaker 2 (36:15):
By the way, this calculus, if I'm reading this right,
is pretty much the same decision that the Biden administration made.
Speaker 3 (36:23):
Oh.
Speaker 2 (36:23):
The difference being the Biden administration said we're not going
to cut taxes, but we're going to increase spending. Yep,
here's the IRA with a bunch of green money coming.
Speaker 4 (36:31):
Out, arguably why you didn't get a recession back in
twenty twenty two.
Speaker 2 (36:34):
But also exacerbated inflation and people felt generally uncomfortable with
how things were going. This is another gamble along the
same lines. Will it work better or worse? I have
no idea, but this is why I continue to go
back to in the last twenty five years, there has
not been an administration that has been able to credibly
take on the deficit, Whereas the really interesting thing is
(36:58):
you would get basically the eighties, nineties and basically the
eighties and nineties, and it was the opposite. Reagan didn't
like it, raised taxes, had to Bush raised taxes cost him.
Clinton cut spending, had to Like you could look at
three presidents in row and be like, at least they
thought they had to at the time they did, I
(37:20):
mean like they did do it. And since that point
in time, the entire narrative has shifted, which is deficits
don't matter, deficit somebody else's problem.
Speaker 3 (37:31):
Yeah, which it looked really interesting school.
Speaker 2 (37:35):
Here's the thing, to be completely honest, it basically has
been to this point over the last eight years. If
a great gamp, if every time you got concerned about
the deficit for the last eighty years you said, short
that idea, it's not going to be a problem.
Speaker 3 (37:48):
Yep, you were right.
Speaker 2 (37:50):
Maybe it will be this time too, But there the
math is just not mathing, is where I'm kind of getting.
And it's been building for twenty five year now, Like
this is not a Donald Trump thing, this is not
a George W. Bush thing, It's not a Baraco but
it's in all of the like, we've all gotten to
this point together and.
Speaker 3 (38:13):
We're in uncharted territory.
Speaker 2 (38:14):
I don't know exactly how this plays out over the
next This is like a ten to fifteen year thing
that you're gonna have to see unfold. We'll take a
quick break here when we come back our two in
just a bit.
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