Life Happens 4-12

Episode Transcript

Speaker 1 (00:00):
Good morning everyone, Welcome to life happens and as they say,
may you live in interesting times an ancient Chinese proverb,
and there's also a Chinese character that symbolizes two different things.
One is chaos, and I think if you've been following
the news and following the economic markets, chaos has reigned

(00:21):
over the last two weeks. But the other interpretation of
that symbol is opportunity. So when you have chaos, is
their opportunity and that is often the case.

Speaker 2 (00:32):
And today we're going to explore all the.

Speaker 1 (00:35):
Things happening in the markets, the economy, tariffs, taxes, and
to do that, we are fortunate to have back with
us for a repeat performance this year, none other than
Hugh Johnson, our noted economists here from the Capital region.

Speaker 3 (00:50):
Good morning, Hugh, Good morning, And Hugh.

Speaker 2 (00:53):
Appears all in the media.

Speaker 1 (00:56):
He's appeared on Bloomberg's the NBC bringing economic analysis, and
I think in today's world you almost have to be
an economist to try to make sense of all the
factors and all of the events that have happened rapid
fire over the last several weeks.

Speaker 4 (01:13):
It's it's been incredible. You know, lou I was around
during the nineteen eighty seven stock market crash, where we
had in one day the stock market declined twenty two percent.
Hard to believe, but twenty two percent in one day,
and a lot of that was in one hour. And
I never thought I would see anything as quite as

(01:34):
volatile or as dramatic as that. Again, we'd said in
place a lot of things that were intended to try
to prevent that from reoccurring, and I never thought i'd
see it again. But now I'm seeing something, and it's
happening over a period of days, but I'm seeing the
level of volatility equals that and exceeds it. And I'd

(01:55):
say the level of uncertainty, which really is it comes
along with it. Has been a big part of what's
what's happened, and that's of course led to some some
real problems guessing UH as to where we're going, where
the financial markets are going, where the economy is going.
And it is a difficult period and it probably does
require economists, especially because some of the work that we

(02:17):
do see coming out of Washington that's been sort of mathematic.
Quantifying the tariffs, for example, has been nothing but absurd.

Speaker 1 (02:27):
And this is no longer just a USA issue. This
is a worldwide issue, and one hundred and thirty five
countries were tagged with tariffs and that just put the
world markets in a panic. So it isn't just our markets,
it's it's global. And I want to come back to
something you mentioned volatility. And there's something out there called
the VIX index, and the VIX is something that measures

(02:48):
that volatility, and it's been off the charts for the
last two weeks.

Speaker 4 (02:53):
Yeah, it's it's a measure of volatility, and we all
we all watch it. We watch it carefully, and some
people even obviously in invest in it as a hedge
against the volatility that they're experiencing, trying to reduce what
might turn out to be some fairly substantial losses. As
everybody that knows everybody, just about everybody has experienced some
losses in their four oh one ks, their portfolios, and

(03:16):
so they're finding trying to find ways to hedge against
any future losses. Yes, the VIX has been dramatic, and
it certainly tells us just how volatile things have been.
Things have never been really as volatile as measured by
the VIX.

Speaker 1 (03:31):
So let's start with tariffs, and that's kind of been
the trigger for a lot of the volatility that we've
had and tariff policy which has evolved. Peter Navarro, who
is the President's economic advisor, has been one of the
proponents of the tariffs. And so we had this massive

(03:51):
imposition of tariffs, you then had backlash from a number
of countries, and then you had a pause pause, which
was a good time to invest, as we read on
truth Social it was a good time to invest right
before that announcement. So if you're looking at this from
a tariff perspective, unravel for our listeners, because there's so

(04:15):
much disinformation out there and misinformation about tariffs. Unraveled tariffs
and how they were imposed and what's left of them
with China and how this next ninety days may play out.

Speaker 3 (04:26):
That's a big subject.

Speaker 4 (04:27):
And let me just say that tariffs are effectively a
tax on generally speaking, not all not just consumers, but
also on businesses in different countries. If the goods that
they import have a tax added to them, somebody's got
to pay it somewhere, and usually that turns out to
be consumers, and it turns out to be businesses in

(04:49):
the country that's importing whatever it might be that they're importing.
There are two implications of tariffs. They get worse obviously
if the tariffs get bigger, But nevertheless there's two significant implications.
The first implication, which you can pretty much count on obviously,
is inflation. I would invite everybody to take a look

(05:13):
at the twenty eighteen twenty nineteen first tariffs or first
trade war and terraffs as to what happened to things
like inflation, and what happened to things like the economy,
the US economy, and not only.

Speaker 3 (05:26):
The US economy.

Speaker 4 (05:27):
As you mentioned, the important thing is to recognize it
wasn't just the US economy in twenty eighteen twenty nineteen.

Speaker 3 (05:34):
It was the global economy.

Speaker 4 (05:36):
And we can look at global gross domestic product or
a measure of economic activity in the globe, or we
can look at the US, or we can look at exports,
or we can look at imports, and the stories the same.
We had inflation rise, and that was in the first year.
I like to separate trade wars into two stages, And
in the first stage we had terrifts go higher, and

(05:58):
in the second stage, which was rearly twenty nineteen, we
had the US economy slow. We had a very significant
decline in exports, very significant decline in imports. We had
on a global basis, a very significant decline in economic
activity in exports and in imports. In other words, the

(06:19):
terriffs have a very serious effect on inflation. Prices rise
puts all sorts of pressure on the Federal Reserve. But
prices rise, and the second thing that happens is economic
activity declines. One of the things I'd like to just
point out, if you just give me one second on this,
is it's a sort of an elaborage. Well, it's kind

(06:42):
of interesting. I've noted that we've seen the sort of
baseline forecast revised by the Federal Reserve. They call it
the Summary of Economic Projections SEP came out with the
when they.

Speaker 3 (06:57):
Had their meeting in March.

Speaker 4 (06:59):
Then we've also seen the consensus forecast based on eighty
five economists that's conducted by Bloomberg. We've seen their forecasts,
the consensus forecast change and also, interestingly enough, the Hugh
Johnson Economics forecast has also changed, and they all changed
in the same way, and they've changed by the forecast

(07:21):
for economic activity is measured by real GDP in twenty
twenty five has been revised downward. The forecast for the
unemployment rate has been revised higher, not by much, but higher,
from say four point one to four point two percent.
And then the forecast for inflation. Interestingly enough, forecasts for inflation,

(07:43):
whether we talk about headline inflation and we talk about
core inflation been revised by all three higher. That's in
response to some of the numbers we've been seeing lately,
but it's also in response to everybody looking at twenty
eighteen and nineteen, its saying this is the way the
tariffs generally play out. Higher inflation and lower economic activity

(08:05):
was the way it played out in twenty eighteen and nineteen,
and it's the way that things are starting to play
out right now. So the first thing we look at
is inflation. The second thing we look at is economic activity.
And I just say look at seventeen eighteen and nineteen
and you can count at it.

Speaker 1 (08:23):
And just put in perspective for our listeners the size
and scope of the tariffs in twenty twenty five versus
those tariffs you're talking about that had all that negative
impact in twenty eighteen nineteen.

Speaker 4 (08:36):
The magnitude is significantly higher. Now we're talking about two things.
We're talking about ten percent teriffs across the board for
all countries. They call it a universal tariff of ten percent,
and that's a pretty significant number by itself. Lots of
other numbers that have already been imposed or tariffs that
have been already imposed. And the second one is called
reciprocal tariffs. And the reciprocal tariffs are what we've come

(08:59):
up with more which is essentially a tit for tat
is the way it's been described, and the arithmetic that
was used to calculate or quantify the level of tariffs
reciprocal tariffs was something to behold.

Speaker 1 (09:15):
It was put up on a board and the numbers
were put up on a board and you can I'm
sure you studied the board some Yes, and it was
and you were They were asking questions about what is
it based on and a lot of it was based
on trade imbalance.

Speaker 4 (09:30):
Yeah, it's crazy when you think about it. Well, you
know that the trade imbalance or the deficits that's called
make it easy. Trade deficits in one country might be
different from the trade deficit in another country. And it's
certainly easy to understand because some countries are very small
and they don't do a lot of trading, and some
countries are very large and they do a lot of trading.

(09:51):
And the difference between the two is substantial. If you
base the change or the rate at which you're going
to change or you're going to impose tariffs on that difference,
it's going to be all over the map, and it's
going to be it's gonna be hard to really make
a rational sense out of. This came out of I
don't want to say Peter Navarro, but I understand he

(10:12):
had a little bit to do with it, and it's
it's hard to understand because it's just simply irrational. And
I think it's the objection that the widespread worldwide objection
to the tariffs, the level of the tariffs, the reciprocal tariffs,
that led to the so called ninety day pause. I'm

(10:33):
a little bit I'm not really surprised that Trump decided
on a ninety day pause. Remember, I want to say
one thing that's important. We had the same kind of
on again, off again phenomena in the twenty eighteen nineteen terriffs,
and we actually called the terraff war trade war of
twenty eighteen nineteen off and it started in March of

(10:56):
twenty eighteen. You know, it was called off in a
of two thousand. It didn't last long, yeah, And I
think that's what the impact did. Oh, the impact it
impacted and and and the terrorists went on, and the
terrafts still go on with China. And the point is
is simply this is that it's it leads to it

(11:19):
is this time and it certainly was then leads to
a level of uncertainty, and uncertainty is one of the
things that businesses have a difficult time dealing with, as
do investors. And so it creates what you mentioned the
word chaos.

Speaker 2 (11:34):
It creates chaos, and that's again the Chinese proverb. We're
going to come back to China in a minute.

Speaker 1 (11:39):
I want to go back to the analyzes that that
you mentioned in the eighty five economists that.

Speaker 2 (11:45):
Agree on a number of things.

Speaker 1 (11:47):
There's one number that we'll come back to because you
and I have talked about it when you've given your
economic forecast, and that is interest rates in the FED,
and and what does the FED do now in light.

Speaker 4 (11:59):
That's that it's such a good question, and I'll tell
you why it's such a good question. First of all,
we know and the forecast, the baseline forecasts. The changes
that were made were reducing the level of economic activity
and raising forecasts for what inflation would do. Now, you know,
the Federal Reserve is very concerned about inflation. They're concerned

(12:20):
both about labor market conditions and they're very concerned about inflation,
very concerned about inflation. At the same time that they
made that forecast, they forecast that they would be reducing
interest rates. Now, you reduce interest rates in theory, just
in theory, that should lead to so maybe a little
bit of a nudge higher in the rate of inflation.

(12:42):
So if they're focused on they care so much about inflation,
why are they talking about reducing short term interestrates, especially
when you take a look back at twenty eighteen nineteen.
I want to say something that's a little controversial, and
that is this, I told you twenty eighteen, we saw
inflation start to rise, and we did for the first
six to eight months. And in response to the rise

(13:03):
in inflation in twenty eighteen, which you're going to see
this time, the Federal Reserve did exactly what you'd expect.
They raised interest rates. So this time everybody's saying that
the Federal Reserve is likely to lower interest rates. It's
hard to put those two things together. They're inconsistent. And
so there's a real chance, despite the fact everybody thinks

(13:24):
that the Federal Reserve is going to reduce short term
interest rates, maybe if we get higher inflation as a
result of the imposition or the start of the tariffs,
that inflation goes higher and the Federal Reserve raises interest rates,
doesn't reduce interest rates. I wouldn't make that forecast. I'm
not making that forecast. I don't like to go against
the crowd too much, but I'm telling you it is

(13:46):
a little bit puzzling that everybody's talking about maybe the
Federal Reserve will reduce interest rates. Maybe just they may
surprise us and they may leave them unchanged, or they
may raise interest rates. So forecasting Federal Reserve policy loo
as he does.

Speaker 2 (14:00):
Is difficult. You try it every year, every week, every week,
and it's not easy. We have to take a short break.

Speaker 1 (14:06):
When we come back, we're gonna go back to China
and the tariffs now, where the trade war is kind
of between the two major powers, economic powers.

Speaker 2 (14:15):
For ninety days.

Speaker 1 (14:15):
Anyway, and we're gonna go back and try to sort
out what effect that's gonna have on you on the listeners.
What is your portfolio going to look like, What are
your tax rates going to look like? How much are
you going to have to pay for your iPhone coming out?
Apple is one of the companies in the crosshairs of this.

Speaker 2 (14:33):
Stay tuned.

Speaker 1 (14:34):
We're here live in studio with Hugh Johnson. I'm Lupiro,
your host for this morning. We'll be right back after
the short break. We're trying to unravel all of the
economic factors that have been thrown at us over the
last six, seven, eight weeks and trying to figure out
what is going to be the impact on me, because
after all you it's all about me and you my listeners.

(14:56):
So for you, how does it impact your pocketbook? How
does it impact your tax Are your taxes going to
go down? How does it impact your four oh one k?
Is your four oh one k going to continue to
grow as it has at record numbers over the last
several years. Are you going to be impacted in terms
of your ability to work and hold jobs? Is the
economy the GDP going to continue with job growth? And

(15:18):
are we going to keep the same employment rate that
we've had for the last several years. And for that,
I'm going to start back up with Hugh and talk
about the Fed, which is where we left off. The
most recent inflation number, I believe was two point four percent,
which was a good number, and maybe that's something leading
people to say, well, you know, if inflation is under control,

(15:43):
maybe we lower interest rates.

Speaker 3 (15:45):
Yes, that's a good point.

Speaker 4 (15:46):
That's a really excellent point because for a while now,
since really June, through the numbers that we saw for February,
the declines that we've seen in inflation, the Federal Reserve
was doing a great job. The declines that we saw
in the rate of the year over year rate of
inflation had simply stalled out. And that really said to

(16:07):
me and said to a lot of people that, gee,
they don't have much room to lower interest rates further
because that might make it difficult for the continuation of
the decline in inflation. So when we saw the numbers
for the month of March, really good numbers, not only
the consumer price index but producer price index, was very encouraging.

(16:28):
It said that inflation may just be continuing to decline
at a time when the economy is slowing. So economy slowing,
inflation continuing to decline. That's a combination that gives the
Federal reserves the sort of leeway to reduce interest rates.

(16:48):
We can reduce interest rates without interrupting the progress we're
making on inflation, and in response to the slowdown that
we're seeing in the economy and possible further slow down
that we might see rising, and unemployment rate that we
might see in response to the TIFFs. So that's why
that was such a good number.

Speaker 1 (17:09):
It's a big event because mortgages, the housing market, lending,
all of those things, new construction. It all comes back
to those numbers.

Speaker 4 (17:19):
And I might add, and this is important. If you
look at stage two or the second year of the
twenty eighteen twenty nineteen trade war, what happened to us?

Speaker 3 (17:31):
Guess what?

Speaker 4 (17:33):
Inflation stopped going up and it started coming down. The
economy slowed and slowed dramatically. The Federal Reserve reduced interest rates.
Longer term interest rates declined, and I don't want to
tell you the numbers, but the stock market went up
and went up a lot. And in other words, first stage,

(17:55):
when we had higher inflation, the Federal reserve raising interest rates,
long rates going up, stock prices going down was tough.

Speaker 3 (18:03):
That's what we're in now. We're in that stage. Now.

Speaker 4 (18:06):
I don't know how long it's gonna last. I wish
I knew, but we're in that stage. But the next stage,
which is the stage you're starting to start to see
some hint of, is that declining inflation, the Fed reserve
to reducing interest rates, long rates coming down, stock price
is going ups.

Speaker 3 (18:26):
That lies ahead.

Speaker 4 (18:27):
So I think that helps in some ways anybody that's
listening to understand one of my basic tenets or theses
in this is one thing that's true about every trade
war or every collapse such as nineteen eighty seven. They
all end, and they all end usually by a reversal
of the bad fortune that we have at the initial stages.

(18:51):
I think that's going to be the outcome. So if
you're patient and you wait, you're probably gonna be just fine.
I wish I knew how long you're going and have
to wait.

Speaker 3 (19:01):
I don't.

Speaker 2 (19:01):
There's the crystal ball.

Speaker 1 (19:03):
There is a crystal ball, and that always the question
that looms out there. But you're right, and that's that's
where chaos an opportunity meet. And if you go back
to two thousand and eight, nine, ten, and you know,
I was at that point looking at my retirement accounts
and holy cow, it got decimated in two thousand and nine.

(19:26):
But I'm looking around. I had a little bit of
cash left, and I'm looking at stocks like Ford and
Bank of America that were selling for a dollar, And
how do you not buy at that point?

Speaker 2 (19:37):
What opportunities existed? Then? So it's a matter of having
the guts to get back in.

Speaker 3 (19:43):
Yeah, And that's a good point.

Speaker 4 (19:45):
Having the guts is the way you put it, and
that's a pretty good way of putting it. We have
ways of quantifying or measuring all that, and we measure
investor sentiment whether it gets too bullish, and we get
to an emotional extreme on the upside, which we were
at before this broke out.

Speaker 2 (20:01):
I think had the irrational exuberance.

Speaker 1 (20:04):
Yeah, that when the when the people is a water cooler,
that are they're working in your office, you know, cleaning up,
are talking about their stock portfolio.

Speaker 2 (20:12):
You got a.

Speaker 3 (20:13):
Problem, you sure do. And and and then.

Speaker 4 (20:16):
There's the other extreme, which is the emotional extreme on
the downside, where it's start now everybody's saying, well, look
at everybody's getting bearished. Now, everybody's getting pessimistic, everybody's getting gloomy.

Speaker 3 (20:26):
Uh.

Speaker 4 (20:27):
But I measure I look at the stuff pretty carefully,
and although it's it is clearly the pessimism is on
the increase, and that's very good news. Actually it's not
at an emotional extreme yet, which suggests to me that
we have further to go on the downside. So I
think we have further to go on the downside. But
again go back to what I said before, is that
they all end. And when we get to an emotional

(20:49):
extreme as you as you mentioned, it's going to be chaos.

Speaker 3 (20:53):
That's one thing.

Speaker 4 (20:54):
Lots of pessimism, lots of bearishness, but at the same
time it'll represent some opportunity and then we'll start to
see the light at the end of the tunnel. But
it's a little bit too in my judgment. Everybody knows,
everybody says differently.

Speaker 1 (21:06):
But the next ninety days I think are going to
give us that guidance as they start to negotiate the
one on one deals with the EU, with Japan, with.

Speaker 2 (21:17):
Other countries and let's talk.

Speaker 1 (21:19):
Let's flip from China We'll come back to China in
the second half of the show because it is important
and it is really where the game is being played
in terms of the trade war right now. But the
Japanese invest heavily in our bond market, and when the
government looks at raising revenue, they sell bombs. That's how
the government debt finances and the bond market was rattling.

(21:40):
And I think that, more than the stock market declines,
is what brought about the ninety day pause.

Speaker 2 (21:46):
What are your thoughts.

Speaker 4 (21:48):
We're getting two different messages from the financial markets collectively,
and we're getting periodically.

Speaker 3 (21:53):
We get a.

Speaker 4 (21:54):
Time and we're having on now, well you get a
time when the stock market actually goes on and we
have interest rates go up. And that sounds like it's inconsistent,
but it's not inconsistent as the markets are investors collectively
are telling you that they think we're going to come
out of this and the economy is going to expand,
and Federal Reserve is going to raise interest rates. Some
interest rates go up and stock prices go up. People

(22:16):
are feeling a little bit better now. It's a little
bit on the gloomier side of things, and what's really trouble.
It's difficult to understand is we've got stock prices really
going down and it's almost hitting of a recession, a
bear market and a recession, and then you've got interest
rates going up. Why aren't interest rates, you know, basically
going down, suggesting that the Federal Reserve will reduce interest rates.

(22:38):
And I think that the Federal will that you'll see
longer term interest rates come back down and get in
touch with the stock market. Stock market will be coming down,
interest rates will be coming down, but interest rates will
be coming down largely in the expectation that the Federal
Reserve is going to take the lead and reduce short
term interest rates, just as is the consience of this forecast.

Speaker 3 (22:56):
That's the forecast now.

Speaker 4 (22:57):
And it's a little bit unusual that interest rates have
gotten up to the level and the dollar quite frankly,
and interest rates have gotten up to the to the
to the level that they have. It's a little bit
difficult to put that all together, but I think everybody
should sort of hang their hat on. Stock prices are
coming down, interest rates in time, Federal Reserve reduced interest rates,

(23:19):
and longer term interest rates so come back down towards
the four percent level and that should hopefully slow the
decline in stock market. It won't end the decline, but
it will slow the decline until we see that veritiable
light at the end of the tunnel.

Speaker 1 (23:36):
Sure, And we're going to take a short break for
the news coming up. We're in liven studio with you Johnson,
and we're unraveling the chaos around us. And if you're
following this, folks, it's a roller coaster volatility and that
VIX index. If it keeps you up at night, you
got to put it out of your mind, unplug listen
to some music, maybe a nice soft sound, get some sleep,

(23:57):
come back at it. But for the next half hour,
we're going to try to give you the information you
need to plan.

Speaker 2 (24:03):
For your future. Stay with us.

Speaker 1 (24:05):
It happens radio Live every Saturday morning at nine am
on WGY. I'm live in studio with you Johnson. Before
we get back into our conversation about the economy, I
want to take a moment to talk about a very
important topic and something that we talk about a lot
on this show, and that is planning for your future
in terms of how do you get care if and

(24:28):
when you need it, And that's part of our aging process.
Today we're going to talk a little bit about taxes
and the budget and the budget reconciliation and the bill
it passed two days ago in the House of Representatives.
But part of that is Medicaid, Medicare, social Security, the
entitlements that make up such a large part of our country,
the safety net, and.

Speaker 2 (24:47):
The expenditures of the federal government.

Speaker 1 (24:49):
And we're going to do a seminar and we hope
you can all join us this coming Wednesday, Thursday, the
seventeenth of April. It's at one pm at the Colony
Town Library. That's six nine Albany Shaker Road, one o'clock
Albany Town, Colonytown Library. Nursing home or your home? Which
do you want and how do you plan? How do

(25:10):
you plan to age in place to make sure that
you have the right legal planning. If you want to
look at insuring options long term care insurance, if you
want to look at accessing medicaid if and when that
ever becomes necessary. We're going to talk about all that
and what you can do today to prepare yourself. It's
going to be myself, my partner, Frank Heming, and our
special guest Diane Mikkel Gottabiowski from ever Home Care Advisors

(25:34):
to talk about the care side of this. How can
you prepare yourself and how can your family be prepared?
As our loved ones age and we have the ongoing
duty of being a caregiver, how do you manage that?

Speaker 2 (25:48):
Stay with us?

Speaker 1 (25:49):
Join us one o'clock Thursday, April seventeenth, coming right up
Colony Town Library and you can register by calling our
office and leaving a message at five point eight four
or five nine one one hundred and as always, you
can log onto our website at pyro law dot com.
That's p I E R R O l a w
dot com. Go on, go to the events tab and

(26:11):
sign up for Thursday's one pm seminar your home or
the nursing home be prepared. So that's the topic que
that will morph into the taxes, the tax bill, the
legislation that was just passed, the entitlements, and the budget cuts.
The budget becomes centerpiece here as we have this economic volatility.

(26:31):
G If GDP is going down, if inflation is up,
how does that impact our tax revenue?

Speaker 2 (26:37):
How do these tariffs impact our tax revenue?

Speaker 1 (26:39):
Because there's a lot of talk out there that tariff
revenue is going to help balance the budget.

Speaker 4 (26:44):
That's that's exactly what the talk is. That's exactly if
you're looking for sort of the purpose of imposing the tariffs.
It's to generate generate revenues for the federal government, and
those revenues for the federal government offset the loss of
revenues which will resolve from any tax cuts. So right now,

(27:06):
as you know, at the forefront of the Trump plan
is simply to have the twenty seventeen Tax Cut and
Jobs Act extended past its sunset at the end and
amplified and amplified if possible beyond the sunset at the
end of twenty twenty five. Hopefully the tax the tariff

(27:31):
revenues will offset any loss of tax revenues. You can
look at the numbers back to twenty eighteen nineteen. You
see that's not really possible. It's not going to happen.
The Congressional Budget Office estimates that if we extend the
twenty seventeen tax cuts, that will add three trillion dollars

(27:53):
to the deficit for the next ten years. That money's
got to come from somewhere. The three trillion dollar it's
not going to come entirely from tariff revenues. Period, if
you look at the last experience we had, so where's
it going to come from.

Speaker 3 (28:09):
We're going to have to borrow the money.

Speaker 4 (28:10):
We're going to do the good old fashioned by the
way we've been doing it for a number of years,
and half of that's going to come from US investors,
public and private investors, and half of that, if the
experience continues, is going to come from foreign investors. Now,
I ask you a question, if those foreign investors are
facing substantial tariffs, how interested enthusiastic are they going to

(28:35):
be about stepping up to the plate and buying US
treasuries over the next ten years or financing the deficits
that were created by the extension of the twenty seventeen
tax cuts.

Speaker 1 (28:47):
That's a great question and not a question with a
real answer. And there are other factors that play into this.
The instability in our country, and one of the reasons
that foreign investors look at US markets and why they've
been so stable for the last ten years twelve years
is the rule of law and the ability of our

(29:08):
country to iron out issues in the courts where you
get a fair playing field and you have an ability
to have companies have confidence that they're not going to
be ridden over rough shot. And there are battles going
on in the courts right now challenging the authority of
Congress and the authority of the President and the executive

(29:31):
bridge and what do they have the ability to do.
You see law firms my profession, being targeted because they
have taken on people that had positions contrary to the
current administration. And I just read last night that five
of them settled and they're doing nine hundred and twenty
million dollars worth of pro bono work just to be

(29:54):
able to have federal contracts. And if you're a business
coming into the United States and your business is dependent
upon this type of I don't even know what you
call it, servitude, are you going to want to invest
or bring your business into the United States?

Speaker 4 (30:13):
And the answer to that question is you're not. Some
of you may have seen the consumer confidence, and the
consumer could be either businesses or individuals, mostly individuals. Confidence
numbers the most recent ones, which I just I use
the word plummeted, but plummeted is really an understatement. Really
the second lowest ever so confidence in the US is

(30:34):
certainly deteriorating confidence from other countries around the world. One
of the big questions right now as we see something
that's we would not have expected, and that is a
decline in the dollar.

Speaker 1 (30:47):
I was just gonna mention that because I'm going on
a trip with my family and eight of us are
going away. I just got a twenty percent premium on
everything that we're going to do.

Speaker 4 (30:57):
That's right, And and the confidence in the US is now.
Some people say, and they're right to some extent, that
foreign countries Japan being one, China being another, Europe being
of course substantial buyers the US treasuries. The reason the
dollar's going down is that they've backed away from our
markets because of the loss of confidence in the US system.
And I think that's probably pretty accurate. It's not accurate

(31:20):
to say that they're going to abandon our markets altogether,
because keep in mind, one thing, of the treasuries that
are outstanding, of the US securities that are outstanding in general,
but certainly treasuries, they own a ton, They own a
lot of the treasuries of the United States. And so
if they back away from the markets and interest rates

(31:40):
for some reason or other, because they're backing away go up,
because we're going to have to have fine buyers somewhere.
If interest rates go up and bond prices go down,
then the value of their portfolios that they've built over
so many years, foreign port row of portfolios built over
so many years is going to go down. And they
don't want that. So they can't abandon the markets, but

(32:04):
they can certainly reduce what they're doing in the markets.
And they're doing that, and it shows up in the dollar.

Speaker 1 (32:09):
And the cost of borrowing is something that you and
I have talked about, and for me, it's a major issue.
If you look at the federal budget and you look
at what we have now, folks, and this is a
number that you couldn't even write on a piece of paper,
thirty six trillion dollar debt and each year we're adding
one to two trillion to that in deficit and deficit spending.

(32:31):
And that's exactly what you're talking about. Where does the
United States borrow money. They don't go to a bank
to borrow money. They go to investors and they sell
treasuries in bonds, and that is the market for US
borrowing right now. The interest on the US debt is
over a trillion dollars, and it's more money being paid

(32:52):
in interest on those bonds then we spend in defense.
It just crossed the line more in interest then we
spend in defense. The only things that we spend more
money on are Medicare and Social Security, which are entitlement
programs and not truly expenditures, but money that's the government
supposed to have collected to pay for those things. So

(33:14):
this is the budget dilemma that we have. You mentioned
that the only way that these cuts can be made
without draconian cuts to programs like Medicare and Social Security,
which is where seventy percent of the budget goes, Medicare, medicaids,
Social Security. How do we do that with borrowing?

Speaker 2 (33:31):
When we have a.

Speaker 1 (33:32):
Thirty six trillion dollar debt, God bless us. If interest
rates go up and the cost of that debt continues
to go up, and I think there's a big trunch
of bonds coming due, maybe in June, six trillion dollars
coming due in June.

Speaker 2 (33:44):
They have to refinance. The government has to refinance their debt.
What if interest rates go.

Speaker 1 (33:48):
Up, our borrowing costs go up, where do we raise
the revenues you're.

Speaker 4 (33:53):
Gonna be able to raise the revenues, but unfortunately, you're
going to raise the revenues at a higher level of interest.
Keep in mind one thing, just one number, which is
another Congressional Budget Office number. It's not only that we're
going to have to borrow three trillion dollars if we
extend the tax cuts of twenty seventeen, but also the
debt service or the interest payments for the next ten

(34:15):
years are going to go up by four hundred and
sixty seven billion dollars over the next ten years. So
it's not just three trillion, it's four hundred and sixty
seven billion. There's a lot of money that's going to
have to be raised in order to extend those tax cuts.
Look I like tax cuts. I think we all kind
of like tax cuts in a way. But remember there's tradeoffs,
and in this case, there's a clear tradeoff, and the

(34:37):
tradeoff is going to be higher deficits and higher debt
service payments. And the money's got to come from somewhere,
and then we could be talking about higher interest rates.
And if we're talking about higher interest rates, what does
that do for the US economy?

Speaker 2 (34:50):
And the legislation that just passed in the House.

Speaker 1 (34:53):
And if you follow the political side of this, you
know Mike Johnson has I think the hardest job in
the country trying to balance out all of the interests,
the ultra conservative movement and all. And it's not like
he's re battling Democrats. He's battling his other Republicans. And
the President weighed in and one on one lobbied legislators
to get the votes, and it was a close vote

(35:15):
two sixteen to two fourteen to pass this budget resolution.
Now it's not the final budget. They still have to
hammer out details. But you have the Senate bill on
one side, which had I think four billion dollars of
cuts and the tax cut which resulted in a five
point eight trillion dollar increase over ten years to the deficit.
And then you have the House bill, which had I

(35:37):
think two point eight billion dollars of cuts. But those
cuts are cutting meat down to the bone in some
of these programs. And I had Greg Olsen here from
a New York State office for aging, and one of
the casualties of that budget would be the Older Americans Act,
which provides things like meals on wheels and transportation to
seniors and those are the programs that are going to

(35:58):
be debated over the next three to four month And
those are the things that are on the table in
terms of how does our government design this budget, who benefits,
and how do we keep that safety net.

Speaker 4 (36:10):
It's a matter of principles and priorities for each and
and the Democrats may come out on one side, the
Republicans on another side.

Speaker 3 (36:18):
Individuals may come out on wine.

Speaker 2 (36:20):
I wish there were more people in the middle.

Speaker 4 (36:21):
Yeah, I certainly do. That's where I am. And I look,
I feel like I could use the crowd.

Speaker 2 (36:26):
Yeah, I'm with you. I'm with you.

Speaker 4 (36:28):
And and there are lots of things and so that's
going on right now. A lot of things are being
cut right now. We see the doge and we see
what's Muscus doing. We see that's all at the direction
of the president. It's a reflection of the political philosophy
or the philosophy remember drain the swamp back in twelve
thousand and sixteen. All of that's not particularly good. It's

(36:50):
training programs that we that a lot of us really
not only depend on, but want.

Speaker 1 (36:54):
Let's go back in time, because what they're doing is
not wrong. Cutting waste cutting spending. The government has to
cut spending. It can't continue. It's like a drunken sailor.
Let's just write another check, let's sell another bond. But
go back to Bill Clinton and Nuke Gingridge, where they
had a bipartisan plan and David Walker, who was on
the show three times, who was the Controller General, who

(37:17):
was helping to balance the budget. They cut programs, they
cut nine billion out of Medicare, They balanced the buddy,
and they balanced the budget. It can be done, but
it has to be done on a bipartisan basis.

Speaker 3 (37:29):
It has to be done on a bipartisan basis.

Speaker 4 (37:31):
And let's not forget that the Clinton administration had the
benefit of some real good economic activities, strange but good
economic activity. And it generated a lot of revenues. And
so I'm not saying they got away with murder. They
didn't get away with murder. They were really dedicated, you know,
fiscal conseratives. They did a really good job. It really
helped and they got a lot of good luck, a

(37:52):
lot of good luck quite frankly, from the generation of
revenues during the late nineties and early.

Speaker 1 (37:57):
He was a consummate politician. I think he was able
to take Republican ideas and make them his own, and
he and Knuke Gingrich passed legislations they did that cut
real programs, but they sold it, and they sold it
in a way that the people didn't really feel the
pain like they do today.

Speaker 4 (38:16):
I think it can be done, but it has to
be done intelligently over time, and it can't. You cannot,
you know, a baby with a bathwater issue throw out
some of the programs which we all depend on, of course, Medicare, Medicaid,
social Security. I mean, we used to use the expression
third rail and it still applies.

Speaker 1 (38:35):
It still applies, but it is economic reality that America
is aging and baby boomers are aging out, turning sixty
five seventy five.

Speaker 2 (38:44):
Now the front edge is in their eighties of baby boomers.

Speaker 1 (38:48):
And I have clients that are I'm a baby boomer,
but I have clients that are seventy years old still
caring for their aging parents. And they come to me
and they say, went, you know, I didn't plan for this.
You know, Mom's ninety eight and I'm still taking care
of mom at age seventy. And so that's something that
caregiver challenge and the responsibility that goes along with that,

(39:10):
and that's what our seminars all about.

Speaker 3 (39:12):
On it.

Speaker 4 (39:12):
This is very important. Yet that seminar is really going
to be important. People should should should attend and should
should listen and learn.

Speaker 1 (39:19):
Yeah, should And being a caregiver. I've been a caregiver
four times within my family, my parents, my aunt, my uncle,
and being a caregiver just opened your eyes to how
And I was just talking to a CPA who you know,
and I won't mention his name, but he's going through
this with his mother. And he called me up and say, Lou,
I now understand what you do because he's living it,
and he's living in and finding out how hard the
healthcare system is today, how broken the healthcare system is today,

(39:43):
and with these budget cuts and with all of this chaos,
that just gets pushed to the side.

Speaker 3 (39:47):
That's right, and I think it's great what you're doing.

Speaker 4 (39:49):
So I applaud you for moving this along and educating
us all on some of the most important things.

Speaker 3 (39:55):
We'll love her face in our lives.

Speaker 1 (39:56):
Well, I thank you for being here. We have another
segment that we're going to come back. We're going to
take a brief break. You're listening to Life Happens Radio,
be prepared. We have Hugh Johnson live in studio. I'm Lupierr,
your host for this morning.

Speaker 2 (40:07):
Stay with us. We'll be back after this short message.

Speaker 1 (40:10):
The local economist who's a national economist, who has brought
us a lot of information over the last several years
and blesses us each year with his economic forecast, and
no one predicted this. I think you in January when
you were on This was not anything that anyone predicted,
not in January.

Speaker 4 (40:26):
But you'll remember we had we had some meetings we
had and I think it was October November, and we
had the kind of the outline of the Trump agenda
at that time, and we were, of course trying to
guess as to whether he is what he was going
to actually do, and what would be the implications. And
I think that at that time I remember reading the

(40:46):
Economist and I don't know if you remember this, but
the economist said there were a lot of similarities between
the current period or what Trump is proposing and what
we saw on the Hoover administration in nineteen thirty. And
I said at the time, and I still would say,
that there are enough similarities that you have to take
those similarities seriously and recognize that the combination of tariffs

(41:11):
backing away from you from foreign entanglements, and also the
adversity of the Hoover administration to immigration. If you take
those three similarities, you have to say, you've got to
take seriously the possibility that were going to have a
repeat of what we saw in nineteen thirty. But I think,
quite frankly, having looked very carefully at it, and obviously
I have looked carefully at it, there are also important

(41:35):
differences between now and the nineteen thirties, which, yes, suggests
to me that yes, we're likely to have the inflation
impact that we saw in twenty eighteen nineteen or higher inflation. Yes,
we're likely to see an impact on the economy generally,
but it's certainly exports and imports, not just for the
US but for the globe. But the differences are such

(41:55):
that we're not going to be involved in I don't believe.

Speaker 3 (41:58):
I crossed my fingers.

Speaker 4 (42:00):
I say this something as serious as we saw in
nineteen thirties.

Speaker 1 (42:03):
Yeah, that's that's a you know, one hundred years ago
we were in the Gilded Age, right, Yeah, and you
had families that had enormous wealth, and you had other
families that had nothing. That's right, and it was very
much a rich man poor man phenomenon. Nineteen twenty nine
is the crash, and then you had policies going into effect,
which opened the door to Franklin Delano Roosevelt and his policies,

(42:27):
and he was the president that kind of pulled us
out of the Great Depression. Nobody wants to talk about
the Great Depression. The R word is the only one
I've heard bandied about, which is a recession. And now
a lot of economists are saying, well, you know, I
had a twenty percent chance on it. Now it's fifty percent,
maybe better than fifty percent.

Speaker 4 (42:47):
Yeah, of a recession, not a depression. And I'd say
that the case for well, the case, I think the case,
the stronger case is still that we're going to have
positive economic growth in twenty twenty five, that we're not
going to have a negative economic growth, which would help
define a recession. There's no question in my mind, Lou
that this is going to be a close call. The

(43:09):
economy is in the process of slowing. We're going to
see slower economic activity in twenty five, higher unemployment, rates
in twenty twenty fo not significantly higher, but somewhat higher,
and that we're going to have a close call with
a recession when you take a look at that an inflation, yeah,
while and inflation stagflation. But and if you take a

(43:29):
look at the for example, the consumer confidence numbers were
released at the end of last week, that's a leading
indicator of economic activity, they were dismal, and they raised
the chance that we're going to have a recession. And
this is we're not going to have simply a soft landing.

Speaker 1 (43:47):
Yeah, but to just don't jump off the building. Nineteen
twenty nine, you had all the scenes of people jumping
off a building, and we don't want to panic. We
don't need to panic because you have a good month
of job growth, which was surprise. You have inflation numbers
the two point four percent getting close to what the
FED target was of two percent, which we talked about

(44:08):
that on your forecast, the Fed getting driving it down
to two percent. It's getting closer, and it just went
in the right direction toward that. So there are some positives.

Speaker 4 (44:17):
There are clearly some positives that tell you this is
going to be a soft landing, not a hard landing,
soft landing, not a recession. I think that case is
a good case, but I can't get away from the
fact that the economy is in.

Speaker 3 (44:31):
The process of slowing.

Speaker 4 (44:33):
Look, the first quarter is going to be about two
point eight two point six percent. That's going to be
a good number. But there's no question in my mind.
Well I shouldn't say no question in my mind, but
I would say the economy is going to slow as
we move through twenty twenty five. But I don't think
it's going to slow so much that we're going to
have an economic recession. But I would say that it's

(44:53):
going to be a close call. I don't think this
is a worst of all possible worlds. Remember when we
have inflation rise, when we when we have high interest
rates as we might have right now, in time, what's
going to happen is the economy will be affected. I
mentioned that as the economy is affected in time, maybe
it's sooner than later. Federals are is going to reduce

(45:13):
short term interests, longer term rates will come down, and
the outlook for stock prices will get better. In other words,
we're going to simply go through a tough time. In
stage one, Stage two will be just will be fine,
and that's when we're going to see the light at
the end of the tunnel.

Speaker 3 (45:27):
That's my judgment.

Speaker 1 (45:29):
So for those of you that are squeamish, don't panic,
don't be smart, stay the course. But what the government
does over the next three to six months will have
a lot to say is to what that landing looks like.

Speaker 4 (45:42):
Yeah, it certainly will you, no question about it. And
you don't want to have Yeah, you don't want to
have you want to have balanced, but you'd like to,
but you got to go at it very much, very slowly.
You can't have draconian cuts in spending, particularly in those
vital programs. You can't have draconian cuts and expect that
the economy is going to stay positive. It's just not
gonna Fiscal policy is important.

Speaker 3 (46:04):
It's monetary.

Speaker 4 (46:05):
I think monetary policy is much more important because it's
run by intelligent people. But I think fiscal policy has
got to be also contributing or helping as we go
through a very difficult twenty twenty five. And I think
you're gonna have I think you're gonna have that outcome.
But obviously we have to be watching Washington very very
carefully because we're likely to see anything.

Speaker 1 (46:26):
It's I call it an own goal. You know, we
were chugging along pretty healthy. Sure, and when you spoke
at our conference back in November, it was like, oh,
and the S and P is only up forty one
percent for the last two years. It's it's okay. We
just were in a in a world where hey, this
is what it should be. Steady growth, good job numbers.

(46:47):
You know, inflation had ticked down, things were kind of
under control, and economic policy could be tweaked. There were
things that needed to be improved upon. But it just
was such radical change so quickly, that's right, that it
threw not just this country but the world into that chaos.
So I do think there are going to be opportunities.

(47:08):
Let's go back to China.

Speaker 3 (47:10):
Radical and I might say extreme.

Speaker 1 (47:12):
Yes, let's go back to China, because China is now
you know, on par economically worldwide, at least the closest
to us. We had the moral high ground, we had
the economic high ground. We were the country looked to
by most of the world as the iconic country. And

(47:34):
now China has imposed I think it's one hundred and
twenty five percent tariff on our goods and we've imposed
one hundred and forty five percent tariff on their goods.
What does that do to the consumer into the market.

Speaker 4 (47:48):
It raised, it's obviously going to slow economic activity, both
in China and the US. The second thing is going
to slow activity at least in part because it's going
to raise prices there and it's going to raise prices here.
It's going to raise price is on some important things.
You mentioned cell phones before. I'm sure that Tim Cook
is probably squirming and would like to see a resolution.

(48:10):
One thing that was clear that happened in twenty eighteen
in twenty nineteen is that the focus was in twenty
eighteen nineteen on China. It's just as it is in
China today and it has been. Their tariffs on China
continued through twenty eighteen nineteen and beyond, so let's keep
that in mind. The second thing is what was very

(48:32):
characteristic about what happened in twenty eighteen nineteen was negotiations.
Negotiations are current. They called off the essentially the trade
war for a while. They had very intensive negotiations and
it led to some resolution of some difficult things, particularly
between Canada and Mexico and the US. So there are negotiations.
We're talking about a ninety day pause. You're not going

(48:54):
to have a lot of really successful negotiations in ninety days,
but you'll have the framework of understanding between countries, the
countries and the US on what the tariffs are gonna
be or how they're gonna work the problems out. You're
gonna have that in the next ninety days. You're not
going to have the final resolution of the tariffs, but
you're gonna have some memos of understanding and things will
be understood. In other words, and I can't begin to Oh,

(49:17):
I can't overemphasize this. There's gonna be negotiation.

Speaker 3 (49:22):
This is all a.

Speaker 4 (49:22):
Part of you wonder why tariffs are so high. Well,
if you've been into negotiations before, you know you start high.
And that's exactly what's happening. They're starting high. Plus in fact,
there are a lot of other things such as currency
manipulations such as vat taxes which have been added which
people weren't thinking about before and made the tariffs so
much higher. But the most important thing is just start high.

(49:46):
They're starting high. We're going to ninety days, We're gonna
have negotiations in the ninety days, and then we're gonna
get down to some really, really tough negotiations to get
the teriffs resolute. In other words, negotiations are a part
of this, and that's so important that that's a part
of it, because that tells me the war's gonna.

Speaker 2 (50:05):
End, and we just would like to know when, Hugh.

Speaker 1 (50:08):
So stay tuned, folks, we'll come back and hopefully we
can have Hu back once this all settles out and
the dust settles. The negotiations are ongoing. Thanks for listening
this morning to Life Happens Radio. We hope you can
join us every week here on WGY at nine am.
I'm Luke Piro, your host. Join us this Thursday for
our seminar at one pm at the Colonytown Library and
as always, check out our website at purolaw dot com

(50:30):
for more resources.