September 16, 2024 • 39 mins
Fed week is upon us. Chuck Zodda and Mike Armstrong give their insight as to how much the Fed will cut interest rates this Wednesday and run through arguments for 25 bps vs 50 bps. Also, what's more important to take note of at the end of this Fed meeting? An update on the Boeing factory workers strike. And the ongoing challenges Ford is seeing in China in relation to EVs.
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Speaker 1 (00:00):
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(01:04):
Veterans Development Corporation. This is the Financial Exchange with Chuck
Zada and Mike Armstrong.
Speaker 2 (01:12):
Happy FED Week to everyone. It's Chuck, Mike and Tucker
with you. And on Wednesday of this week, at two
pm Eastern time, the Federal Reserve is going to release
their decision on interest rates as well as their updated
economic projections. And quite honestly, nothing matters economically until then,
so you don't really need to bother with anything else
(01:34):
that's going on for the next fifty two hours or so.
Speaker 3 (01:38):
So for the next fifty two hours, all you should
do is debate whether it's gonna be fifty or twenty five?
Is that?
Speaker 2 (01:43):
Is that the conclusion you come to, Chuck, I don't
think that's the conclusion that I come to. But I
do think that's the conclusion of what we're going to
end up having to do, because it's all that anyone
wants to talk about. Hey, is the Fed gonna go
twenty five of fifty this week? I kid you not?
Speaker 4 (01:59):
In U on the T box on this past Thursday,
that was the conversation.
Speaker 2 (02:03):
I know. I'm telling you, I have no I have
I have people in my life that have no thoughts
about finance at any point in their day normally, and
the questions are coming up, Hey, is that going to
be a quarter percent and a half percent? Second box,
they're asking me.
Speaker 1 (02:20):
I'm like, I don't know.
Speaker 2 (02:23):
Let me dial up Jay and see what he says.
Speaker 3 (02:25):
You know, my money is on splitting the difference thirty
seven and a half.
Speaker 2 (02:30):
I mean, it makes everybody for the first time. That
makes no one happy. That makes no one happy. So
in any case, FED is going to be cutting interest
rates this week. Let's let's get that out of the way.
There is there are very few certainties in life. The
FED is not going to hold interest rates steady this week.
(02:51):
That would be it's kind of where we are. That'd
be the financial news surprise, would be the upset of
the century. And this all started, by the way, in
terms of this renewed debate about twenty five or fifty.
It all started Thursday afternoon around one pm. Nick tim Morouse,
who affectionately is known as Nicky Leaks, which is kind
of a play on Wiki leaks.
Speaker 3 (03:11):
Is he really Oh yeah, you've never heard, never heard
of Nicky leaksh like that.
Speaker 2 (03:15):
Because he's kind of the Fed's mouth yes. When they
can't say something, they leak it through Nick. So he's
known as Nicky Leaks. And it's great, isn't it. Fuck
it's also kind of awful, but it's both. Yeah. But
so Thursday, around one pm he comes out with this
piece where he interviews four former FED members because remember,
(03:36):
the current FED members can't talk last week, they're not
allowed to because there's a blackout period heading into the
FED meeting. And so if you can't talk to current
FED members, what's the next best thing you can do, Oh,
let's interview former FED members. And all four of them
that he interviewed said, hey, you know what, there's a
real case for going fifty. And the takeaway from that,
(03:57):
at least what markets have said is, hey, hey, current
FED members can't say anything. But Tim Morouse is known
as someone who has his finger on the pulse of
the FED. You know. Typically, again, he's known as Nicky Leaks,
and so if he's getting former FED members to say this,
maybe there's something to the fact that this is a
trial balloon that's being floated to see if the market
(04:19):
can move in that direction and accept fifty basis points
as where the FED is going to go and lo
and behold. Over the last four days now we've seen
the probabilities for a half percent cut on the on
the FED funds rate. This week, they have gone from
(04:42):
I just want to make sure that I'm getting this
correct here, we've gone from a fifteen percent chance of
that happening to a sixty percent chance of that happening.
It's a pretty meaningful shift. Yes, it's a pretty meaningful
shift in a short period of time, and one that
still does leave us with some intrigue because normally at
(05:03):
this point leading up to a FED meeting, you're like
ninety to ninety five percent priced in, sometimes higher than that.
I guess you know.
Speaker 3 (05:10):
I've been making the point that this Federal Reserve to
a large extent, does not like to surprise anyone. Now,
most Feds haven't for quite some time had you know,
the position of surprising investors and surprising Fed watchers. But
this Fed especially has really forecasted what they're going to do.
My point to last week was that the twenty five
basis points, for no other reason, was the status quo.
(05:34):
That was what was being forecast, and so that was
what was going to get done. Now I'm wondering if
fifty is the is the least surprising move that the
FED could be making. I guess according to CME Watch,
it would be.
Speaker 2 (05:45):
Well, there's pros and cons to each approach, depending on
how you want to look at it. If the FED
cuts twenty five and if you want to message it
bullishly for markets, hey, we're cutting twenty five basis points
because we don't think the economy's got that bad. We're
willing to do more if we need to. Unemployment rate
dipped last month, but the economy is pretty good. We've
(06:05):
seen a few different things that have shown that maybe
there's a rebound happening, and we don't want to do
too much too soon. Yep. The bearish case to this,
if you want to make it, is, hey, the Fed's
not doing enough because the data has been worsening and
they're showing that they're behind the eight ball.
Speaker 3 (06:19):
They're behind the eight ball on the way up. Now
that behind the eight ball on the way down.
Speaker 2 (06:23):
On the other hand, if they go fifty bullush case, Hey,
you know what, the FED didn't think they were going
to do this, but they decided to because they realized that,
you know, it takes a while for monetary policy to
seep into the system. They're just being ultra cautious because
they don't want a recession and this is what's going
to help prevent it. That's the bullish case, Bear's cases. Hey,
(06:44):
a week ago, they were pretty content to, you know,
talk about twenty five basis points, and now they're going fifty.
Speaker 1 (06:49):
What changed?
Speaker 2 (06:49):
What are they seeing that we're not seeing? Yep. So
there's plenty ways to argument and argue it.
Speaker 3 (06:54):
And I have no idea which way the markets will
turn versus for one versus the other. And I guess
where that all puts it back is. I think that
what Jerome Powell says on Wednesday is once again far
more important than what he does with rates. Ultimately twenty
five versus fifty.
Speaker 2 (07:14):
I'm gonna say something that I never thought I would say, actually,
and that's I don't know if j Powell what he
says is going to get any interest. Quite honestly, not
not any. But I think it's third in terms of
what the Fed's are releasing on Wednesday. I think the
most app the most important thing that the Fed's gonna
(07:35):
release on Wednesday is the dot plot. And the dot
plot if you're not familiar with it. It's there's summary
of economic projections, and it shows the basically where the
Fed thinks they are going to see a number of
different metrics over the rest of this year, next year,
(07:57):
and into the future. So as an example, when we
look at the previous one that came out in June,
they released one of these every two meetings, they give
you change in GDP for the year, and they previously
thought that it was gonna come in at two point
one percent this year. Okay, do they think that growth
is gonna be higher or lower now? Unemployment rate they
thought it would be four percent by the end of this year.
Where do they show it going this year? Where do
(08:18):
they show it in twenty twenty five, where they were
projecting it at four point two percent. It's already at
four point two and on an upward trend. PCE inflation
quite honestly doesn't matter. It's a nothing burger because you're
not seeing any meaningful inflationary impulse right now. It's gonna
be somewhere in the mid twos over the next year
most likely, unless you get some kind of big surprise
(08:41):
core PC of E same boat. Again, it's not that
it shouldn't matter. It's just that it does it right now,
because that fight is not front and center here. The
other one that's gonna matter is, hey, what's the what's
the FED funds rate going to be? What are their
projections for this year and next year? At the June meeting,
FED fund rate was projected to be five point one
(09:01):
percent at the end of the year. Five point one
percent is one cut by the end of the year.
Now in March they thought it was going to be
down to four point six That was three cuts by
the end of the year. Where do they project it now?
And then next year, where do they think it's going
to be at the end of next year? So that
FED funds rate and the unemployment rate, in my opinion,
(09:22):
those are the ones that matter because the whether the
Fed cuts twenty five or fifty this week, Yeah, we
like everyone likes to talk about it and this and that,
but it's it doesn't matter like recession is not averted
or happens because of twenty five basis points in one
meeting agreed. What matters is how fast and far are
(09:46):
you going to cut overall? Which this should give us
some clarity on it, at least in terms of their
thinking right now and the unemployment rate, why that matters, Hey,
what's the Fed's tolerance for how high they're going to
let unemployment get? If they're projecting an unemployment rate of
anything above four and a half, I think it spooks
(10:10):
the heck out of markets. But the counter to that is, hey,
you can't rely on one hand, you can't project more
than that, because then you're like scaring markets if you
project lower? Are you being unrealistic? Are you being unrealistic?
And then is the market price in way more cuts
than they think are actually going to happen. So there's
(10:32):
there's kind of a little bit of a challenge here
and how the Fed's going to get through this. But
this is where I think the meat is because Powell
ultimately is going to say the same thing that he
always says, Well, we're data dependent and we're gonna, you know,
focus on doing what's right for the economy, and we
want to make sure that unemployment you know, we're working
with our dual mandate and YadA, YadA, YadA. That's what
(10:55):
that's what Jay does. Rarely do you get anything that's
surprising for him. But this in terms of hey, how
far and how fast are you gonna cut rates? And
how hig are you willing to let unemployment get juicy? Man, juicy.
It's it's like a it's like a big fat steak
that's gonna it's it's a big economic stake that we're
(11:17):
gonna get. It's a ribbi coming on on Wednesday afternoon. Yeah,
get your appuase ready, you know, get your A one
ready because that that's what we have to look forward
to this week. And it's it's gonna be juicy. I'm
telling like this, this is where the meat is. Pal's
gonna talk and like, yeah, the market might move based
on what he says, but ultimately, after even a day
(11:40):
of digestion of said economic steak, this is this is
where it's gonna be. I'm excited, I'm kind of I'm
also a little scared. I'm like ninety nine percent excited,
one percent scared. Maybe it's ninety nine scared one percent excited.
It's hard to tell, but that's what makes it so exase.
Speaker 3 (12:00):
I have a additional fed question for you when we returned,
because at the beginning of this hiking cycle, we had
this long, extensive debate about why isn't the Fed just
surprise everybody in hike by a few percentage points. I
want to have that same conversation now that we are
on the way down. We did that on Wednesday, but
we can do it again. Darn, it's fine, it's fine,
(12:20):
good tea before we do Yeah, let's do that.
Speaker 2 (12:23):
And then also I want to chat about Bill Dudley
after this as well, because Bill's been on an interesting
path this summer. Quick Break.
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Speaker 2 (14:29):
Mike, do you know how many days it's been since
May thirtieth? One hundred, one hundred and nine. Okay, good estimation.
It's fantastic. I really like that for you. On May thirtieth,
Bill Dudley wrote, quote, the Fed thinks it's fighting inflation.
Think again. Even at more than five and a quarter percent,
(14:52):
the Central Bank's short term interest rate might not be
high enough to cool the economy. On July twenty one fourth,
about two months later, I changed my mind. The Fed
needs to cut rates now. Waiting until September unnecessarily increases
the risk of recession. Today again, these are all in
(15:12):
Bloomberg from Bill Dudley, who is the former president of
the Federal Reserve Bank of New York. Today, the Fed
should go big now I think it will. Bill Dudley
has moved from hey, the Fed needs to raise interest
rates at the end of May, to hey, we've got
a cut rates by half a percent now, and quite honestly,
(15:36):
there has not been that big of a shift in
the economy over that time.
Speaker 3 (15:41):
I was gonna say, there doesn't seem to be a
good consistency. I'm fine with people changing their mind on things,
that's what we should do in the face of new abs, absolutely,
one hundred percent. But it doesn't seem to be a
consistency of thinking.
Speaker 2 (15:54):
How do you have a one percentage point swing in
where you think rates should be over three months? That's
that's that's tough. And look, this is more ammunition kind
of pointing towards Hey, the FED is probably gonna cut
half a percent, because all these former FED officials are
coming out and saying, yeah, you've got to do do
(16:15):
more now. But it raises the question of, hey, if
you really thought that the economy was gonna get to
this point now, you you really couldn't tell that three
months ago, with all the tools that you have at
your disposal, like things things move that quickly, that you
had this big of a shift in your thinking. And
(16:38):
I think that's the piece to me, that's that's troubling.
I could see, Hey, the FED doesn't need to do
anything in May, which I think is kind of where
we landed at that point to yeah, maybe you do
twenty five basis points, you know, maybe fifty if things
are you know, looking dodgy or okay, But how do
you go from hey, the Fed's got to the Fed's
got a hike rates to hey, you've got to cut
(17:01):
by half a percent because things are getting dodgy. I
guess here's where.
Speaker 3 (17:05):
I will, I guess try and defend it, or at
least put myself in his shoes.
Speaker 2 (17:10):
In May, you had just come off of.
Speaker 3 (17:12):
Really hot readings on inflation for April, March, and I
believe February.
Speaker 2 (17:18):
I think they probably averaged about zero.
Speaker 3 (17:20):
Point four percent month of a month CPI and PCE rating.
Speaker 2 (17:24):
I have them right here. Actually, if you're interested.
Speaker 3 (17:27):
In so we're talking about May here, so we definitely
didn't have May inflation data.
Speaker 2 (17:31):
So give me April, March, February and January. So we're
doing just CPI like hempshine er, what do you want? Sure?
So if you're going January CPI point three to one,
then point four to four point three, eight point three
to one, so declining, But like you wanted to see,
is there anything there that's like, hey, you need to
(17:52):
hike interest rates.
Speaker 3 (17:53):
I don't think so, but yeah, it was a surprise
and I wouldn't have a lot of to sway, but
I'm trying to give it some form of justification there.
And then you know, obviously what made him change his
mind is the next two months at least headline CPI
produced basically zero and negative point one.
Speaker 2 (18:10):
Well, so this is what I'm getting at.
Speaker 3 (18:13):
Yeah, you shouldn't allow those short term swings to completely
change your mind.
Speaker 2 (18:17):
Beyond that, Mike, you and I can look at CPI
like we're two average human beings, and we can look
at CPI and say, ooh CPI good or ooh CPI bad,
And it feels like that's basically what Bill Dudley's doing here.
Speaker 3 (18:33):
Yeah, as a Federal Reserve, former Federal Reserve board member
right up until twenty eighteen, You've probably still got a
whole staff working for you.
Speaker 2 (18:42):
You know, It's it's just something where what's the calculus
that goes into this big of a shift in your
thinking in three months? And that's kind of problematic quite honestly,
when you're talking about like, hey, the FED needs to
raise rates in late in May to hey, the Fed's
(19:04):
got to cut half a percent. Now, okay, well why
am I What special insight do you have on the
economy then, because it seems like all you've looked at
is unemployment's going up and CPI is going down and
that's what you should do.
Speaker 3 (19:20):
Do you want my most pessimistic answer, Yeah, as a
Tucker does as a paid opinionist for Bloomberg. If that's
what he is. His jobs to make headlines and he
doesn't know how to otherwise, Like, this is a headline, right,
(19:42):
FED should go big? Now, I think it will. People
are paying to read that.
Speaker 2 (19:48):
I guess.
Speaker 3 (19:50):
I hope that's not the came I mean, I'm gonna
take the pessimistic view on this one. Want to make
headlines come out with extreme opinions. That's not new.
Speaker 2 (19:58):
I guess it's possible. Then you've also got Greg Ipp,
who is a Wall Street journal calmness saying interest rates
to Hi, the FED cup I half a point. So again,
these are the calls are growing on this, and the
interesting piece is going to be, again not what the
FED actually does Wednesday, but what they signal about where
(20:22):
they're willing to go the next few months and what
that path looks like that to me, is still going
to be the action quick break here when we come back.
It's Wall Street Watch.
Speaker 1 (20:42):
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Street Watch a complete look at what's moving markets so
far today right here on the Financial shall Exchange Radio Network.
Speaker 4 (21:02):
Well, it's FED meeting week, and markets are starting the
week off in mixed territory after last week's gains. The
SMP five hundred is now less than one percent away
from its July record, inching closer to a new all
time high. Right now, the Dow is up by about
a quarter percent, or one hundred and twelve points, SMP
five hundred is off by about a third of a percent,
(21:24):
and the NASDAC now down over one percent or one
hundred and ninety points. For US two thousand is up
by over thirty of a percent or nine points, and
the let me see you here at ten year treasureeled
is flat at three point sixty four percent, and crude
oil jumping two and a half percent higher today trading
just above seventy dollars a barrel. Apple is off by
(21:46):
about three percent after analysts at both Bank of America
and JP Morgan noted that shipping times could point to
lighter demand for iPhone sixteen Pro models than the prior year. Meanwhile,
Bloomberg News reported late on Friday that's struggling ship maker
Intel is qualified for up to three and a half
billion dollars in federal grants to make advance chips for
(22:08):
the Pentagon. Intel stock is up today by about four percent.
Sticking with the chip sector, where Morgan Stanley reduced its
price target of Micron Technology by forty dollars to one
hundred dollars, implying less than ten percent in upside from
Friday's clothes, that stock is off by about three percent. Elsewhere,
Pfiser announced plans to advance an experimental treatment for a
(22:30):
wasting disorder and cancer patients into late stage studies following
as successful mid stage trial. Pfizer shares are up by
about one percent, and according to the Financial Times, contact
lens provider Bausch and Lahm is working on a possible sale,
potentially to catch the eye of private equity. That stock
is jumping by about fourteen percent so far today. I'm
(22:53):
Tucker Silvan. That's Wall Street Watch, Mike.
Speaker 2 (22:55):
There's a piece in the Wall Street Journal talking about
some of the some of the data that we're seeing
suggesting that Americans are starting to fall more behind on
paying their bills. It mentions that Wall Street is alarmed
on this. And this was something that I did notice
last week when I believe was Ally Financial gave a
(23:19):
little bit of guidance as far as what they're seeing
on their delinquency rates, and they said, look, they're they're
worse than we thought they were going to be. And
that coupled with there was a report from I think
was JP Morgan last week as well, not so much
talking about consumers and households having trouble with their loans,
(23:43):
but this was much more. I think they guided that, hey,
their net interest margin is going to be lower than
they anticipated. And all of this that you're hearing from
financials is kind of pointing towards just a much more
muted environment than we had been hearing prior to the
last couple months.
Speaker 3 (23:59):
Yeah, I would agree there, and I think an important
distinction on alarm bells on Wall Street that can spell
a few different things, because I think we are getting
some alarm bills from investors at specific companies who are saying, hey,
like we did with Ally, for lenders that have a
bunch of below I don't know, below credit worthy debt
(24:23):
on their books. Maybe those are credit card holders or
auto loans from subprime borrowers, things along those lines.
Speaker 2 (24:30):
Yeah, we're a little bit concerned.
Speaker 3 (24:32):
It's not jumping to the level of saying, hey, the
consumer as a whole is in detrimental shape and watch
out because every brand is going to suffer because of that.
And so an important distinction there. And when we look
at debt levels, they're absolutely on the rise. But in
the aggregate, if you take a look at overall household
debt and inflation adjusted terms, we're about three percent higher
(24:54):
than where we were at the end of twenty nineteen.
I don't want us to be higher at all, but
we're not talking about some thirty percent debt bubble that
we've experienced over the last few months here.
Speaker 2 (25:04):
And when you look at ALLY Financial, just because this
was the one that again reported last week and you
kind of looked at it and said, okay, what does
this mean. Actually, I don't have the updated presentation from them.
This wasn't an earnings call. It was just a presentation
they were giving at the Barclay's Global Financial Services Conference.
But in terms of their business and really where the
(25:28):
bulk of it is, most of it is in consumer lending. Yeah, auto's,
you know, leases, things along those lines like that. That's
the bulk of it, about eighty percent of it, And
so that's where they're telling you that they're seeing weakness.
But quite honestly, that also matches the data that we've
been seeing showing that auto loans are one of the
areas that has been weakening over the past you know,
(25:50):
six to nine months in particular, and so if that
is the case, I don't know how much more we
learn there. So you've got two areas in in general
that are showing weakness. It's autos and credit cards mortgages.
You're not really seeing any meaningful uptick in delinquencies or
anything like that, which is good because that's the area
(26:10):
that really concerns you about, you know, the stuff that
gets really bad in the economy like oh eight, But
you can still be going through this de leveraging cycle
in other areas that can create a meaningful slowdown in
the economy and a recession even without it being you know,
something that's as severe as two thousand and eight.
Speaker 3 (26:28):
Yeah, I mean, I think a few things can be true, right,
it is, And so an important stat inflation adjusted debt,
it's just touched the highest levels since two thousand and nine.
It's still over a trillion dollars shive to two thousand
and eight peak.
Speaker 2 (26:42):
M h. It's an important distinction. Yep, right, Like that
is a big distinction that was adjusted for inflation.
Speaker 3 (26:49):
You say, I'm not sure if that last trillion piece
is adjusted for inflation. Okay, I think that. Yeah, So
that's the answer. And by the way, it's not acting
all these companies the same, right. Capital One is another
credit card company that historically has served maybe lower credit
quality consumers on average, and stock's been holding up just
(27:12):
fine recently, and so it is going to vary company
by company here in terms of what their exposure really
looks like. But yeah, the growth in credit card and
auto loan debt over the last few years is getting
to a point where it should be of concern, especially
to the companies that service them.
Speaker 2 (27:28):
Do we all talk any more about household dead or
anything along those lines? Kind of there? I think that's
kind of the bulk of it. Let's talk about Boeing.
They have really is just one thing after another for them,
isn't it. And this one is not that they you know,
built a plane that isn't performing the way they wanted
it to. This is Hey, they thought they had reached
(27:51):
an agreement with their workers for a new four year
collective bargaining agreement twenty five percent overall wage increases over
the course of that about six percent a year, and
they thought they had agreed to it. The vote comes out,
what was it Thursday that it was completed, so I
think early Fridays when we got news of it Friday
at midnight, I think people went on strike and more
(28:13):
than ninety percent of Boeing union workers said no, we're
not doing this. So it was a pretty resounding no vote, right,
you know, it's not something where it's like, well, if
we can just peel a few people off, you know,
we can get there. No, this is you know, pretty
pretty significant. And so you've got talks that are going
to be resuming soon. But obviously if you've got their
(28:33):
Seattle area workers on strike, remember the South Carolina factory
for Boeing is not unionized, and so that is not
part of this strike. But you look at this and
you say, okay, we you know, have to figure out
how to bridge the gaps that we have here. And
I think that the Boeing workers quite honestly have some
(28:55):
good arguments when they talk about what's going on. I'll
just quote here from the New York Time. Mid ranking
workers represented by the Machinist Union currently earn a minimum
of twenty dollars an hour, which is in line with
Amazon delivery drivers who do not belong to unions. I
know that twenty an hours twenty five percent higher than
the sixteen at the start of the contract from two
(29:16):
thousand and eight. Inflation has been forty four percent cumulative
since then, so your wages are up again.
Speaker 3 (29:22):
This isn't really a fair comparison because we're just looking
at the starting wage, but nonetheless, you know, starts mid
ranking workers, so inflation's eating up forty four percent and
your wages are up twenty five percent during the same
time period. It is a pretty compelling argument. And I've
been struggling with, hey, who really has the upper hand here,
because Boeing does have a legitimate claim here that we
(29:43):
do not have the money to pay you as much
as you want to. But the piece that workers can
hang over here one, there's no real threat of Boeing
being able to shift work to South Carolina right now.
Speaker 2 (29:56):
I don't think.
Speaker 3 (29:56):
I don't think the safety companies would allow them to.
They don't have the facilities to do it. There's just
no possible way they can. Furthermore, the longer this goes
on is New York Times points out like there's an
actual possibility that Boeing's debt could be downgraded to junk
if they don't resolve this relatively quickly. And that's a
(30:16):
pretty looming, a looming threat to have over the company.
Speaker 2 (30:20):
It's a real problem that they have. And I don't know.
I mean, I do know what the answer is going
to be. In order to solve this, They're going to
have to pay more. It's just a question of where
can they where can they meet workers on this?
Speaker 1 (30:32):
Uh?
Speaker 2 (30:32):
But that is where this is going to end up
going here, I don't know it. Just imagine when did
the new CEO start? It was like two months ago, No,
not even it was less than that, less less than
two months ago. I'm fairly certain. Maybe like August maybe, yeah,
and this is what you're dealing with now, I mean
(30:53):
August eight, August.
Speaker 3 (30:55):
Okay, so first there's the star Liner. You can't get
astronauts back from space. You make an embarrassed to be fair,
that's started before the CEO, did they were just up
there for like five months? Well, no, they're still up
there actually, yeah. Yeah, So you got the.
Speaker 2 (31:08):
Star Liner that you've been dealing with. Now you got this.
What's next? Yeah, what's next. Let's take a quick break here.
When we come back, let's talk Ford and China.
Speaker 1 (31:21):
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Speaker 2 (31:42):
All right, Mike, We got a great piece in the
Wall Street Journal today. It's titled What scared Ford's CEO
in China, and it talks about Jim Farley, who has
gone to China a few times in the last couple
of years to check out what Chinese car manufacturers are doing.
And basically he's come back multiple times and been like, guys,
(32:03):
we need to change what we're doing because we are
absolutely going to get dominated by these cars if we
don't adapt quickly. Yeah, that seems to be the conclusion.
Speaker 3 (32:13):
And he also doesn't seem to be honing in on
any one specific segment. I mean obviously electric vehicles, but
whether it is the ultra low cost model that we've
talked about that you know, in some of these cars
made in China they don't even have like an entertainment
system to you know, seventy seven thousand dollars luxury evs
(32:35):
with you know, heated arm rusts. He's pretty concerned across
the board that China is creating vehicles that are compelling
in a way that that American auto makers are really
not competing with right now.
Speaker 2 (32:48):
And he's going to face a number of different challenges
in trying to combat this. The first is just the
general cost of trying to manufacture in the United States.
You can't make a ten thousand dollars car that does
what these ten thousand dollars Chinese cars do in the
United States. You literally can't do it. You can make
(33:08):
a ten thousand dollars car in the US. It'd probably
be a good car, it'd probably be fine, but it
would lack a lot of the bells and whistles that
people want on it now, and it'd be smaller than
most people want now. Other things, there is a legacy automakers.
There's just a really slow development cycle that you see.
You know, it takes five to seven years from start
(33:30):
to finish to bring a vehicle to life. You got
to figure out how to get that down to two
to three, because that's what China is doing with their
new models now. And the other piece on this is, hey,
just from a price perspective, if you do want to
try to compete in kind of that that mid range
that China is trying to sell out in, like the
thirty to forty thousand dollars range that're selling at overseas, hey,
(33:54):
you probably have to make different vehicles than you're making now.
And this is part of the reason why for I
had to move away from an EV that was Explorer sized,
because they said, look, we can't compete on price for
something that's that size and also an EV. We're going
to have to do something different here. And this again
(34:16):
Farley I think correctly surmises. He says, Look, this is
an existential threat.
Speaker 3 (34:22):
It is just like Toyota was two or three decades ago.
Speaker 2 (34:26):
More so could BA more so, and how they deal
with this is going to be I think what determines
where Ford and other US based automakers are five ten
years from now.
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Speaker 3 (35:47):
Chuck, do you find it interesting that this piece was
I mean, this piece contains interviews with you know, higher
ups at Ford currently, it's not all former executives.
Speaker 2 (35:56):
What does it tell you.
Speaker 3 (35:56):
That I mean Farley Maybe I'm not sure he didn't
write the piece, but he clearly allowed for this information
to get out that Ford feels well behind the eight
ball when it comes to competition with China.
Speaker 2 (36:10):
What does that tell you that Ford wants higher tariffs
on China EV's coming into the country. Yeah, there's always
a motive behind this. It's why am I reading this now?
Companies don't generally put out something that paints them as
being in a you know, kind of not great spot voluntarily, right,
And so you say, Okay, why am I reading this now?
(36:31):
And ultimately it's probably to try to build pressure for
tariffs on Chinese vehicles coming into the United States.
Speaker 3 (36:39):
Which I think is of all the arguments that I've
seen for them, among.
Speaker 2 (36:43):
The worst.
Speaker 3 (36:46):
Like pretty good arguments that I can think of, like, hey,
you don't want vehicles spying on you don't want this,
that and the other. The argument of we can't compete
because they are so much better at this than us
is not a great argument.
Speaker 2 (36:56):
No, if ultimately someone built a product better than you
at a cheaper cost, and you shouldn't be in business,
you deserve to lose. Yeah. Now, if you want to say, hey,
the only reason they can build that product at that
cost is because of giant state subsidies and it's not
a level playing field, Okay, let's let's talk about that.
(37:16):
Good argument, but not what this piece is about. The
argument in this piece, and again they interviewed Jim Farley
for this, and it was these cars are too good
and we've got to do better. Yeah. The argument was not, hey,
these cars are too good because they're being funneled billions
of dollars by the Chinese government. Okay, that that's a
more reasonable argument that it's not a level playing field,
(37:38):
as opposed to, well, they got heated armress, how are
we going to do that? But why do you need
a heated armrest? Now? Arms get cold? Chuck, You know
nobody you ever heard of. My arms are chili. The
elbow has like no nerves in it on the outside.
It doesn't even feel anything. You can pinch it and
squeeze as hard as you want and nothing even happen.
Speaker 4 (38:00):
I do like the steering wheel warmer, yes.
Speaker 2 (38:02):
Because there are lots of nerves in your hands.
Speaker 4 (38:05):
It's nice in the winter.
Speaker 2 (38:06):
It's wonderful. I don't disagree. I finally, my my outback
has one of those now, and it's.
Speaker 4 (38:10):
Like a warm blanket.
Speaker 2 (38:12):
I don't debate that.
Speaker 3 (38:13):
Most of the features that are brought up in these
things to me sound completely unnecessary, such as large. They
had one of large touch screens with hand gestures that
will track others, that will turn on your lights when
you get home.
Speaker 2 (38:25):
They won.
Speaker 3 (38:26):
I think it was like in a coss Oil's diffuser. Yeah,
essential oils difuser in the car.
Speaker 2 (38:31):
Why do I need? Why do I want that? Yeah?
Speaker 3 (38:33):
I agree that I don't need any of these things.
But to Farley's point, there aren't any automakers even toying
with it, so yeah, there's some innovation going on in China.
Speaker 2 (38:45):
Why do I need ambient lighting with one hundred and
twenty eight colors? Well? Have you ever been in cash
Gap and wouldn't massage seats just put me to sleep
while driving? Well, it's for your passengers. I don't know.
Why do I want them to be that comfortable? You
gotta stay awake on the road. Guys. Let's take a
quick break here. We got our two coming up in
(39:06):
just a little bit.
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Veterans Development Corporation. This is the Financial Exchange with Chuck
Zada and Mike Armstrong.
Speaker 2 (01:12):
Happy FED Week to everyone. It's Chuck, Mike and Tucker
with you. And on Wednesday of this week, at two
pm Eastern time, the Federal Reserve is going to release
their decision on interest rates as well as their updated
economic projections. And quite honestly, nothing matters economically until then,
so you don't really need to bother with anything else
(01:34):
that's going on for the next fifty two hours or so.
Speaker 3 (01:38):
So for the next fifty two hours, all you should
do is debate whether it's gonna be fifty or twenty five?
Is that?
Speaker 2 (01:43):
Is that the conclusion you come to, Chuck, I don't
think that's the conclusion that I come to. But I
do think that's the conclusion of what we're going to
end up having to do, because it's all that anyone
wants to talk about. Hey, is the Fed gonna go
twenty five of fifty this week? I kid you not?
Speaker 4 (01:59):
In U on the T box on this past Thursday,
that was the conversation.
Speaker 2 (02:03):
I know. I'm telling you, I have no I have
I have people in my life that have no thoughts
about finance at any point in their day normally, and
the questions are coming up, Hey, is that going to
be a quarter percent and a half percent? Second box,
they're asking me.
Speaker 1 (02:20):
I'm like, I don't know.
Speaker 2 (02:23):
Let me dial up Jay and see what he says.
Speaker 3 (02:25):
You know, my money is on splitting the difference thirty
seven and a half.
Speaker 2 (02:30):
I mean, it makes everybody for the first time. That
makes no one happy. That makes no one happy. So
in any case, FED is going to be cutting interest
rates this week. Let's let's get that out of the way.
There is there are very few certainties in life. The
FED is not going to hold interest rates steady this week.
(02:51):
That would be it's kind of where we are. That'd
be the financial news surprise, would be the upset of
the century. And this all started, by the way, in
terms of this renewed debate about twenty five or fifty.
It all started Thursday afternoon around one pm. Nick tim Morouse,
who affectionately is known as Nicky Leaks, which is kind
of a play on Wiki leaks.
Speaker 3 (03:11):
Is he really Oh yeah, you've never heard, never heard
of Nicky leaksh like that.
Speaker 2 (03:15):
Because he's kind of the Fed's mouth yes. When they
can't say something, they leak it through Nick. So he's
known as Nicky Leaks. And it's great, isn't it. Fuck
it's also kind of awful, but it's both. Yeah. But
so Thursday, around one pm he comes out with this
piece where he interviews four former FED members because remember,
(03:36):
the current FED members can't talk last week, they're not
allowed to because there's a blackout period heading into the
FED meeting. And so if you can't talk to current
FED members, what's the next best thing you can do, Oh,
let's interview former FED members. And all four of them
that he interviewed said, hey, you know what, there's a
real case for going fifty. And the takeaway from that,
(03:57):
at least what markets have said is, hey, hey, current
FED members can't say anything. But Tim Morouse is known
as someone who has his finger on the pulse of
the FED. You know. Typically, again, he's known as Nicky Leaks,
and so if he's getting former FED members to say this,
maybe there's something to the fact that this is a
trial balloon that's being floated to see if the market
(04:19):
can move in that direction and accept fifty basis points
as where the FED is going to go and lo
and behold. Over the last four days now we've seen
the probabilities for a half percent cut on the on
the FED funds rate. This week, they have gone from
(04:42):
I just want to make sure that I'm getting this
correct here, we've gone from a fifteen percent chance of
that happening to a sixty percent chance of that happening.
It's a pretty meaningful shift. Yes, it's a pretty meaningful
shift in a short period of time, and one that
still does leave us with some intrigue because normally at
(05:03):
this point leading up to a FED meeting, you're like
ninety to ninety five percent priced in, sometimes higher than that.
I guess you know.
Speaker 3 (05:10):
I've been making the point that this Federal Reserve to
a large extent, does not like to surprise anyone. Now,
most Feds haven't for quite some time had you know,
the position of surprising investors and surprising Fed watchers. But
this Fed especially has really forecasted what they're going to do.
My point to last week was that the twenty five
basis points, for no other reason, was the status quo.
(05:34):
That was what was being forecast, and so that was
what was going to get done. Now I'm wondering if
fifty is the is the least surprising move that the
FED could be making. I guess according to CME Watch,
it would be.
Speaker 2 (05:45):
Well, there's pros and cons to each approach, depending on
how you want to look at it. If the FED
cuts twenty five and if you want to message it
bullishly for markets, hey, we're cutting twenty five basis points
because we don't think the economy's got that bad. We're
willing to do more if we need to. Unemployment rate
dipped last month, but the economy is pretty good. We've
(06:05):
seen a few different things that have shown that maybe
there's a rebound happening, and we don't want to do
too much too soon. Yep. The bearish case to this,
if you want to make it, is, hey, the Fed's
not doing enough because the data has been worsening and
they're showing that they're behind the eight ball.
Speaker 3 (06:19):
They're behind the eight ball on the way up. Now
that behind the eight ball on the way down.
Speaker 2 (06:23):
On the other hand, if they go fifty bullush case, Hey,
you know what, the FED didn't think they were going
to do this, but they decided to because they realized that,
you know, it takes a while for monetary policy to
seep into the system. They're just being ultra cautious because
they don't want a recession and this is what's going
to help prevent it. That's the bullish case, Bear's cases. Hey,
(06:44):
a week ago, they were pretty content to, you know,
talk about twenty five basis points, and now they're going fifty.
Speaker 1 (06:49):
What changed?
Speaker 2 (06:49):
What are they seeing that we're not seeing? Yep. So
there's plenty ways to argument and argue it.
Speaker 3 (06:54):
And I have no idea which way the markets will
turn versus for one versus the other. And I guess
where that all puts it back is. I think that
what Jerome Powell says on Wednesday is once again far
more important than what he does with rates. Ultimately twenty
five versus fifty.
Speaker 2 (07:14):
I'm gonna say something that I never thought I would say, actually,
and that's I don't know if j Powell what he
says is going to get any interest. Quite honestly, not
not any. But I think it's third in terms of
what the Fed's are releasing on Wednesday. I think the
most app the most important thing that the Fed's gonna
(07:35):
release on Wednesday is the dot plot. And the dot
plot if you're not familiar with it. It's there's summary
of economic projections, and it shows the basically where the
Fed thinks they are going to see a number of
different metrics over the rest of this year, next year,
(07:57):
and into the future. So as an example, when we
look at the previous one that came out in June,
they released one of these every two meetings, they give
you change in GDP for the year, and they previously
thought that it was gonna come in at two point
one percent this year. Okay, do they think that growth
is gonna be higher or lower now? Unemployment rate they
thought it would be four percent by the end of this year.
Where do they show it going this year? Where do
(08:18):
they show it in twenty twenty five, where they were
projecting it at four point two percent. It's already at
four point two and on an upward trend. PCE inflation
quite honestly doesn't matter. It's a nothing burger because you're
not seeing any meaningful inflationary impulse right now. It's gonna
be somewhere in the mid twos over the next year
most likely, unless you get some kind of big surprise
(08:41):
core PC of E same boat. Again, it's not that
it shouldn't matter. It's just that it does it right now,
because that fight is not front and center here. The
other one that's gonna matter is, hey, what's the what's
the FED funds rate going to be? What are their
projections for this year and next year? At the June meeting,
FED fund rate was projected to be five point one
(09:01):
percent at the end of the year. Five point one
percent is one cut by the end of the year.
Now in March they thought it was going to be
down to four point six That was three cuts by
the end of the year. Where do they project it now?
And then next year, where do they think it's going
to be at the end of next year? So that
FED funds rate and the unemployment rate, in my opinion,
(09:22):
those are the ones that matter because the whether the
Fed cuts twenty five or fifty this week, Yeah, we
like everyone likes to talk about it and this and that,
but it's it doesn't matter like recession is not averted
or happens because of twenty five basis points in one
meeting agreed. What matters is how fast and far are
(09:46):
you going to cut overall? Which this should give us
some clarity on it, at least in terms of their
thinking right now and the unemployment rate, why that matters, Hey,
what's the Fed's tolerance for how high they're going to
let unemployment get? If they're projecting an unemployment rate of
anything above four and a half, I think it spooks
(10:10):
the heck out of markets. But the counter to that is, hey,
you can't rely on one hand, you can't project more
than that, because then you're like scaring markets if you
project lower? Are you being unrealistic? Are you being unrealistic?
And then is the market price in way more cuts
than they think are actually going to happen. So there's
(10:32):
there's kind of a little bit of a challenge here
and how the Fed's going to get through this. But
this is where I think the meat is because Powell
ultimately is going to say the same thing that he
always says, Well, we're data dependent and we're gonna, you know,
focus on doing what's right for the economy, and we
want to make sure that unemployment you know, we're working
with our dual mandate and YadA, YadA, YadA. That's what
(10:55):
that's what Jay does. Rarely do you get anything that's
surprising for him. But this in terms of hey, how
far and how fast are you gonna cut rates? And
how hig are you willing to let unemployment get juicy? Man, juicy.
It's it's like a it's like a big fat steak
that's gonna it's it's a big economic stake that we're
(11:17):
gonna get. It's a ribbi coming on on Wednesday afternoon. Yeah,
get your appuase ready, you know, get your A one
ready because that that's what we have to look forward
to this week. And it's it's gonna be juicy. I'm
telling like this, this is where the meat is. Pal's
gonna talk and like, yeah, the market might move based
on what he says, but ultimately, after even a day
(11:40):
of digestion of said economic steak, this is this is
where it's gonna be. I'm excited, I'm kind of I'm
also a little scared. I'm like ninety nine percent excited,
one percent scared. Maybe it's ninety nine scared one percent excited.
It's hard to tell, but that's what makes it so exase.
Speaker 3 (12:00):
I have a additional fed question for you when we returned,
because at the beginning of this hiking cycle, we had
this long, extensive debate about why isn't the Fed just
surprise everybody in hike by a few percentage points. I
want to have that same conversation now that we are
on the way down. We did that on Wednesday, but
we can do it again. Darn, it's fine, it's fine,
(12:20):
good tea before we do Yeah, let's do that.
Speaker 2 (12:23):
And then also I want to chat about Bill Dudley
after this as well, because Bill's been on an interesting
path this summer. Quick Break.
Speaker 1 (12:34):
There's only one show that follows Wall Street's continued volatility.
Keep it here all morning long on the Financial Exchange
Radio Network.
Speaker 2 (12:42):
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make sure you understand the rules related to required minimum distributions. Hi,
this is Chuck's outa from the Armstrong Advisory Group. It's
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Speaker 1 (13:30):
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Speaker 4 (13:53):
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Speaker 2 (14:29):
Mike, do you know how many days it's been since
May thirtieth? One hundred, one hundred and nine. Okay, good estimation.
It's fantastic. I really like that for you. On May thirtieth,
Bill Dudley wrote, quote, the Fed thinks it's fighting inflation.
Think again. Even at more than five and a quarter percent,
(14:52):
the Central Bank's short term interest rate might not be
high enough to cool the economy. On July twenty one fourth,
about two months later, I changed my mind. The Fed
needs to cut rates now. Waiting until September unnecessarily increases
the risk of recession. Today again, these are all in
(15:12):
Bloomberg from Bill Dudley, who is the former president of
the Federal Reserve Bank of New York. Today, the Fed
should go big now I think it will. Bill Dudley
has moved from hey, the Fed needs to raise interest
rates at the end of May, to hey, we've got
a cut rates by half a percent now, and quite honestly,
(15:36):
there has not been that big of a shift in
the economy over that time.
Speaker 3 (15:41):
I was gonna say, there doesn't seem to be a
good consistency. I'm fine with people changing their mind on things,
that's what we should do in the face of new abs, absolutely,
one hundred percent. But it doesn't seem to be a
consistency of thinking.
Speaker 2 (15:54):
How do you have a one percentage point swing in
where you think rates should be over three months? That's
that's that's tough. And look, this is more ammunition kind
of pointing towards Hey, the FED is probably gonna cut
half a percent, because all these former FED officials are
coming out and saying, yeah, you've got to do do
(16:15):
more now. But it raises the question of, hey, if
you really thought that the economy was gonna get to
this point now, you you really couldn't tell that three
months ago, with all the tools that you have at
your disposal, like things things move that quickly, that you
had this big of a shift in your thinking. And
(16:38):
I think that's the piece to me, that's that's troubling.
I could see, Hey, the FED doesn't need to do
anything in May, which I think is kind of where
we landed at that point to yeah, maybe you do
twenty five basis points, you know, maybe fifty if things
are you know, looking dodgy or okay, But how do
you go from hey, the Fed's got to the Fed's
got a hike rates to hey, you've got to cut
(17:01):
by half a percent because things are getting dodgy. I
guess here's where.
Speaker 3 (17:05):
I will, I guess try and defend it, or at
least put myself in his shoes.
Speaker 2 (17:10):
In May, you had just come off of.
Speaker 3 (17:12):
Really hot readings on inflation for April, March, and I
believe February.
Speaker 2 (17:18):
I think they probably averaged about zero.
Speaker 3 (17:20):
Point four percent month of a month CPI and PCE rating.
Speaker 2 (17:24):
I have them right here. Actually, if you're interested.
Speaker 3 (17:27):
In so we're talking about May here, so we definitely
didn't have May inflation data.
Speaker 2 (17:31):
So give me April, March, February and January. So we're
doing just CPI like hempshine er, what do you want? Sure?
So if you're going January CPI point three to one,
then point four to four point three, eight point three
to one, so declining, But like you wanted to see,
is there anything there that's like, hey, you need to
(17:52):
hike interest rates.
Speaker 3 (17:53):
I don't think so, but yeah, it was a surprise
and I wouldn't have a lot of to sway, but
I'm trying to give it some form of justification there.
And then you know, obviously what made him change his
mind is the next two months at least headline CPI
produced basically zero and negative point one.
Speaker 2 (18:10):
Well, so this is what I'm getting at.
Speaker 3 (18:13):
Yeah, you shouldn't allow those short term swings to completely
change your mind.
Speaker 2 (18:17):
Beyond that, Mike, you and I can look at CPI
like we're two average human beings, and we can look
at CPI and say, ooh CPI good or ooh CPI bad,
And it feels like that's basically what Bill Dudley's doing here.
Speaker 3 (18:33):
Yeah, as a Federal Reserve, former Federal Reserve board member
right up until twenty eighteen, You've probably still got a
whole staff working for you.
Speaker 2 (18:42):
You know, It's it's just something where what's the calculus
that goes into this big of a shift in your
thinking in three months? And that's kind of problematic quite honestly,
when you're talking about like, hey, the FED needs to
raise rates in late in May to hey, the Fed's
(19:04):
got to cut half a percent. Now, okay, well why
am I What special insight do you have on the
economy then, because it seems like all you've looked at
is unemployment's going up and CPI is going down and
that's what you should do.
Speaker 3 (19:20):
Do you want my most pessimistic answer, Yeah, as a
Tucker does as a paid opinionist for Bloomberg. If that's
what he is. His jobs to make headlines and he
doesn't know how to otherwise, Like, this is a headline, right,
(19:42):
FED should go big? Now, I think it will. People
are paying to read that.
Speaker 2 (19:48):
I guess.
Speaker 3 (19:50):
I hope that's not the came I mean, I'm gonna
take the pessimistic view on this one. Want to make
headlines come out with extreme opinions. That's not new.
Speaker 2 (19:58):
I guess it's possible. Then you've also got Greg Ipp,
who is a Wall Street journal calmness saying interest rates
to Hi, the FED cup I half a point. So again,
these are the calls are growing on this, and the
interesting piece is going to be, again not what the
FED actually does Wednesday, but what they signal about where
(20:22):
they're willing to go the next few months and what
that path looks like that to me, is still going
to be the action quick break here when we come back.
It's Wall Street Watch.
Speaker 1 (20:42):
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 markets so
far today right here on the Financial shall Exchange Radio Network.
Speaker 4 (21:02):
Well, it's FED meeting week, and markets are starting the
week off in mixed territory after last week's gains. The
SMP five hundred is now less than one percent away
from its July record, inching closer to a new all
time high. Right now, the Dow is up by about
a quarter percent, or one hundred and twelve points, SMP
five hundred is off by about a third of a percent,
(21:24):
and the NASDAC now down over one percent or one
hundred and ninety points. For US two thousand is up
by over thirty of a percent or nine points, and
the let me see you here at ten year treasureeled
is flat at three point sixty four percent, and crude
oil jumping two and a half percent higher today trading
just above seventy dollars a barrel. Apple is off by
(21:46):
about three percent after analysts at both Bank of America
and JP Morgan noted that shipping times could point to
lighter demand for iPhone sixteen Pro models than the prior year. Meanwhile,
Bloomberg News reported late on Friday that's struggling ship maker
Intel is qualified for up to three and a half
billion dollars in federal grants to make advance chips for
(22:08):
the Pentagon. Intel stock is up today by about four percent.
Sticking with the chip sector, where Morgan Stanley reduced its
price target of Micron Technology by forty dollars to one
hundred dollars, implying less than ten percent in upside from
Friday's clothes, that stock is off by about three percent. Elsewhere,
Pfiser announced plans to advance an experimental treatment for a
(22:30):
wasting disorder and cancer patients into late stage studies following
as successful mid stage trial. Pfizer shares are up by
about one percent, and according to the Financial Times, contact
lens provider Bausch and Lahm is working on a possible sale,
potentially to catch the eye of private equity. That stock
is jumping by about fourteen percent so far today. I'm
(22:53):
Tucker Silvan. That's Wall Street Watch, Mike.
Speaker 2 (22:55):
There's a piece in the Wall Street Journal talking about
some of the some of the data that we're seeing
suggesting that Americans are starting to fall more behind on
paying their bills. It mentions that Wall Street is alarmed
on this. And this was something that I did notice
last week when I believe was Ally Financial gave a
(23:19):
little bit of guidance as far as what they're seeing
on their delinquency rates, and they said, look, they're they're
worse than we thought they were going to be. And
that coupled with there was a report from I think
was JP Morgan last week as well, not so much
talking about consumers and households having trouble with their loans,
(23:43):
but this was much more. I think they guided that, hey,
their net interest margin is going to be lower than
they anticipated. And all of this that you're hearing from
financials is kind of pointing towards just a much more
muted environment than we had been hearing prior to the
last couple months.
Speaker 3 (23:59):
Yeah, I would agree there, and I think an important
distinction on alarm bells on Wall Street that can spell
a few different things, because I think we are getting
some alarm bills from investors at specific companies who are saying, hey,
like we did with Ally, for lenders that have a
bunch of below I don't know, below credit worthy debt
(24:23):
on their books. Maybe those are credit card holders or
auto loans from subprime borrowers, things along those lines.
Speaker 2 (24:30):
Yeah, we're a little bit concerned.
Speaker 3 (24:32):
It's not jumping to the level of saying, hey, the
consumer as a whole is in detrimental shape and watch
out because every brand is going to suffer because of that.
And so an important distinction there. And when we look
at debt levels, they're absolutely on the rise. But in
the aggregate, if you take a look at overall household
debt and inflation adjusted terms, we're about three percent higher
(24:54):
than where we were at the end of twenty nineteen.
I don't want us to be higher at all, but
we're not talking about some thirty percent debt bubble that
we've experienced over the last few months here.
Speaker 2 (25:04):
And when you look at ALLY Financial, just because this
was the one that again reported last week and you
kind of looked at it and said, okay, what does
this mean. Actually, I don't have the updated presentation from them.
This wasn't an earnings call. It was just a presentation
they were giving at the Barclay's Global Financial Services Conference.
But in terms of their business and really where the
(25:28):
bulk of it is, most of it is in consumer lending. Yeah, auto's,
you know, leases, things along those lines like that. That's
the bulk of it, about eighty percent of it, And
so that's where they're telling you that they're seeing weakness.
But quite honestly, that also matches the data that we've
been seeing showing that auto loans are one of the
areas that has been weakening over the past you know,
(25:50):
six to nine months in particular, and so if that
is the case, I don't know how much more we
learn there. So you've got two areas in in general
that are showing weakness. It's autos and credit cards mortgages.
You're not really seeing any meaningful uptick in delinquencies or
anything like that, which is good because that's the area
(26:10):
that really concerns you about, you know, the stuff that
gets really bad in the economy like oh eight, But
you can still be going through this de leveraging cycle
in other areas that can create a meaningful slowdown in
the economy and a recession even without it being you know,
something that's as severe as two thousand and eight.
Speaker 3 (26:28):
Yeah, I mean, I think a few things can be true, right,
it is, And so an important stat inflation adjusted debt,
it's just touched the highest levels since two thousand and nine.
It's still over a trillion dollars shive to two thousand
and eight peak.
Speaker 2 (26:42):
M h. It's an important distinction. Yep, right, Like that
is a big distinction that was adjusted for inflation.
Speaker 3 (26:49):
You say, I'm not sure if that last trillion piece
is adjusted for inflation. Okay, I think that. Yeah, So
that's the answer. And by the way, it's not acting
all these companies the same, right. Capital One is another
credit card company that historically has served maybe lower credit
quality consumers on average, and stock's been holding up just
(27:12):
fine recently, and so it is going to vary company
by company here in terms of what their exposure really
looks like. But yeah, the growth in credit card and
auto loan debt over the last few years is getting
to a point where it should be of concern, especially
to the companies that service them.
Speaker 2 (27:28):
Do we all talk any more about household dead or
anything along those lines? Kind of there? I think that's
kind of the bulk of it. Let's talk about Boeing.
They have really is just one thing after another for them,
isn't it. And this one is not that they you know,
built a plane that isn't performing the way they wanted
it to. This is Hey, they thought they had reached
(27:51):
an agreement with their workers for a new four year
collective bargaining agreement twenty five percent overall wage increases over
the course of that about six percent a year, and
they thought they had agreed to it. The vote comes out,
what was it Thursday that it was completed, so I
think early Fridays when we got news of it Friday
at midnight, I think people went on strike and more
(28:13):
than ninety percent of Boeing union workers said no, we're
not doing this. So it was a pretty resounding no vote, right,
you know, it's not something where it's like, well, if
we can just peel a few people off, you know,
we can get there. No, this is you know, pretty
pretty significant. And so you've got talks that are going
to be resuming soon. But obviously if you've got their
(28:33):
Seattle area workers on strike, remember the South Carolina factory
for Boeing is not unionized, and so that is not
part of this strike. But you look at this and
you say, okay, we you know, have to figure out
how to bridge the gaps that we have here. And
I think that the Boeing workers quite honestly have some
(28:55):
good arguments when they talk about what's going on. I'll
just quote here from the New York Time. Mid ranking
workers represented by the Machinist Union currently earn a minimum
of twenty dollars an hour, which is in line with
Amazon delivery drivers who do not belong to unions. I
know that twenty an hours twenty five percent higher than
the sixteen at the start of the contract from two
(29:16):
thousand and eight. Inflation has been forty four percent cumulative
since then, so your wages are up again.
Speaker 3 (29:22):
This isn't really a fair comparison because we're just looking
at the starting wage, but nonetheless, you know, starts mid
ranking workers, so inflation's eating up forty four percent and
your wages are up twenty five percent during the same
time period. It is a pretty compelling argument. And I've
been struggling with, hey, who really has the upper hand here,
because Boeing does have a legitimate claim here that we
(29:43):
do not have the money to pay you as much
as you want to. But the piece that workers can
hang over here one, there's no real threat of Boeing
being able to shift work to South Carolina right now.
Speaker 2 (29:56):
I don't think.
Speaker 3 (29:56):
I don't think the safety companies would allow them to.
They don't have the facilities to do it. There's just
no possible way they can. Furthermore, the longer this goes
on is New York Times points out like there's an
actual possibility that Boeing's debt could be downgraded to junk
if they don't resolve this relatively quickly. And that's a
(30:16):
pretty looming, a looming threat to have over the company.
Speaker 2 (30:20):
It's a real problem that they have. And I don't know.
I mean, I do know what the answer is going
to be. In order to solve this, They're going to
have to pay more. It's just a question of where
can they where can they meet workers on this?
Speaker 1 (30:32):
Uh?
Speaker 2 (30:32):
But that is where this is going to end up
going here, I don't know it. Just imagine when did
the new CEO start? It was like two months ago, No,
not even it was less than that, less less than
two months ago. I'm fairly certain. Maybe like August maybe, yeah,
and this is what you're dealing with now, I mean
(30:53):
August eight, August.
Speaker 3 (30:55):
Okay, so first there's the star Liner. You can't get
astronauts back from space. You make an embarrassed to be fair,
that's started before the CEO, did they were just up
there for like five months? Well, no, they're still up
there actually, yeah. Yeah, So you got the.
Speaker 2 (31:08):
Star Liner that you've been dealing with. Now you got this.
What's next? Yeah, what's next. Let's take a quick break here.
When we come back, let's talk Ford and China.
Speaker 1 (31:21):
Miss any of the show. The Financial Exchange Show podcast
is available on Apple, Spotify, and iHeartRadio. Hit the subscribe
button and leave us a five star review. This is
the Financial Exchange Radio Network.
Speaker 2 (31:42):
All right, Mike, We got a great piece in the
Wall Street Journal today. It's titled What scared Ford's CEO
in China, and it talks about Jim Farley, who has
gone to China a few times in the last couple
of years to check out what Chinese car manufacturers are doing.
And basically he's come back multiple times and been like, guys,
(32:03):
we need to change what we're doing because we are
absolutely going to get dominated by these cars if we
don't adapt quickly. Yeah, that seems to be the conclusion.
Speaker 3 (32:13):
And he also doesn't seem to be honing in on
any one specific segment. I mean obviously electric vehicles, but
whether it is the ultra low cost model that we've
talked about that you know, in some of these cars
made in China they don't even have like an entertainment
system to you know, seventy seven thousand dollars luxury evs
(32:35):
with you know, heated arm rusts. He's pretty concerned across
the board that China is creating vehicles that are compelling
in a way that that American auto makers are really
not competing with right now.
Speaker 2 (32:48):
And he's going to face a number of different challenges
in trying to combat this. The first is just the
general cost of trying to manufacture in the United States.
You can't make a ten thousand dollars car that does
what these ten thousand dollars Chinese cars do in the
United States. You literally can't do it. You can make
(33:08):
a ten thousand dollars car in the US. It'd probably
be a good car, it'd probably be fine, but it
would lack a lot of the bells and whistles that
people want on it now, and it'd be smaller than
most people want now. Other things, there is a legacy automakers.
There's just a really slow development cycle that you see.
You know, it takes five to seven years from start
(33:30):
to finish to bring a vehicle to life. You got
to figure out how to get that down to two
to three, because that's what China is doing with their
new models now. And the other piece on this is, hey,
just from a price perspective, if you do want to
try to compete in kind of that that mid range
that China is trying to sell out in, like the
thirty to forty thousand dollars range that're selling at overseas, hey,
(33:54):
you probably have to make different vehicles than you're making now.
And this is part of the reason why for I
had to move away from an EV that was Explorer sized,
because they said, look, we can't compete on price for
something that's that size and also an EV. We're going
to have to do something different here. And this again
(34:16):
Farley I think correctly surmises. He says, Look, this is
an existential threat.
Speaker 3 (34:22):
It is just like Toyota was two or three decades ago.
Speaker 2 (34:26):
More so could BA more so, and how they deal
with this is going to be I think what determines
where Ford and other US based automakers are five ten
years from now.
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Speaker 3 (35:47):
Chuck, do you find it interesting that this piece was
I mean, this piece contains interviews with you know, higher
ups at Ford currently, it's not all former executives.
Speaker 2 (35:56):
What does it tell you.
Speaker 3 (35:56):
That I mean Farley Maybe I'm not sure he didn't
write the piece, but he clearly allowed for this information
to get out that Ford feels well behind the eight
ball when it comes to competition with China.
Speaker 2 (36:10):
What does that tell you that Ford wants higher tariffs
on China EV's coming into the country. Yeah, there's always
a motive behind this. It's why am I reading this now?
Companies don't generally put out something that paints them as
being in a you know, kind of not great spot voluntarily, right,
And so you say, Okay, why am I reading this now?
(36:31):
And ultimately it's probably to try to build pressure for
tariffs on Chinese vehicles coming into the United States.
Speaker 3 (36:39):
Which I think is of all the arguments that I've
seen for them, among.
Speaker 2 (36:43):
The worst.
Speaker 3 (36:46):
Like pretty good arguments that I can think of, like, hey,
you don't want vehicles spying on you don't want this,
that and the other. The argument of we can't compete
because they are so much better at this than us
is not a great argument.
Speaker 2 (36:56):
No, if ultimately someone built a product better than you
at a cheaper cost, and you shouldn't be in business,
you deserve to lose. Yeah. Now, if you want to say, hey,
the only reason they can build that product at that
cost is because of giant state subsidies and it's not
a level playing field, Okay, let's let's talk about that.
(37:16):
Good argument, but not what this piece is about. The
argument in this piece, and again they interviewed Jim Farley
for this, and it was these cars are too good
and we've got to do better. Yeah. The argument was not, hey,
these cars are too good because they're being funneled billions
of dollars by the Chinese government. Okay, that that's a
more reasonable argument that it's not a level playing field,
(37:38):
as opposed to, well, they got heated armress, how are
we going to do that? But why do you need
a heated armrest? Now? Arms get cold? Chuck, You know
nobody you ever heard of. My arms are chili. The
elbow has like no nerves in it on the outside.
It doesn't even feel anything. You can pinch it and
squeeze as hard as you want and nothing even happen.
Speaker 4 (38:00):
I do like the steering wheel warmer, yes.
Speaker 2 (38:02):
Because there are lots of nerves in your hands.
Speaker 4 (38:05):
It's nice in the winter.
Speaker 2 (38:06):
It's wonderful. I don't disagree. I finally, my my outback
has one of those now, and it's.
Speaker 4 (38:10):
Like a warm blanket.
Speaker 2 (38:12):
I don't debate that.
Speaker 3 (38:13):
Most of the features that are brought up in these
things to me sound completely unnecessary, such as large. They
had one of large touch screens with hand gestures that
will track others, that will turn on your lights when
you get home.
Speaker 2 (38:25):
They won.
Speaker 3 (38:26):
I think it was like in a coss Oil's diffuser. Yeah,
essential oils difuser in the car.
Speaker 2 (38:31):
Why do I need? Why do I want that? Yeah?
Speaker 3 (38:33):
I agree that I don't need any of these things.
But to Farley's point, there aren't any automakers even toying
with it, so yeah, there's some innovation going on in China.
Speaker 2 (38:45):
Why do I need ambient lighting with one hundred and
twenty eight colors? Well? Have you ever been in cash
Gap and wouldn't massage seats just put me to sleep
while driving? Well, it's for your passengers. I don't know.
Why do I want them to be that comfortable? You
gotta stay awake on the road. Guys. Let's take a
quick break here. We got our two coming up in
(39:06):
just a little bit.
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