July 7, 2025 • 38 mins
Mike Armstrong and Marc Fandetti explain how Trump's megabill will and won't change your taxes. How does the megabill impact the deficit? Trump faces crucial week for reaching trade deals. The job market is humming? Is this as good as it gets?
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(00:43):
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(01:07):
and Mark Vandetti.
Speaker 2 (01:10):
Good morning and welcome back to the Financial Exchange. Hope
everyone had a great Independence Day weekend. Fantastic weather here
across New England at least, But obviously heart's going out
this morning to Texas and the devastating loss of life
there eighty one known dead in Texas floods. Anyone that
(01:32):
listens to the program closely enough probably is aware that
I'm the father of a few daughters and that story
hit particularly close to home with a summer camp being
hit pretty hard by those floodings. So you know, obviously
heart's going out to those with connections to that area
of Texas and the just absolutely devastating loss of life
over the weekend. But nonetheless, I hope everyone did have
(01:53):
a nice time away from work and a little bit
time to hit the reset button. It is Mike Armstrong,
Mark Fandaddy and Tucker Silva with you on a Monday
morning where we've got equity markets in the red. On
announcements over the weekend. Regarding trade, we are expecting some
announcements of deals from Treasury Secretary Besant. We're also going
(02:15):
to be diving in there because it looks like there
is a new tariff deadline updated from the one coming
this Wednesday. But also over the long holiday weekend, we
had the signing of the big beautiful Bill Act. And
so now that it's actually lawmark, I think we can
spend a little bit of time there anything else catching
(02:37):
mark your eye this morning in markets?
Speaker 3 (02:39):
Now, let's get into it.
Speaker 2 (02:41):
So we had this thing past, and to be clear,
the big sweeping change from this bill, if you take
a look at it from a I think general financial perspective,
is that tax rates don't snap back to where they
were pre twenty seventeen. What this bill really does is
locking in a lot of the changes that were made
(03:02):
in twenty seventeen that we've all been operating under for
the last eight years or so. And if you're looking
at you know, the deficit effect of this bill, if
you're looking at you know, any of the real financial impact,
it is that because the laws on the books were
that tax rates were going to change substantially come January one,
(03:23):
twenty twenty six for most Americans, most Americans would have
seen their tax rates go up. This bill prevents that
from happening and then carves out a whole bunch of
additional things on top of that. And we'll get to
the deficit impact and financial impact of this bill later,
but I want to start with some of the facts
of what is actually changing here. I already mentioned. You know,
(03:45):
twenty seventeen tax cuts are permanent. The standard deduction is
now locked in and permanent, which means for a married
couple it's going to be thirty one five hundred and
twenty twenty five child tax credits. The state taxes, all
of which would have changed in twenty twenty six without
the passage of this bill, are now locked in and
(04:06):
pretty permanent. And so you know, for instance, any concerns
about the estate tax dropping down to seven million dollars,
which it would have done in twenty twenty six, that's
the exemption how much you can have before facing a
FEDERALI State tax now still locked in at nearly fourteen
million for this year, increasing to fifteen million for next year.
A few things that are changing for this new tax bill.
(04:29):
One an expansion of the state and local tax deductions.
We were going from ten thousand dollars now up to
forty thousand dollars for the vast majority of Americans. Mark
and I were talking about this a little bit last week.
A lot of the changes to these tax codes benefit
directly folks in high income left leaning states, and the
(04:52):
salt cap change is one of those. So if you
earn less than half a million dollars per year, your
new CA app on state and local taxes is going
to be forty thousand dollars, which is a pretty significant
increase in deduction. We'll talk about some of the effects
of that, but the first things first, that is a
big change. We're going to now get a new special
(05:15):
charitable deduction. Anybody that's been aware of filing their own
taxes over the last few years has probably noticed that
their accountant doesn't ask them to put together any of
their charitable deduction donations or interest deductions because most people
end up taking the standard deduction when they file their taxes.
That has changed with this because now you're still going
(05:38):
to get that large standard deduction, but you can also
get an above the line additional deduction for charitable contributions
one thousand dollars per individuals a two k for a
married couple in charitable deductions that you can take off
of your return. That's a change from where we were before.
So security this is another new change. You are not
getting what was talked about on the campaign of no
(06:00):
tax on Social Security, but you are getting a workaround
that accomplishes a lot of the same thing. Effectively, if
you are sixty five years or older, you are going
to get a special six thousand dollars per person deduction
with up to for up to one hundred and fifty
thousand dollars in joint income. So again, if you're a
married couple here, you're going to get a new twelve
(06:22):
thousand dollars deduction so long as your total income doesn't
exceed one hundred and fifty grand. Again, most people are
going to be able to deduct this, so most people
you know, in effect, are going to avoid the taxes
on their Social Security income. But that's not what was done,
and there was an email sent from the soci Security
Administration that confused this subject even more. But to be clear,
(06:43):
that's what seems to be happening with this bill. UH
taxes on tips, on overtime, both of those, you're going
to get a new deduction. How they sort all this
out and how the employer reports it as an open question.
But if you make less than three hundred thousand dollars
and work in certain into trees only, you're going to
be able to deduct both tips income as well as
(07:04):
overtime income, effectively making twenty five thousand dollars if you're
again married filing jointly here of that income tax free.
And then one last piece here that I saw as
a change to the overall tax code was that the
there's gonna be a new deduction available to folks for
car loan interest of up to ten thousand dollars. My
(07:26):
question on that is most people probably won't end up
taking it because of the large standard deduction that's already
in place, but nonetheless that's a new piece that's in here.
So I guess one thing that this bill probably does,
which is a bit annoying for folks, is you probably
end up starting to itemize your deductions again after eight
years of not needing to because that standard deduction was
(07:48):
so much larger than everything else. Mark, I think I've
covered most of the changes to the overall tax code
that people are going to find significant. There are others.
There are faster phase outs for green energy credits and
new things when it comes to five twenty nine's, but
mainly those I think six big changes Salt, charitable, social
(08:10):
Security tips over time, and car Loan interest are the
big new things going into place with this tax bill
so far as I could tell, Did I miss anything?
Speaker 3 (08:19):
Did you miss anything? Possibly?
Speaker 1 (08:22):
I haven't.
Speaker 3 (08:23):
I haven't scoured it to be perfectly candid, but it
sounded damn thorough to me, Mike.
Speaker 2 (08:28):
So there's a lot that is changing with this tax bill.
But as I've put before, the biggest changes are simply
that tax rates are not going to get completely upended
come twenty twenty six compared to where we were post
twenty seventeen. More to come on how this applies to
each individual, but I think some things are pretty clear.
(08:48):
Retirees getting a big gift with this. Some folks in
certain industries such as tipped industries and heavy overtime industries
will be getting some increases, but we have some stuff
to work out in terms of who's actually eligible for that,
because it sounds like it's going to potentially be industry specific.
Those are the big changes to all of this. Everything
else is kind of work around the edges. But if
(09:10):
you are retired here in New England in a high
income tax state, yeah, there are some pretty significant new
changes that are going to benefit you specifically when it
comes to all of this, I do want to take
a quick break when we come back. We should get
back into this tax bill before we move on to
trade and just talk about the deficit effect because it
(09:33):
is been getting a lot of play over the last
several months. We don't have bond markets freaking out by
any stretch of the imagination this morning, but I do
want to talk about what this does to deficits over
the coming decade before we lead into terra so quick break.
We'll be talking about that next here on the Financial Exchange.
Speaker 1 (09:50):
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Speaker 4 (10:22):
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Speaker 2 (10:54):
Tucker will be continued to discuss the Big Beautiful Bill
Act in the changes to the tax code, kind of
weaving our way throughout the show. If folks have questions,
can you read off the text line for me again?
Speaker 4 (11:06):
Sure?
Speaker 2 (11:07):
Yeah, pretty sure, I have it, but I don't want
to give the wrong.
Speaker 4 (11:08):
Number text line to the Financial Exchange six one seven
three six two thirteen eighty five.
Speaker 2 (11:15):
So you know, acknowledging here for a moment that neither
Mark nor myself are our CPAs or you know, tax
experts here. Feel free to text the show with questions
about the Big Beautiful Bill and how it might affect you,
and we'll we'll do our best to dig in. But Mark,
as we go along here, the I think the most
recent read from the Congressional Budget Office was that the
(11:38):
Senate package that was voted through was going to add
about three point three trillion dollars in budget deficits over
the next decade. A lot has been called out about this,
making headlines about it. We've got the dollar falling this
year and a lot more deal being made out of
deficits than most any time that I recall in the
(11:59):
last few years. How likely in your mind, I guess,
is it that this is some form of catastrophic moment
as we speak.
Speaker 3 (12:07):
Well, yeah, there was already very high potential for upheaval
over the next ten years. This bill doesn't help things, Probably,
it's not. It doesn't contain any incentives to increase the
supply of labor, for example, or improve productivity or anything
like that. Its proponents would argue it does, but those
arguments aren't bought by most serious people. It probably won't
(12:31):
add much to the deficit as it currently stands. When
they the Tax Foundation and Committee for Responsible Federal Budget
and Congressional Budget Office, and dozens of other independent researchers
and think tanks that have looked at this, they've all
come to the same conclusion that the deficit relative to
what it would have been before the twenty seventeen Jobs
(12:54):
Taxing Jobs Act was enacted, will be higher. They're using
that as the baseline. You might find fault in that.
You might say, well, what I care about is what
the deficit is going to do relative to what it's
done over the last twelve months, and by that reckoning
may not grow that much. Others would put. People on
the other side of that argument would say, well, wait
a second, you never accounted for the deficit increasing effects
(13:15):
of the twenty seventeen Act, So by that logic, we
could just continue to pass these suckers every few years
and none would ever add anything to the deficit, because
you're always raising or lowering, depending on your point of
view the bar So, Mike, the situation was dire before this.
It's certainly not any better now. To your point, capital
markets have yet to react by, for example, pushing up
(13:37):
interest rates. The dollar's gone down. I suspect that's because,
at least through last Thursday, participants thought that the Fed
was going to have to ease rapidly in response to
a slowing economy. The unemployment numbers we got last week
belied that idea. So the dollar going down may not
have anything to do with fears of an increased deficit.
Speaker 2 (14:00):
I think part of the problem that I see is
we have a bit of a boy who Cried Wolf
scenario when it comes to the deficit, right. I mean,
there have been people writing about the end of the
world as we know it with the United States dominance
due to deficits, and we've continued to run them now
for twenty five years with no Yeah, I would describe
it as no meaningful and noticeable impact to the average American.
(14:24):
Do you think that's fair. I don't know.
Speaker 3 (14:26):
I don't know what. You can't run the so called counterfactual,
meaning I don't know how history would have evolved had
that not happened. I suspect these deficits have put in
the cumulative a debt has put some upward pressure on rates.
We did it at the right time. There was a
glut of global savings and inflation was low. The thing
about the boy that cried wolf is nobody ever reads
(14:47):
the sequel, and the sequel the wolf arrives and ate
him and his family. So he was right. I'm kidding.
There is no sequel, but I could imagine one in
which that happens. We all have the smoker in our family,
the overeater who says, yeah, I've been doing this for years,
hasn't hurt me yet. And I don't know why I
made them a man or a Yankee. But anyway, no offense,
no offense, you know what I mean? Some Yahoo who
(15:10):
thinks they can defy the laws of healthy living, they
get their come up. And this is my point. At
some point there will be a debt reckoning. I just
don't know when it is and what the trigger will be.
It might be six months from now, six years, or
a decade from now.
Speaker 2 (15:28):
I could believe any of those. I could believe longer.
Let's then less focus on Let's not focus on the time,
because nobody has any of the time, any idea on
the time. Talk to me about the mechanics of how
funding deficits actually works and how it hypothetically could play
out here that could be deficittions. We have seen other
countries go through this devastation and you know, leave permanent
(15:50):
scars in the state of their economies. What are the
mechanics for how why deficits actually matter?
Speaker 3 (15:56):
Well, it's sometimes it is optimal for a country to
default take it on the chin and do a reset.
Argentina is an example, and others like Greasive effectively defaulted
and they've come out okay. So it's not the end
of the world for a smaller economy. It's unclear what
the economy the currency for which is the world's reserve
(16:19):
currency and the sovereign debt. In our case, treasuries represent
the world's benchmark and bed rock asset class. What the
implications of having to print money to pay off the debt,
i e. Inflating it away, which we've done before. By
the way, we did it after World War Two, we
did it after. We've done it after just about every war.
(16:39):
In fact, civil war, a war of independence, we always
inflate dead away, so that's going to happen to an extent.
Inflating dead away is like defaulting on it. Alternatively, you
could do a combination of inflating dead away and raising taxes.
That's what the North did during the Civil War. I
know we're going back a while, but we're pretty good credit,
(17:00):
so we don't have many examples in this country. I
think the price level inflation that is well. No, the
price level doubled in the North during the Civil War,
but in the Confederacy it went up by four thousand.
If you can imagine that, that tells you that the
North both raised taxes and printed a little bit of
money to finance the war. The South had no tax
(17:20):
base to tap. So that's the sort of tale of
two different approaches to taking care of a big debt burden. Mike,
I don't know what the implications are of our current
level of debt. I'm sure they're not good. I just
don't know what types of choices will be made increasing
(17:41):
taxes by a lot versus inflating it away, versus both
hoping for a growth miracle like our Treasury secretary seems
to be banking on, which is absolutely reckless. That's like
saying I'm gonna eat a whopper every day. I'm just
gonna assume they're gonna invent a pill to take care
of whatever maladies result. That's reckless and stupid. He's not serious.
(18:02):
There are serious people, and they'll admit they don't really know.
Speaker 2 (18:06):
I think the dangers when it comes to deficits and
any sort of bill that you pass is you know,
you take a look at what I just covered in
terms of tax changes and there are very few people
that can look at that series of things and say
that they don't benefit at all from it. I bet
I certainly personally benefit from the changes that were just
passed over the weekend. Of these tax changes that are
(18:28):
going into effect. You know, maybe some green energy companies
are going to struggle a little bit more. Maybe you know,
GM isn't going to be able to sell as many
of their new Hummer evs that they were hoping to.
But most individuals are going to benefit from this tax
bill financially, at least in the short term. That's precisely
the political danger of all of this is the politics
(18:50):
that have dominated the last twenty five years have been
give people money and they vote you back into office. Yeah,
and that's I think what are electeds are dealing with is, Hey,
if you're not in power, then just criticize the bill,
criticize it for its deficit effect and uh and you
know that's a bipartisan.
Speaker 3 (19:09):
Yeah, you know, we should, like we should talk about
the idea that people are forward looking. They'll assume their
taxes are going to go up at some point or
they're going to have to save because there's going to
be some fiscal calamity, it could offset some of the
benefits of that. If there's time in the next hour,
maybe we should talk about that quick break.
Speaker 2 (19:24):
We got to take a break for Wall Street Watch.
That's coming up next, and now we're talking trade deals.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter. Acts
TFE show Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch. A complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:00):
Traders returning from the July fourth holiday and shifting their
attention from taxes to tariffs with President Trump's July ninth deadline,
although the administration officials have signaled the new August first
deadline is a possibility. Right now, Dow is off by
two hundred and twelve points, about half a percent lower.
(20:21):
Sm P five hundred also down about half a percent
or thirty points. Nasdaq is off by six tenths of
one percent, or one hundred and thirty four points. Russell
two thousand is off four tenths of one percent. Tenure
Treasure reeled up three basis points this morning at four
point three seven percent. In crude oil up about nine
(20:41):
tenths of one percent, trading at sixty seven dollars in
fifty nine cents a barrel. More tensions between Tesla's CEO
Elon Musk and President Trump after Musk said he would
form a new political party called America Party, with Trump
calling it ridiculous. Tesla shares are sinking by seven percent. Meanwhile,
oorc well down by two percent after the company said
(21:02):
it is slicing the cost of its database software and
cloud computing service for the government, making it the largest
tech giant to offer the Trump administration a significant discount
on services elsewhere. New data from research firm Counterpoint found
that iPhone sales in China grew for the first time
in two years last quarter, but not enough to overtake
(21:23):
local rival Huawei. Apple shares are off by about half
a percent. Shell said it expected weaker gas trade. It
expected weaker gas trading would hurt quarterly earnings. That stocked
down by two percent. Constellation Brands upgraded to buy from
Hole that Jeffreys, citing its wine business that is turning profitable,
(21:43):
strong cash flows as well as buybacks. Constellation shares are
mostly flat today and later this week. On Thursday, Delta
Airlines will kick off second quarter earning season. I'm Tucker Silvan.
That's Wall Street Watch.
Speaker 2 (21:58):
I'll tell you, Mark, I don't know that there has
been ever someone less popular to represent the creation of
a new political party. But we'll see what Elon Musk
is able to pull off with this. He's managed to
make just about everyone angry. So uh, we'll see how that.
Speaker 3 (22:14):
He seems to be a man of principle, though I
bet I agree he went off the rails a little bit,
but he seems to be acting just on principle here.
It might be a little bit of self interest in
that he's losing some of the credits which account for
a disturbingly large continue to account for a disturbingly large
portion of his company's revenue and income are going away
(22:35):
under the new bill, Mike, But otherwise he seems genuinely concerned.
Speaker 2 (22:39):
I thought, I've thought about train wreck. I've thought about
this a fair bit. Mark, I do agree with you. You know,
if he was genuinely concerned about the phase out of
green energy tax credits, he could have supported Kamala Harris
and her run for president.
Speaker 3 (22:53):
Or he could have gone he could have gone back
to the president on his knees and grobbled and said,
could you make these? Can you insert these? The president
would have probably because I don't think the president. The
president's just a pragmatist. He doesn't really care. He didn't
do that, though, so I'm I've always been torn about Elon.
I respect his I'll call it genius, even though it's
(23:13):
overused and not quite the right term. I respect his
entrepreneurial drive yep. At the same time, he's a little
bit whimsical, which is weird. So if I were a shareholder,
I'd be concerned about that. But again, in this instance,
this is not something he needs. People always say about
the President. He doesn't need this. He's already a billionaire. Fine,
(23:34):
I'll give you that, nor does Elon. So why assume
good intentions on the part of say, the President, And
I think that's okay. He's doing this out of a
love for his country. Why assume Elon is not unless
you know them both personally and you have reason to
take it at his value.
Speaker 2 (23:51):
I don't think. But I don't think he's doing anything
out of self interest here, nor do I think he
is trying to make the country worse by any stretch.
I just think that he has managed to make everyone
upset with him.
Speaker 3 (24:05):
Yeah he has, well, you know, he's he's abrasive. It's
a lot of very successful people, I guess are But you.
Speaker 2 (24:14):
Know what, you could probably say the same thing about
Donald Trump ten years ago, and so there you have it.
Who knows. Let's move on here to trade deals and
what we are seeing here. So we have a self
imposed deadline of this Wednesday to have trade deals with
hundreds of nations worked out over the weekend. The President
(24:37):
implied that the first tariff collection date wouldn't be until
August first, which again we're splitting hairs here, but that
seems to me to extend the deadline now to August
first for a trade deal to get negotiated if you're
not going to be collecting any of the revenue to
revenue until August first. Anyway, if we are to use
(24:58):
the Vietnam dear is some sort of framework, which I
guess you have to given that it's pretty much all
we've got. It's I guess you've got the UK as well.
So if we use those two deals as the framework,
it would seem to me that we're likely to land
at teriff rates globally on imports into the United States
(25:20):
of between ten and twenty percent, kind of a minimum
of ten, with specific industry carve outs and some exceptions.
But I don't know how to look at this any differently.
If I'm trying to price in or estimate where we
are going to be knowing that, you know, I could
be way off based on all this, and maybe some
countries are going to be facing forty some odd percent.
(25:41):
But in terms of large trade blocks, I have a
tough time believing that any of them are going to
face well over twenty percent when it comes to their
ultimate teriff rate of products coming into the US. Any
other insight than that mark when it comes to this.
Speaker 3 (25:55):
No, these deadlines are obviously a joke. They keep getting extended.
There's no obvious, no obvious strategy behind it. It seems
like the President wakes up on it, and this has
worked for him historically. It's it's how he does business.
Wakes up, wants something, goes out and blusters and maybe
he gets it, maybe he doesn't. That's devastating though, for
economic uncertainty. Not to mention the fact that any of
(26:16):
these we had a NAFTA, a Free Trade agree in
between the US and Canada and the US and Mexico
dating back to nineteen ninety three. President comes in office
the first time redes that deal. They sign up for it,
Mexico and Canada do. So we've got us Mexico Canada Act,
whatever it was called. It gets an office again. Yeah,
gets an office again. Not happy with that for some reason.
(26:39):
The point here is, can you trust us that we
won't sort of change our minds six months into this
if it's say, not working, or if political if the
political winds shift again. I don't know why any country
would want to do business with somebody who routinely tears
up the agreements they made only four years ago. It's
(26:59):
the uns certainty that this engenders, Mike, and the helter
skelter nature of the strategy such as it is over
the past six months, is just another manifestation of it.
It's the uncertainty that this instills that's really potentially bad
for economic growth in the long run.
Speaker 2 (27:18):
So I've been asked, you know, dozens of times by colleagues, friends, clients,
you know, all this spring, like, what is the rest
of this year kind of play out to look like?
And my answer was kind of like, you know, by
this summer and fall, are we continuing to talk about
piecemeal trade strategy and tariffs or are we moved on
(27:39):
to something else? Right? Are we moved on to earnings?
Are we moving on to the you know, tax bill
that needs to get passed? What is the focus of
the American public? And the answer seems to me to
be that, hey, we passed the tax bill, we got
a good jobs report, and the President immediately shifted this
focus back to trade, which is right, frankly, a core
(27:59):
ten of the MAGA push. Right like that is a
core tenant of the MAGA pushes increased tariffs in order
to benefit the US labor market and push manufacturing, which
I think has a lot of flaws to that argument
in the first place, which I'm sure you're just jumping
to get in on. But this seems to be the
(28:20):
new push coming from the White House now that this
stuff is in the rear view mirror, and I think
that that very well could inject a fair bit of
volatility into things.
Speaker 3 (28:29):
I think the real operating principle here is they need
to be the center of attention, no offense. It's just
this is reality TV translated into politics, dominate the news.
It's a strategy. I'm not criticizing it. It's his strategy.
So if you could do that via tariffs, he'll do
it via tariffs. The economy is collateral damage. The central
objective is to remain the center of attention, dominate people's minds,
(28:51):
and right now tariffs are a vehicle for doing that.
Tomorrow it might be the tax code.
Speaker 2 (28:56):
Again.
Speaker 3 (28:56):
I wouldn't doubt at all if this tax bill got
ripped up in a year and we have something entirely new.
It's whatever keeps the focus on him as an energetic,
seemingly energetic policy maker. Everything else is just any damage
is just sort of collateral economic damage.
Speaker 2 (29:12):
Regardless of you know, my own personal view on terraffs
as a successful economic strategy, it does seem to me
that very few countries other than China are going to
have a lot of success in negotiating with the United States.
I mean, I take a look at countries in the
European Union. If they were really interested in mounting in
(29:32):
opposition to the presidents in his terrort strategy, they would
be working together rather than you know, calling out Spain
and you know, approaching things one by one, right, if
the EU really wanted to pull the leverage card in
the same way China has, you would go and take
a look at big American tech companies and basically tell
them that they can't operate here if we're going to
(29:53):
continue negotiating these terrafts. They haven't done that, and that,
to me insinuates that we are going to get some
deals signed here. China was the only one that I
could really come up with to say, Okay, yeah, they've
got this leverage over these critical materials that go into
everything we make, and therefore you kind of have to
play nice in the sandbox. But I don't know. I
(30:14):
don't know what that is for Brazil. I don't know
what it is for South Korea, for for for you know,
much of the European Union. I don't know what that
you know that what that ace in the hold is
for India. And so therefore I think the easiest conclusion
for me to come to is that, yeah, we do
get some form of negotiated deals rather than some big
(30:36):
escalation like we've seen with China, which again, is that
good for the American consumer? Is that good for American employment?
I don't think so. But I also am seeing a
path here where maybe you have more certainty than we
do now a couple months from now. If I'm wrong,
and God knows, I've been wrong several times before, could
(30:57):
we get back to where we were on April second
of the Yeah, quite possibly. And I think we all
remember how that was going.
Speaker 3 (31:03):
I mean, Mike, our threats aren't credible. They'd amount to
economic suicide. So they're counting on us chickening out at
the last minute, and so far they've been right to
do so. These deadlines, for example, keep getting extended. I've
lost count of how many lines in the sand we've
drawn on trade.
Speaker 2 (31:17):
Let's take a quick break. When we come back, I
want to head back to the job market and the
job report that we got late last week. It was
a big shift in the narrative. So we're gonna be
talking jobs next on the Financial Exchange.
Speaker 1 (31:32):
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Speaker 2 (31:52):
Mark with the long mark with the long holiday weekend
we got last weeks last month jobs report on Thursday
of last week. We both had the long weekend to
digest this a little bit further. I'll hit the headlines again.
The unemployment rate.
Speaker 3 (32:08):
Wait, we were supposed to be thinking about that.
Speaker 2 (32:11):
Yeah, you didn't spend your entire time thinking through. I
know you did. Don't lie to me. The unemployment rate
crept down actually to four point one percent. The number
of jobs created came in at one hundred and forty
seven thousand new jobs, and Jonathan Levine in Bloomberg Today
(32:33):
has has us asking why this is all bad news?
So and the crux of his argument is what that
half the jobs were from state and local government, so
it's actually not a big deal. What's the crux here?
Speaker 3 (32:51):
I'm not sure I read that particular comment, Mike, but
I can tell you that some people have pointed out
that wage growth was slow, so I'll skip I'll just
skip around the report a little bit. Others have taken
issue or have pointed out, as you said, that many
of the jobs were state or government jobs, not federal
but state local jobs. Payroll growth has slowed down. The
(33:14):
average is a lot lower this year, to forty fifty
thousand per month than it was, say, two years ago,
so it's been slowing over the past couple of years.
So there are chinks in the armor of the labor market.
That said, unemployment remains very very low. Anything in the
fours or even fives by historical standards is quite healthy.
(33:36):
Wage growth has been reasonably strong over the past year,
close to four percent. That could be a problem for
inflation or not. That depends on other factors. We're not
going to get into that right now. Vacancies which we
talk about separate report, but vacancies are high relative to
the number of unemployed people. They've come down a lot,
but they're still quite high relative to their historical level.
So by a lot of indicators, Michael, labor market is
(33:57):
still going strong. That's said, it is a lot indicator,
and it'll be the last, sure, it'll be the last
to show any cracks in the economic facade.
Speaker 2 (34:07):
Yeah, I don't think that to get a good read
on the labor market, I would want to turn towards earnings,
for example, or somewhere else. I mean, this government data
that we get on the state of the labor market
is going to be the best indicator of where things
are in the most recent month. And frankly, you know,
I think journalists especially and maybe economists to some degree
(34:28):
as well, they get an idea in their mind and
they want to fit the fit the data, to fit
the narrative in many cases, and I think we have
a lot of that going on over the last few days,
which is the narrative dominating headlines was that the labor
market is slowing, the job growth, this slowing, unemployment is
ticking up, and this report in many ways directly contradicted that. Yeah,
(34:53):
a lot of the jobs were government jobs. Yeah, the
unemployment rate ticked down more because people left the workforce
rather than a whole bunch of jobs created. Those things
are all true, But you would have a very tough
time convincing me that this employment report is justifying a
rate cut or indicative of a really loose condition for
(35:15):
you know, for you for inflation. Right. I mean, this
all indicates to me that the Fed's doing the exact
right thing by holding rates where they are and speaking
the way they are about tariffs and rates.
Speaker 3 (35:25):
We've become really used to the Fed acting preemptively to
head off a recession, to forestall a downturn. Historically, it
didn't do that. It waited because you don't know until
after the fact that the economy has slowed. Nobody does.
We are many of our impression of what the FED
should do was formed in the crucible of two thousand
(35:46):
and eight, two thousand and nine, when it was obvious
everything was crashing, even if the data didn't show it yet,
or perhaps two thousand and one, when the market had
crashed and that had everybody freaking out because household wealth
was composed like fifty percent of stocks at that point.
So the FED acted a little bit preemptively before the
recession actually arrived. So in the past generation or so,
(36:08):
the FED has acted preemptively and they've been right for
the most part. COVID is another Great is another example,
another obvious one, but this is more of a routine
business cycle. The FED has to now decide whether or
not that the forces pushing up inflation are more worrisome
than those pushing down employment.
Speaker 4 (36:29):
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Speaker 1 (37:26):
The proceeding was paid for and the views expressed are
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or Armstrong Advisory may contact you offering legal or investment services.
Cushing and Armstrong do not endorse each other and are
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Speaker 2 (37:37):
On Thursday of this week, we'll have Delta Airlines kicking
things off for earning earnings seasons amidst a general weakening
of the airline and travel sector. We will next week
have the kickoff of big bank earnings on Tuesday with
Let's see I Believe it's JP, Morgan Chase going wells Fargo, Blackrocks,
City Group, before big tech name start reporting towards the
(38:01):
end of July. So amidst all the trade stuff, amidst
all the tax changes, We'll also have earning season kicking
off here this week, so stay tuned. Markets in negative territory,
we'll have a full recap and more for you next
The Financial Exchange is produced by Money Matters Radio and
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and Mark Vandetti.
Speaker 2 (01:10):
Good morning and welcome back to the Financial Exchange. Hope
everyone had a great Independence Day weekend. Fantastic weather here
across New England at least, But obviously heart's going out
this morning to Texas and the devastating loss of life
there eighty one known dead in Texas floods. Anyone that
(01:32):
listens to the program closely enough probably is aware that
I'm the father of a few daughters and that story
hit particularly close to home with a summer camp being
hit pretty hard by those floodings. So you know, obviously
heart's going out to those with connections to that area
of Texas and the just absolutely devastating loss of life
over the weekend. But nonetheless, I hope everyone did have
(01:53):
a nice time away from work and a little bit
time to hit the reset button. It is Mike Armstrong,
Mark Fandaddy and Tucker Silva with you on a Monday
morning where we've got equity markets in the red. On
announcements over the weekend. Regarding trade, we are expecting some
announcements of deals from Treasury Secretary Besant. We're also going
(02:15):
to be diving in there because it looks like there
is a new tariff deadline updated from the one coming
this Wednesday. But also over the long holiday weekend, we
had the signing of the big beautiful Bill Act. And
so now that it's actually lawmark, I think we can
spend a little bit of time there anything else catching
(02:37):
mark your eye this morning in markets?
Speaker 3 (02:39):
Now, let's get into it.
Speaker 2 (02:41):
So we had this thing past, and to be clear,
the big sweeping change from this bill, if you take
a look at it from a I think general financial perspective,
is that tax rates don't snap back to where they
were pre twenty seventeen. What this bill really does is
locking in a lot of the changes that were made
(03:02):
in twenty seventeen that we've all been operating under for
the last eight years or so. And if you're looking
at you know, the deficit effect of this bill, if
you're looking at you know, any of the real financial impact,
it is that because the laws on the books were
that tax rates were going to change substantially come January one,
(03:23):
twenty twenty six for most Americans, most Americans would have
seen their tax rates go up. This bill prevents that
from happening and then carves out a whole bunch of
additional things on top of that. And we'll get to
the deficit impact and financial impact of this bill later,
but I want to start with some of the facts
of what is actually changing here. I already mentioned. You know,
(03:45):
twenty seventeen tax cuts are permanent. The standard deduction is
now locked in and permanent, which means for a married
couple it's going to be thirty one five hundred and
twenty twenty five child tax credits. The state taxes, all
of which would have changed in twenty twenty six without
the passage of this bill, are now locked in and
(04:06):
pretty permanent. And so you know, for instance, any concerns
about the estate tax dropping down to seven million dollars,
which it would have done in twenty twenty six, that's
the exemption how much you can have before facing a
FEDERALI State tax now still locked in at nearly fourteen
million for this year, increasing to fifteen million for next year.
A few things that are changing for this new tax bill.
(04:29):
One an expansion of the state and local tax deductions.
We were going from ten thousand dollars now up to
forty thousand dollars for the vast majority of Americans. Mark
and I were talking about this a little bit last week.
A lot of the changes to these tax codes benefit
directly folks in high income left leaning states, and the
(04:52):
salt cap change is one of those. So if you
earn less than half a million dollars per year, your
new CA app on state and local taxes is going
to be forty thousand dollars, which is a pretty significant
increase in deduction. We'll talk about some of the effects
of that, but the first things first, that is a
big change. We're going to now get a new special
(05:15):
charitable deduction. Anybody that's been aware of filing their own
taxes over the last few years has probably noticed that
their accountant doesn't ask them to put together any of
their charitable deduction donations or interest deductions because most people
end up taking the standard deduction when they file their taxes.
That has changed with this because now you're still going
(05:38):
to get that large standard deduction, but you can also
get an above the line additional deduction for charitable contributions
one thousand dollars per individuals a two k for a
married couple in charitable deductions that you can take off
of your return. That's a change from where we were before.
So security this is another new change. You are not
getting what was talked about on the campaign of no
(06:00):
tax on Social Security, but you are getting a workaround
that accomplishes a lot of the same thing. Effectively, if
you are sixty five years or older, you are going
to get a special six thousand dollars per person deduction
with up to for up to one hundred and fifty
thousand dollars in joint income. So again, if you're a
married couple here, you're going to get a new twelve
(06:22):
thousand dollars deduction so long as your total income doesn't
exceed one hundred and fifty grand. Again, most people are
going to be able to deduct this, so most people
you know, in effect, are going to avoid the taxes
on their Social Security income. But that's not what was done,
and there was an email sent from the soci Security
Administration that confused this subject even more. But to be clear,
(06:43):
that's what seems to be happening with this bill. UH
taxes on tips, on overtime, both of those, you're going
to get a new deduction. How they sort all this
out and how the employer reports it as an open question.
But if you make less than three hundred thousand dollars
and work in certain into trees only, you're going to
be able to deduct both tips income as well as
(07:04):
overtime income, effectively making twenty five thousand dollars if you're
again married filing jointly here of that income tax free.
And then one last piece here that I saw as
a change to the overall tax code was that the
there's gonna be a new deduction available to folks for
car loan interest of up to ten thousand dollars. My
(07:26):
question on that is most people probably won't end up
taking it because of the large standard deduction that's already
in place, but nonetheless that's a new piece that's in here.
So I guess one thing that this bill probably does,
which is a bit annoying for folks, is you probably
end up starting to itemize your deductions again after eight
years of not needing to because that standard deduction was
(07:48):
so much larger than everything else. Mark, I think I've
covered most of the changes to the overall tax code
that people are going to find significant. There are others.
There are faster phase outs for green energy credits and
new things when it comes to five twenty nine's, but
mainly those I think six big changes Salt, charitable, social
(08:10):
Security tips over time, and car Loan interest are the
big new things going into place with this tax bill
so far as I could tell, Did I miss anything?
Speaker 3 (08:19):
Did you miss anything? Possibly?
Speaker 1 (08:22):
I haven't.
Speaker 3 (08:23):
I haven't scoured it to be perfectly candid, but it
sounded damn thorough to me, Mike.
Speaker 2 (08:28):
So there's a lot that is changing with this tax bill.
But as I've put before, the biggest changes are simply
that tax rates are not going to get completely upended
come twenty twenty six compared to where we were post
twenty seventeen. More to come on how this applies to
each individual, but I think some things are pretty clear.
(08:48):
Retirees getting a big gift with this. Some folks in
certain industries such as tipped industries and heavy overtime industries
will be getting some increases, but we have some stuff
to work out in terms of who's actually eligible for that,
because it sounds like it's going to potentially be industry specific.
Those are the big changes to all of this. Everything
else is kind of work around the edges. But if
(09:10):
you are retired here in New England in a high
income tax state, yeah, there are some pretty significant new
changes that are going to benefit you specifically when it
comes to all of this, I do want to take
a quick break when we come back. We should get
back into this tax bill before we move on to
trade and just talk about the deficit effect because it
(09:33):
is been getting a lot of play over the last
several months. We don't have bond markets freaking out by
any stretch of the imagination this morning, but I do
want to talk about what this does to deficits over
the coming decade before we lead into terra so quick break.
We'll be talking about that next here on the Financial Exchange.
Speaker 1 (09:50):
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(10:13):
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Speaker 4 (10:22):
This segment of The Financial Exchange is brought to in
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Speaker 2 (10:54):
Tucker will be continued to discuss the Big Beautiful Bill
Act in the changes to the tax code, kind of
weaving our way throughout the show. If folks have questions,
can you read off the text line for me again?
Speaker 4 (11:06):
Sure?
Speaker 2 (11:07):
Yeah, pretty sure, I have it, but I don't want
to give the wrong.
Speaker 4 (11:08):
Number text line to the Financial Exchange six one seven
three six two thirteen eighty five.
Speaker 2 (11:15):
So you know, acknowledging here for a moment that neither
Mark nor myself are our CPAs or you know, tax
experts here. Feel free to text the show with questions
about the Big Beautiful Bill and how it might affect you,
and we'll we'll do our best to dig in. But Mark,
as we go along here, the I think the most
recent read from the Congressional Budget Office was that the
(11:38):
Senate package that was voted through was going to add
about three point three trillion dollars in budget deficits over
the next decade. A lot has been called out about this,
making headlines about it. We've got the dollar falling this
year and a lot more deal being made out of
deficits than most any time that I recall in the
(11:59):
last few years. How likely in your mind, I guess,
is it that this is some form of catastrophic moment
as we speak.
Speaker 3 (12:07):
Well, yeah, there was already very high potential for upheaval
over the next ten years. This bill doesn't help things, Probably,
it's not. It doesn't contain any incentives to increase the
supply of labor, for example, or improve productivity or anything
like that. Its proponents would argue it does, but those
arguments aren't bought by most serious people. It probably won't
(12:31):
add much to the deficit as it currently stands. When
they the Tax Foundation and Committee for Responsible Federal Budget
and Congressional Budget Office, and dozens of other independent researchers
and think tanks that have looked at this, they've all
come to the same conclusion that the deficit relative to
what it would have been before the twenty seventeen Jobs
(12:54):
Taxing Jobs Act was enacted, will be higher. They're using
that as the baseline. You might find fault in that.
You might say, well, what I care about is what
the deficit is going to do relative to what it's
done over the last twelve months, and by that reckoning
may not grow that much. Others would put. People on
the other side of that argument would say, well, wait
a second, you never accounted for the deficit increasing effects
(13:15):
of the twenty seventeen Act, So by that logic, we
could just continue to pass these suckers every few years
and none would ever add anything to the deficit, because
you're always raising or lowering, depending on your point of
view the bar So, Mike, the situation was dire before this.
It's certainly not any better now. To your point, capital
markets have yet to react by, for example, pushing up
(13:37):
interest rates. The dollar's gone down. I suspect that's because,
at least through last Thursday, participants thought that the Fed
was going to have to ease rapidly in response to
a slowing economy. The unemployment numbers we got last week
belied that idea. So the dollar going down may not
have anything to do with fears of an increased deficit.
Speaker 2 (14:00):
I think part of the problem that I see is
we have a bit of a boy who Cried Wolf
scenario when it comes to the deficit, right. I mean,
there have been people writing about the end of the
world as we know it with the United States dominance
due to deficits, and we've continued to run them now
for twenty five years with no Yeah, I would describe
it as no meaningful and noticeable impact to the average American.
(14:24):
Do you think that's fair. I don't know.
Speaker 3 (14:26):
I don't know what. You can't run the so called counterfactual,
meaning I don't know how history would have evolved had
that not happened. I suspect these deficits have put in
the cumulative a debt has put some upward pressure on rates.
We did it at the right time. There was a
glut of global savings and inflation was low. The thing
about the boy that cried wolf is nobody ever reads
(14:47):
the sequel, and the sequel the wolf arrives and ate
him and his family. So he was right. I'm kidding.
There is no sequel, but I could imagine one in
which that happens. We all have the smoker in our family,
the overeater who says, yeah, I've been doing this for years,
hasn't hurt me yet. And I don't know why I
made them a man or a Yankee. But anyway, no offense,
no offense, you know what I mean? Some Yahoo who
(15:10):
thinks they can defy the laws of healthy living, they
get their come up. And this is my point. At
some point there will be a debt reckoning. I just
don't know when it is and what the trigger will be.
It might be six months from now, six years, or
a decade from now.
Speaker 2 (15:28):
I could believe any of those. I could believe longer.
Let's then less focus on Let's not focus on the time,
because nobody has any of the time, any idea on
the time. Talk to me about the mechanics of how
funding deficits actually works and how it hypothetically could play
out here that could be deficittions. We have seen other
countries go through this devastation and you know, leave permanent
(15:50):
scars in the state of their economies. What are the
mechanics for how why deficits actually matter?
Speaker 3 (15:56):
Well, it's sometimes it is optimal for a country to
default take it on the chin and do a reset.
Argentina is an example, and others like Greasive effectively defaulted
and they've come out okay. So it's not the end
of the world for a smaller economy. It's unclear what
the economy the currency for which is the world's reserve
(16:19):
currency and the sovereign debt. In our case, treasuries represent
the world's benchmark and bed rock asset class. What the
implications of having to print money to pay off the debt,
i e. Inflating it away, which we've done before. By
the way, we did it after World War Two, we
did it after. We've done it after just about every war.
(16:39):
In fact, civil war, a war of independence, we always
inflate dead away, so that's going to happen to an extent.
Inflating dead away is like defaulting on it. Alternatively, you
could do a combination of inflating dead away and raising taxes.
That's what the North did during the Civil War. I
know we're going back a while, but we're pretty good credit,
(17:00):
so we don't have many examples in this country. I
think the price level inflation that is well. No, the
price level doubled in the North during the Civil War,
but in the Confederacy it went up by four thousand.
If you can imagine that, that tells you that the
North both raised taxes and printed a little bit of
money to finance the war. The South had no tax
(17:20):
base to tap. So that's the sort of tale of
two different approaches to taking care of a big debt burden. Mike,
I don't know what the implications are of our current
level of debt. I'm sure they're not good. I just
don't know what types of choices will be made increasing
(17:41):
taxes by a lot versus inflating it away, versus both
hoping for a growth miracle like our Treasury secretary seems
to be banking on, which is absolutely reckless. That's like
saying I'm gonna eat a whopper every day. I'm just
gonna assume they're gonna invent a pill to take care
of whatever maladies result. That's reckless and stupid. He's not serious.
(18:02):
There are serious people, and they'll admit they don't really know.
Speaker 2 (18:06):
I think the dangers when it comes to deficits and
any sort of bill that you pass is you know,
you take a look at what I just covered in
terms of tax changes and there are very few people
that can look at that series of things and say
that they don't benefit at all from it. I bet
I certainly personally benefit from the changes that were just
passed over the weekend. Of these tax changes that are
(18:28):
going into effect. You know, maybe some green energy companies
are going to struggle a little bit more. Maybe you know,
GM isn't going to be able to sell as many
of their new Hummer evs that they were hoping to.
But most individuals are going to benefit from this tax
bill financially, at least in the short term. That's precisely
the political danger of all of this is the politics
(18:50):
that have dominated the last twenty five years have been
give people money and they vote you back into office. Yeah,
and that's I think what are electeds are dealing with is, Hey,
if you're not in power, then just criticize the bill,
criticize it for its deficit effect and uh and you
know that's a bipartisan.
Speaker 3 (19:09):
Yeah, you know, we should, like we should talk about
the idea that people are forward looking. They'll assume their
taxes are going to go up at some point or
they're going to have to save because there's going to
be some fiscal calamity, it could offset some of the
benefits of that. If there's time in the next hour,
maybe we should talk about that quick break.
Speaker 2 (19:24):
We got to take a break for Wall Street Watch.
That's coming up next, and now we're talking trade deals.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter. Acts
TFE show Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch. A complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:00):
Traders returning from the July fourth holiday and shifting their
attention from taxes to tariffs with President Trump's July ninth deadline,
although the administration officials have signaled the new August first
deadline is a possibility. Right now, Dow is off by
two hundred and twelve points, about half a percent lower.
(20:21):
Sm P five hundred also down about half a percent
or thirty points. Nasdaq is off by six tenths of
one percent, or one hundred and thirty four points. Russell
two thousand is off four tenths of one percent. Tenure
Treasure reeled up three basis points this morning at four
point three seven percent. In crude oil up about nine
(20:41):
tenths of one percent, trading at sixty seven dollars in
fifty nine cents a barrel. More tensions between Tesla's CEO
Elon Musk and President Trump after Musk said he would
form a new political party called America Party, with Trump
calling it ridiculous. Tesla shares are sinking by seven percent. Meanwhile,
oorc well down by two percent after the company said
(21:02):
it is slicing the cost of its database software and
cloud computing service for the government, making it the largest
tech giant to offer the Trump administration a significant discount
on services elsewhere. New data from research firm Counterpoint found
that iPhone sales in China grew for the first time
in two years last quarter, but not enough to overtake
(21:23):
local rival Huawei. Apple shares are off by about half
a percent. Shell said it expected weaker gas trade. It
expected weaker gas trading would hurt quarterly earnings. That stocked
down by two percent. Constellation Brands upgraded to buy from
Hole that Jeffreys, citing its wine business that is turning profitable,
(21:43):
strong cash flows as well as buybacks. Constellation shares are
mostly flat today and later this week. On Thursday, Delta
Airlines will kick off second quarter earning season. I'm Tucker Silvan.
That's Wall Street Watch.
Speaker 2 (21:58):
I'll tell you, Mark, I don't know that there has
been ever someone less popular to represent the creation of
a new political party. But we'll see what Elon Musk
is able to pull off with this. He's managed to
make just about everyone angry. So uh, we'll see how that.
Speaker 3 (22:14):
He seems to be a man of principle, though I
bet I agree he went off the rails a little bit,
but he seems to be acting just on principle here.
It might be a little bit of self interest in
that he's losing some of the credits which account for
a disturbingly large continue to account for a disturbingly large
portion of his company's revenue and income are going away
(22:35):
under the new bill, Mike, But otherwise he seems genuinely concerned.
Speaker 2 (22:39):
I thought, I've thought about train wreck. I've thought about
this a fair bit. Mark, I do agree with you. You know,
if he was genuinely concerned about the phase out of
green energy tax credits, he could have supported Kamala Harris
and her run for president.
Speaker 3 (22:53):
Or he could have gone he could have gone back
to the president on his knees and grobbled and said,
could you make these? Can you insert these? The president
would have probably because I don't think the president. The
president's just a pragmatist. He doesn't really care. He didn't
do that, though, so I'm I've always been torn about Elon.
I respect his I'll call it genius, even though it's
(23:13):
overused and not quite the right term. I respect his
entrepreneurial drive yep. At the same time, he's a little
bit whimsical, which is weird. So if I were a shareholder,
I'd be concerned about that. But again, in this instance,
this is not something he needs. People always say about
the President. He doesn't need this. He's already a billionaire. Fine,
(23:34):
I'll give you that, nor does Elon. So why assume
good intentions on the part of say, the President, And
I think that's okay. He's doing this out of a
love for his country. Why assume Elon is not unless
you know them both personally and you have reason to
take it at his value.
Speaker 2 (23:51):
I don't think. But I don't think he's doing anything
out of self interest here, nor do I think he
is trying to make the country worse by any stretch.
I just think that he has managed to make everyone
upset with him.
Speaker 3 (24:05):
Yeah he has, well, you know, he's he's abrasive. It's
a lot of very successful people, I guess are But you.
Speaker 2 (24:14):
Know what, you could probably say the same thing about
Donald Trump ten years ago, and so there you have it.
Who knows. Let's move on here to trade deals and
what we are seeing here. So we have a self
imposed deadline of this Wednesday to have trade deals with
hundreds of nations worked out over the weekend. The President
(24:37):
implied that the first tariff collection date wouldn't be until
August first, which again we're splitting hairs here, but that
seems to me to extend the deadline now to August
first for a trade deal to get negotiated if you're
not going to be collecting any of the revenue to
revenue until August first. Anyway, if we are to use
(24:58):
the Vietnam dear is some sort of framework, which I
guess you have to given that it's pretty much all
we've got. It's I guess you've got the UK as well.
So if we use those two deals as the framework,
it would seem to me that we're likely to land
at teriff rates globally on imports into the United States
(25:20):
of between ten and twenty percent, kind of a minimum
of ten, with specific industry carve outs and some exceptions.
But I don't know how to look at this any differently.
If I'm trying to price in or estimate where we
are going to be knowing that, you know, I could
be way off based on all this, and maybe some
countries are going to be facing forty some odd percent.
(25:41):
But in terms of large trade blocks, I have a
tough time believing that any of them are going to
face well over twenty percent when it comes to their
ultimate teriff rate of products coming into the US. Any
other insight than that mark when it comes to this.
Speaker 3 (25:55):
No, these deadlines are obviously a joke. They keep getting extended.
There's no obvious, no obvious strategy behind it. It seems
like the President wakes up on it, and this has
worked for him historically. It's it's how he does business.
Wakes up, wants something, goes out and blusters and maybe
he gets it, maybe he doesn't. That's devastating though, for
economic uncertainty. Not to mention the fact that any of
(26:16):
these we had a NAFTA, a Free Trade agree in
between the US and Canada and the US and Mexico
dating back to nineteen ninety three. President comes in office
the first time redes that deal. They sign up for it,
Mexico and Canada do. So we've got us Mexico Canada Act,
whatever it was called. It gets an office again. Yeah,
gets an office again. Not happy with that for some reason.
(26:39):
The point here is, can you trust us that we
won't sort of change our minds six months into this
if it's say, not working, or if political if the
political winds shift again. I don't know why any country
would want to do business with somebody who routinely tears
up the agreements they made only four years ago. It's
(26:59):
the uns certainty that this engenders, Mike, and the helter
skelter nature of the strategy such as it is over
the past six months, is just another manifestation of it.
It's the uncertainty that this instills that's really potentially bad
for economic growth in the long run.
Speaker 2 (27:18):
So I've been asked, you know, dozens of times by colleagues, friends, clients,
you know, all this spring, like, what is the rest
of this year kind of play out to look like?
And my answer was kind of like, you know, by
this summer and fall, are we continuing to talk about
piecemeal trade strategy and tariffs or are we moved on
(27:39):
to something else? Right? Are we moved on to earnings?
Are we moving on to the you know, tax bill
that needs to get passed? What is the focus of
the American public? And the answer seems to me to
be that, hey, we passed the tax bill, we got
a good jobs report, and the President immediately shifted this
focus back to trade, which is right, frankly, a core
(27:59):
ten of the MAGA push. Right like that is a
core tenant of the MAGA pushes increased tariffs in order
to benefit the US labor market and push manufacturing, which
I think has a lot of flaws to that argument
in the first place, which I'm sure you're just jumping
to get in on. But this seems to be the
(28:20):
new push coming from the White House now that this
stuff is in the rear view mirror, and I think
that that very well could inject a fair bit of
volatility into things.
Speaker 3 (28:29):
I think the real operating principle here is they need
to be the center of attention, no offense. It's just
this is reality TV translated into politics, dominate the news.
It's a strategy. I'm not criticizing it. It's his strategy.
So if you could do that via tariffs, he'll do
it via tariffs. The economy is collateral damage. The central
objective is to remain the center of attention, dominate people's minds,
(28:51):
and right now tariffs are a vehicle for doing that.
Tomorrow it might be the tax code.
Speaker 2 (28:56):
Again.
Speaker 3 (28:56):
I wouldn't doubt at all if this tax bill got
ripped up in a year and we have something entirely new.
It's whatever keeps the focus on him as an energetic,
seemingly energetic policy maker. Everything else is just any damage
is just sort of collateral economic damage.
Speaker 2 (29:12):
Regardless of you know, my own personal view on terraffs
as a successful economic strategy, it does seem to me
that very few countries other than China are going to
have a lot of success in negotiating with the United States.
I mean, I take a look at countries in the
European Union. If they were really interested in mounting in
(29:32):
opposition to the presidents in his terrort strategy, they would
be working together rather than you know, calling out Spain
and you know, approaching things one by one, right, if
the EU really wanted to pull the leverage card in
the same way China has, you would go and take
a look at big American tech companies and basically tell
them that they can't operate here if we're going to
(29:53):
continue negotiating these terrafts. They haven't done that, and that,
to me insinuates that we are going to get some
deals signed here. China was the only one that I
could really come up with to say, Okay, yeah, they've
got this leverage over these critical materials that go into
everything we make, and therefore you kind of have to
play nice in the sandbox. But I don't know. I
(30:14):
don't know what that is for Brazil. I don't know
what it is for South Korea, for for for you know,
much of the European Union. I don't know what that
you know that what that ace in the hold is
for India. And so therefore I think the easiest conclusion
for me to come to is that, yeah, we do
get some form of negotiated deals rather than some big
(30:36):
escalation like we've seen with China, which again, is that
good for the American consumer? Is that good for American employment?
I don't think so. But I also am seeing a
path here where maybe you have more certainty than we
do now a couple months from now. If I'm wrong,
and God knows, I've been wrong several times before, could
(30:57):
we get back to where we were on April second
of the Yeah, quite possibly. And I think we all
remember how that was going.
Speaker 3 (31:03):
I mean, Mike, our threats aren't credible. They'd amount to
economic suicide. So they're counting on us chickening out at
the last minute, and so far they've been right to
do so. These deadlines, for example, keep getting extended. I've
lost count of how many lines in the sand we've
drawn on trade.
Speaker 2 (31:17):
Let's take a quick break. When we come back, I
want to head back to the job market and the
job report that we got late last week. It was
a big shift in the narrative. So we're gonna be
talking jobs next on the Financial Exchange.
Speaker 1 (31:32):
Breaking business news as it happens only here on the
Financial Exchange Radio Network. The Financial Exchange streams live on YouTube.
Subscribe to our page and stay up to date on
breaking business news all morning. Long Face is the Financial
Exchange Radio Network.
Speaker 2 (31:52):
Mark with the long mark with the long holiday weekend
we got last weeks last month jobs report on Thursday
of last week. We both had the long weekend to
digest this a little bit further. I'll hit the headlines again.
The unemployment rate.
Speaker 3 (32:08):
Wait, we were supposed to be thinking about that.
Speaker 2 (32:11):
Yeah, you didn't spend your entire time thinking through. I
know you did. Don't lie to me. The unemployment rate
crept down actually to four point one percent. The number
of jobs created came in at one hundred and forty
seven thousand new jobs, and Jonathan Levine in Bloomberg Today
(32:33):
has has us asking why this is all bad news?
So and the crux of his argument is what that
half the jobs were from state and local government, so
it's actually not a big deal. What's the crux here?
Speaker 3 (32:51):
I'm not sure I read that particular comment, Mike, but
I can tell you that some people have pointed out
that wage growth was slow, so I'll skip I'll just
skip around the report a little bit. Others have taken
issue or have pointed out, as you said, that many
of the jobs were state or government jobs, not federal
but state local jobs. Payroll growth has slowed down. The
(33:14):
average is a lot lower this year, to forty fifty
thousand per month than it was, say, two years ago,
so it's been slowing over the past couple of years.
So there are chinks in the armor of the labor market.
That said, unemployment remains very very low. Anything in the
fours or even fives by historical standards is quite healthy.
(33:36):
Wage growth has been reasonably strong over the past year,
close to four percent. That could be a problem for
inflation or not. That depends on other factors. We're not
going to get into that right now. Vacancies which we
talk about separate report, but vacancies are high relative to
the number of unemployed people. They've come down a lot,
but they're still quite high relative to their historical level.
So by a lot of indicators, Michael, labor market is
(33:57):
still going strong. That's said, it is a lot indicator,
and it'll be the last, sure, it'll be the last
to show any cracks in the economic facade.
Speaker 2 (34:07):
Yeah, I don't think that to get a good read
on the labor market, I would want to turn towards earnings,
for example, or somewhere else. I mean, this government data
that we get on the state of the labor market
is going to be the best indicator of where things
are in the most recent month. And frankly, you know,
I think journalists especially and maybe economists to some degree
(34:28):
as well, they get an idea in their mind and
they want to fit the fit the data, to fit
the narrative in many cases, and I think we have
a lot of that going on over the last few days,
which is the narrative dominating headlines was that the labor
market is slowing, the job growth, this slowing, unemployment is
ticking up, and this report in many ways directly contradicted that. Yeah,
(34:53):
a lot of the jobs were government jobs. Yeah, the
unemployment rate ticked down more because people left the workforce
rather than a whole bunch of jobs created. Those things
are all true, But you would have a very tough
time convincing me that this employment report is justifying a
rate cut or indicative of a really loose condition for
(35:15):
you know, for you for inflation. Right. I mean, this
all indicates to me that the Fed's doing the exact
right thing by holding rates where they are and speaking
the way they are about tariffs and rates.
Speaker 3 (35:25):
We've become really used to the Fed acting preemptively to
head off a recession, to forestall a downturn. Historically, it
didn't do that. It waited because you don't know until
after the fact that the economy has slowed. Nobody does.
We are many of our impression of what the FED
should do was formed in the crucible of two thousand
(35:46):
and eight, two thousand and nine, when it was obvious
everything was crashing, even if the data didn't show it yet,
or perhaps two thousand and one, when the market had
crashed and that had everybody freaking out because household wealth
was composed like fifty percent of stocks at that point.
So the FED acted a little bit preemptively before the
recession actually arrived. So in the past generation or so,
(36:08):
the FED has acted preemptively and they've been right for
the most part. COVID is another Great is another example,
another obvious one, but this is more of a routine
business cycle. The FED has to now decide whether or
not that the forces pushing up inflation are more worrisome
than those pushing down employment.
Speaker 4 (36:29):
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(36:50):
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Speaker 1 (37:26):
The proceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal or investment services.
Cushing and Armstrong do not endorse each other and are
not affiliated.
Speaker 2 (37:37):
On Thursday of this week, we'll have Delta Airlines kicking
things off for earning earnings seasons amidst a general weakening
of the airline and travel sector. We will next week
have the kickoff of big bank earnings on Tuesday with
Let's see I Believe it's JP, Morgan Chase going wells Fargo, Blackrocks,
City Group, before big tech name start reporting towards the
(38:01):
end of July. So amidst all the trade stuff, amidst
all the tax changes, We'll also have earning season kicking
off here this week, so stay tuned. Markets in negative territory,
we'll have a full recap and more for you next
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