September 19, 2025 • 38 mins
Mike Armstrong and Marc Fandetti discuss the Fed losing its independence and what that means for inflation. Why the Fed's recent rate cut might be the only one of 2025 despite predictions. Why the Fed can't ease the government's debt problem. Trade relations with China as Xi and Trump talk TikTok and rare earth materials. Nvidia is walking a tightrope between the US and China.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:12):
Happy Friday, everybody, you made it. Congratulations the first time
I worked like a full week and a few weeks
just because of conferences and other things that I've had.
So I'm just breathing a big sigh of relief. Hope
everybody's having a great day out there. It looks like
we're having a good weekend ahead of us. So get
out there, do some apple picking and and come back
(01:33):
refreshed on Monday. But a lot of stuff to cover today.
We had a FED meeting this week. We've got ongoing
talks between the President and Chinese President Hu jing Ping.
This morning, just six minutes ago, we got some state
level unemployment data that we're going to dig into. So Mark,
where do you want to start today? Wants to start
on the Fed?
Speaker 3 (01:53):
Always?
Speaker 2 (01:54):
Do you even need me to YEA? So the Fed?
What did they do earlier this week? They cut rates
just as anticipated. All eleven of twelve voting members voted
for a twenty five basis point rate cut. And then
you had the new guy, Steven Myron question for the
(02:16):
fifty and no big surprise there. The President's been calling
for three hundred basis points of rate cuts. I'm not
terribly surprised that he wanted to buck the trend and
push for the lower rates, and nonetheless you now have
the FED moving forward with their twenty five basis point cut.
I'm sure that the meeting itself was interesting and dramatic
(02:38):
to set the context for people, right. You have new
guy Stephen Myron, who's a bit controversial only because he
hasn't resigned from his post at the Economic Council, so
he's the first person who's part of the White House
still since I think the nineteen twenties or nineteen thirties
to serve on the FED. Generally speaking, you get a
point to the Fed. You resigned from your other job.
He's instead taking a leave of absence. You have Lisa Cook,
(03:01):
who the President is trying to fire, has not successfully
yet done so, but has now appealed it to the
Supreme Court, who may weigh in on it any day,
but she was able to vote at that meeting. And
then you have j Powell, who seems to be running
things fine, but let's call it what it is. You know,
when your boss has a limited time where he's still
(03:22):
going to be your boss, I think it's natural to
pay a little bit less attention to said boss. And
that's the case of j Powell, right he is out
as FED chair in it may of next year. May
of next year, so I won't call him a lame duck.
But he's getting there in terms of his role on
the Federal Reserve. So while I'm sure it was interesting,
the results were pretty standard and boring on what would
(03:45):
like to see.
Speaker 4 (03:45):
Monetary policy is a mess right now. FED independence is
in peril. It's because politicians, namely the President, has injected
himself into it. You may think that's the right thing.
You may think our elected officials should have more of
a say, maybe even a direct say, in monetary policy.
That's fine, let's have that debate. But we're going about
it the wrong way. A witch hunt, to use his
favorite phrase against Lisa Cook on very flimsy. As we're
(04:10):
learning by the day. Here more evidence dribbles out that
these charges allege well, charges haven't been brought yet. Maybe
that's evidence that they're flimsy. So Mike policy is a mess.
The Fed's cutting into a growing economy with elevated inflation.
Under normal circumstances that would be incredibly risky. Add the
political dynamic, and we're setting the stage here for a
(04:31):
big mistake by the FED, clearly an avoidable one to
the extent that it is politically driven, possibly bigger than
the one they made in early twenty twenty one.
Speaker 2 (04:41):
Well, look, all of this said, we will see I think,
as I've said before, my view is, well, we'll justify,
we will see about it. Yeah, we will see about
whether or not the FED embarks on a severe rate
cutting path that sparks more inflation. I think that's the
only piece that I would say is up for debate.
Is the FED pressure from the White House to cut rates? Yes?
(05:02):
Is there independence being threatened? Yes, we're grateful threatened.
Speaker 4 (05:05):
There's a member of the White House serving on the
FOMC that's not just threatened. The rubicon has been crossed.
We no longer have an independent Federal Reserve. If this
doesn't have inflationary consequences, nothing for will arguably right.
Speaker 2 (05:19):
And so that's the piece that I think is under
question is will this have inflationary consequences for all of us?
And what do we do as investors or as people
that are looking at the economy if this is what?
If this is the potential threat here. If they FED
is under threat of no longer being independent, where where
do things go? There? But to the point I think
(05:40):
you would agree we are seeing weakness in the labor market.
I do think J. Powell is genuine in his perception
of weakness in the labor market, and genuine in his
view that hey, rates should come down, not because the
President says so, but because I actually think.
Speaker 4 (05:54):
I think they are responding to political pressure. I think
there is an argument for reducing There's plenty of serious economists,
more certainly with more impressive credentials than I have, have
made the argument for a rate cut. But you also
can't deny the response to political heavyheadedness that's maybe driving
(06:15):
the timetable, the tempo, and the remarks of some policy
makers Mike and Moreover, you know, there's probably there's an
equally good argument against rate cuts. Underlying inflation remains elevated.
Underlying inflation is something that FED controls directly through their
control of the money supply. GDP is growing, according to
(06:36):
now casts like those produced by the Atlanta and New
York Federal Reserve Banks, at potential or above potential rates,
out or above trend. If you prefer there's a strong
argument for not cutting. We're exposing the economy to supply shocks.
We're reducing the labor force. Fat is a supply shock
that pushes output down and prices up. There are other
examples too, that are policy driven. You may like those policies,
(06:58):
that's fine, but they are they are supply shock, so
to speak, in nature. So there's just as good an
argument for not cutting MIC, and you're not hearing that
from the chair or the FOMC, which is why I
feel like they're making another mistake, compounded by political factors.
Speaker 2 (07:12):
This time. Let me talk about one area where I
think we are seeing some of that pushback, which was
the step. So every other FED meeting they put together
their summary of economic projections and in there you get
a number of different things, but one of them is
the dot plot on where members think that rates will
need to go by calendar year. They do it for
end of this year, end of next year, end of
(07:33):
I think twenty seven and twenty eight, which quite honestly.
Speaker 3 (07:36):
I don't know, and then so called longer term.
Speaker 2 (07:38):
Yeah. I can't imagine why anybody would think that a
FED member forecasting where rates should be in twenty twenty
eight is terribly useful.
Speaker 4 (07:44):
But economists need to distinguish between short and long term,
and you got to draw the lines.
Speaker 3 (07:48):
So it's sort of a.
Speaker 2 (07:50):
So in terms of what investors are anticipating, just to
you know, kind of throw it out there, investors are
saying right now that they anticipate two more rate cuts
prior to December thirty. First, I'm gathering this from the
Chicago Mercantallics Change, who has their fed watch tool, which
basically weighs out how how different people are betting on
(08:12):
this thing, and there is an eighty two point three
percent likelihood that rates are half a percent lower by
your end, meaning two more cuts from here. On the
other hand, when you look at the summary of economic projections,
there is a tendency for more rate cuts. The median
is showing, hey, you know, we would see rate cuts
(08:32):
further and landing in this target range. But the point's
been made that it's actually not so clear because when
you look at the median, that's what you get, But
in fact, what you get is a group of six
members that thinks that the cut that was just done
is the last one that's needed. Another group of nine
that thinks that we need two more cuts and then
so you get into a median here where it's somewhere
(08:54):
in between. But it's not so clear to me, and
we don't know which members are are sitting where. I
think we know where Stephen Myron is, but you know,
we don't know which of those dots represent voting members.
And to that end, yeah, I think there is some
as I would expect different opinions in terms of where
things go from here.
Speaker 4 (09:13):
It doesn't even matter if they don't cut again, real
Fed funds, which is the nominal rate you see quoted
in the newspaper, four percent is the target. Although they
quoted they stated as arrange now less underlying inflation, real
Fed funds might be point five percent. It sure as
hell ain't more than one percent? Is that enough? Or
(09:34):
is that restrictive? Is it neutral? Is it lacks? It's
probably lacks at this point that worries me because GDP
is a pen. Now, this this is gonna sound stupid
if in six months the economy is in recession. Yeah,
those who are arguing for and there's an argument for it.
I'm not denying the argument for easing policy more aggressively
(09:55):
right now, but I submit that you will have been lucky,
not right due to skill. If you argued for easing
right now, you're making a guess. You're saying the labor
market's going to continue to weaken, the economy is going
to continue to deteriorate. We can't know that today. All
we know today is that GDP is growing at least
in line with potential or trend if you prefer, inflation
remains elevated. Those are the facts. Anything else's speculation. This
(10:17):
aggressive drive to lower rates today is probably mostly politically motivated,
clearly in the case of Moran, who's just a puppet
less obviously, but probably also in the case of the
rest of the FOMC, who are trying to protect themselves
insulate themselves from incoming fire from the administration.
Speaker 2 (10:34):
Let's take a quick break when we come back. Two
pieces on all of this that I want to focus
on a little bit more. One would be the implications
of what Mark just said, if they continue cutting into
what's maybe an inflationary environment, what exactly ends up happening.
Two seeing some deja vu when it comes to long
term rates. I want to set the context for that
because last fall we went through pretty similar things in
(10:57):
terms of timing on rate cuts, and similar things on
in terms of timing on long term bonds and mortgage
rates and everything else. We'll be connecting those dots next
here on the Financial Exchange.
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Speaker 2 (12:09):
All right, Mark last fall, The Fed embarked on a
rate cutting cycle. We started off in September. They found themselves,
I guess, in their own opinion, a little bit behind
the eight ball on cutting. So they started off with
a fifty basis point cut back in September of twenty
twenty four, and followed it with two more cuts in
October or early November, I don't remember which, and then December.
(12:32):
So they cut a full percentage point between September and
December of last year, going from what was it five
and a quarter down to four and a quarter until
this week, until this week where we cut more. But okay,
so that's the context is they move FED funds rates
down by that percentage point, as I mentioned, started in September,
ended in December. In September, I'm looking at September thirteenth,
(12:55):
the average thirty year fixed rate mortgage back in back
then was six point one four percent September thirteenth. This
is according to Mortgage News Daily. By the way, if
you're looking to follow along at home, by January, by
December thirtieth of twenty twenty four, that same thirty year
fixed rate mortgage was sitting at seven point zero six percent.
(13:17):
How why I thought the FED was lowering rates. I
think this is important to.
Speaker 4 (13:21):
Actually absolutely, it's a great teachable moment.
Speaker 2 (13:24):
So what the FED is controlling when they move rates.
They have other mechanisms too, but when they move rates,
they are controlling effectively influencing the very short end of
the curve. And they're not even actually controlling the rates.
They don't do this by dictate. They do this by
market action of buying securities and moving things around. But
that's what they are targeting is those short term interest rates,
(13:45):
and so they might influence things like your credit card rates,
your home equity line of credit. They could influence how
much you get paid at the bank on a CD
or money market five ime, righting thought about that prime rate. Yeah,
it influences all of those shorter term or floating interest
rates that you see on all these different types of things.
(14:06):
What it does not do is influence at all the
longer end of the curve. If the FED chooses to,
the FED could utilize tools to try and influence that
they have in the past. Many other central banks do
what's called yield curve control. That's not typical of the
US Central Bank, but they haven't here, And so what
we just saw in the fall of last year, was
(14:28):
the Fed cut rates, but long term rates went up.
Why does that happen? Mark, I guess just give you theory.
Speaker 4 (14:35):
Yeah, like you said, Fed controls the money supply influences,
basically controls short term interest rates. It could buy instead
longer term treasury bonds. If you think about the FED
buying and selling short term treasury bonds of bills. Technically,
that's the easiest way to think about the FED exerting
indirect control over demand, which is what it's trying to do.
By the way, the Fed indirectly controls overall demand nominal
(14:57):
demand before inflation nominal GDP really, which we don't talk
about a lot. We always talk about real GDP. But
FED controls though they don't target. Used to talk about
doing so it's faded. They target nominal GDP. You could
think about it that way for all intents and purposes.
So longer term interest rates, why might they go up
if the FED cuts rates? Well, one theory says long
(15:18):
term interest rates are a function of expected future short
term interest rates, which your in turn a function of
expected future short term inflation. Think about it this way, Mike,
You could buy it you could buy. Well, you could
buy a ten year treasury bond note technically and sit
on it and collect your coupons twice a year over
the next ten years, and then collect the face value
(15:41):
at the end. Right, you should do that. You could
sit on it, go fishing forget about it.
Speaker 2 (15:44):
Yep.
Speaker 4 (15:44):
You could instead buy a one year treasury Would that
be a bill?
Speaker 2 (15:49):
Yep? Right?
Speaker 4 (15:49):
You could buy a one year When it matures, you
re up if you will roll it over whatever you
want to term you want to use for that reup
in a year reup and a year reup in a year.
Speaker 2 (15:57):
These questions make more money reup than I will holding
for ten years.
Speaker 4 (16:02):
In reasonably competitive markets where prices are set regularly and
people can transact freely, the rates of return on those
two strategies should be the same. You shouldn't be able
to earn more over time by buying a ten year
and sitting on it versus buying a one year and
rolling it, rolling it, rolling it, rolling it until year ten.
This is the expectations theory of the so called yield
(16:23):
curve of the term structure of interest rates. So if
if logo term interest rates are going up in response
to a fadcut. What you could infer from that is
the market expects by the market I mean all of us,
but the average all of those that participates and participate
in capital markets, and that includes you. If you have
a four to one K plan with a target date
fund or a bond fund. People think short term interest
(16:45):
rates will have to be higher than they are today
at some point in the future, maybe due to higher inflation,
may yeah, any number of factors. That's what's expected. Then
there's the so called term premium, the X factor risk.
There may be left out of left field things that
push interest rights up at some point in the future.
(17:05):
You're more exposed to those if you hold a ten
year bond than you are a one year bond. Therefore
you should be compensated for that risk. So there are
a couple different components, Mike, to that that explanation of
long versus shorter term rates.
Speaker 2 (17:20):
So obvious question is, Mike, why are you bringing up
with the FED did last year? Not relevant? It is
a year ago. So on Tuesday of this week, that
same measure, the thirty year fixed rate mortgage on Tuesday
of this week was sitting at six point one three percent.
Since then since the FED cut rates, we have now
seen that average thirty year fixed rate spike five twenty
(17:43):
five or so basis points. We're up now to six
point three seven percent on that thirty year fixed rate mortgage.
That's a fairly big jump over two days.
Speaker 3 (17:51):
That's bigger than I expect.
Speaker 2 (17:52):
That's a fairly big jump over two days. Now, there's
other influences here, but you've seen something similar. You know,
if I take a look at, let's see what we
did on the ten year treasury yield as well, just
to kind of set this, that's up ten So the
ten year treasury from Tuesday of this week is up
ten basis points compared to the thirty year fixed rate mortgage.
(18:14):
So again, a lot of different things could be at
play here, but I take your point that the Fed
right now, no matter where you sit, is cutting into
what many would describe as fundamentals in the economy that
are at least questionable as to how weak they are.
Right Unemployment sitting at four point three percent, you have
(18:34):
stock markets hitting all time highs. The financial conditions are
not definitively weak.
Speaker 4 (18:41):
My god, through the opposite, aren't they? Objectively speaking? Just
go with the facts. Unemployment four point three percent GDP
according to the Atlanta Fed, growing at over three percent.
That's fifty percent more than the trend rate. Jobless claims
they spike last week. Everybody panic, they came back down.
Speaker 3 (18:56):
Whoop?
Speaker 4 (18:56):
Somebody fat finger dating things in Texas by what may
of economic health or financial market conditions? Do do do?
Speaker 3 (19:05):
Does the uh?
Speaker 4 (19:06):
Does the overall picture scream for for the FED? Stimulating
demand when we're cutting labor supply by the way, right.
Speaker 2 (19:15):
So if I read just purely, like without talking to people,
what I what I read into these moves would be Yeah,
investors might be a little bit more concerned about inflation
than they are a giant recession right now, quick break,
Wall Street watches Next.
Speaker 1 (19:40):
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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 5 (20:00):
Well as a FED filled week wraps up. Marcus today
are seeing more gains as Wall Street monitors developments from
the call between President Trump and Chinese President Gi this morning.
At the moment the Dow is up two tenths of
one percent, or ninety six points higher. SMP five hundred
dollars up two tenths of one percent or fifteen points.
(20:21):
Nasdaq is up nearly half a percent or ninety eight
points higher. Russell two thousand dipping into negative territory Tenure
treas reeled up two basis points at four point one
two seven percent, and crude oiled down about a third
of one percent, trading at sixty three dollars and thirty
four cents a barrel. FedEx shares rising over two percent
(20:42):
after the delivery giants said it expects a one billion
dollar terror related hit to its annual earnings. As for
the previous quarter, FedEx posted stronger than expected results. Meanwhile,
home builder Lennar saw its profit decline for a fourth
straight quarter as its sales for the previous quarter miss forecast.
(21:03):
Earnings did, however, beat expectations. Lenar's shares are down about
two percent, well after its stock surged twenty two percent
yesterday in reaction to Nvidia's five billion dollar investment in
the company. Intel shares are pulling back about one percent today. Furthermore,
City downgraded the stock to sell from neutral. Saying Intel
(21:25):
stock is pricing in success in its leading edge foundry
business that it believes has minimal chance to succeed elsewhere.
JP Morgan upgraded its price target of Apple stock to
two hundred and eighty dollars from two hundred and fifty
five dollars per share, with firm said demand for the
tech giants new slate of iPhone seventeen's is strong based
(21:46):
on early sales across Asia. Apple shares are up over
one percent, and children's book publisher Scholastic posted a wider
quarterly loss as schools delayed or pulled back on purchases
due to un certain federal and state funding, sending that
stock down by fourteen percent. I'm Tucker Silvan. That is
Wall Street Watch.
Speaker 2 (22:07):
Scholastic is a publicly traded company. How do they even
still exist? Sorry? That just maybe laugh for a minute. Sorry.
I want to focus on China and trade because quite honestly,
I don't. We haven't really had to talk about it
for like thirty days, which has been quite pleasant. But
(22:29):
the President and the President Trump and President Xi Jinping
spoke over the phone today probably about a number of
different subjects. There's been an announcement of a TikTok framework
deal for how that is going to continue to operate
in the United States. I know that this is a
big issue for big contingents of voters in the United States.
(22:54):
It just has no market or economic impact, and I
don't use it personally, so I just can't bring my
self to care all that much. But it looks like
something is going to happen there. The piece that I
care about has always been data privacy and security, and
there's been a lot of questions as to whether or
not this deal actually fixes those problems. I'm unsure about that,
(23:15):
but again, we don't even know what the framework exactly
looks like, so we will have to wait and see
the other big deadlines just to keep I guess on
your calendar. So the heightened tariffs are currently looking at
deadlines of November tenth and November twenty ninth when it
comes to China, when it comes to all these reciprocal tariffs,
meaning we set into a ninety day suspension of these
(23:37):
higher levels and on November tenth, those those higher levels
are due to go back into place. If I'm China,
I'm probably not terribly interested in negotiating at this point.
In time, as the Supreme Court is currently reviewing whether
or not the President even has the power to implement
reciprocal tariffs. As a reminder, he's using a raw a
(24:00):
law that's you know, basically says, hey, we're in a
national emergency, and therefore I'm using tariffs as a tool.
The Trump administration is currently being sued by I don't
even remember who questioning whether or not a it's a
national emergency, and B even if it is, whether or
not they can use tariff. So if I'm chan Jingping,
I'm not going to go negotiate some giant trade deal
(24:23):
if I don't even know. Hey, well this needs to
be ratified by US Congress and all sorts of big
picture questions. In the background, we also have all these
rare earth discussions. But again, it seems to me that
while there is going to be an ongoing race to
domestically produce rare earth materials, and probably every country is
(24:43):
thinking the same thing, it has not been rearing its
ugly head again, which I take as I guess good
news on the trade side between the United States and China.
I know I've just been talking at you, Mark, before
I go on to Nvidia. Do you have anything else
to mention on China?
Speaker 4 (24:58):
And do you other than to say I'm here infrequently
many of you would say thank God. So I'll just
point out if the purpose of it, I just.
Speaker 3 (25:06):
Meant the audience, yeah, eighty percent of the audience, small sliver.
Speaker 4 (25:10):
If the purpose of all these frantic trade scrambles and
the helter skelter tariff's on, tariff's off, if the purpose
is to lower the trade deficit, it's not working out
year over year July to July, which is the latest
we have for the trade balance, that's goods and services
we are if you think the trade I'll just give
(25:31):
you the facts. The trade deficit is twenty billion dollars
worse year over year than it was last year.
Speaker 3 (25:37):
If you want to look.
Speaker 2 (25:37):
At that China specifically overall.
Speaker 4 (25:39):
I'm just talking overall, because I don't think anybody's going
to care if by if the deficit, if the bilateral
deficit country to country improves with China but deteriorates elsewhere,
the focus, I think is on the trade deficit that's
gotten worse year over year by twenty billion dollars in
percentage terms. Let's just look at the calendar year to date,
though since the new administration has not been in office
(26:01):
for the last twelve months calendar year over year, the
deficit is up twenty nine rounded up to thirty percent.
Trade deficit is up thirty percent. Maybe you could say, well,
it's too soon. The tariffs have been on again, off again.
It's been a pretty fitful start. You've just give this
a couple of years to work. Maybe that's fair. But
(26:24):
when looking just at hard metrics, it's like looking at
the overall budget deficit. It's about the same as it
It's a little bit lower, but no dramatic difference over
last year. So all of these theatrics have to at
some point be tested by reality and by the test
that I've suggested. Maybe you could suggest another one, the
size of the budget deficit. We're expending a lot of
(26:44):
energy for nothing.
Speaker 2 (26:45):
Yeah, look, I think the timing side of it is
a fair point, because if I am any global company
right now that is facing tariffs, I'm probably taking the
same attitude that China is taking, which is, I don't
know if these are still going to be in place
sixty days from now. If they are in place a
year from now, then I can see a reason why
(27:07):
I would want to manufacture a whole lot more stuff
in the United States. But you know how much money
am I going to spend on doing that if it's
really under question as to whether or not the president
has the power to do all this, And I think
that's a disservice to all of us, you know, to
have it in limbo here, And so I hope it's
resolved pretty quickly. But yeah, if I'm a business I can.
Speaker 3 (27:30):
Well, Mike if so.
Speaker 4 (27:31):
If you like tariffs, I don't, if few you know
the textbook.
Speaker 2 (27:35):
I'm not saying that I want it resolved for the president.
I just want it to be clear as to whether that.
Speaker 4 (27:40):
Power they Republicans have Congress and the White House. Sure,
they could have passed a damn tariff bill in February
or March. It all would have been legal. We could
have complained and waved our hands about tariffs, but it
would have been legal. No one would be questioning the
constitutional issue here. But because they.
Speaker 2 (28:01):
Chose to do it, Yeah, the reason that doesn't exist
is a fewfold. One. Democrats still have power to block things.
Speaker 4 (28:08):
Oh no, nobody ever introduced a bill, but they didn't
want to vote on Trump.
Speaker 2 (28:12):
That would be that would be my point. I don't
think there we.
Speaker 4 (28:15):
Wouldn't be having this discussion had they done it, you know,
the traditional way where Congress passes laws.
Speaker 2 (28:20):
I don't think there was even close to universal agreement
among Republicans that tariffs areg.
Speaker 4 (28:24):
Maybe we should have to damn conversation, and so they
don't want to vote on it.
Speaker 3 (28:27):
That's what Congress.
Speaker 2 (28:28):
Let's take a quick break. When we come back. I
alluded to in Vidia, and this is again a China
connection that I think is worth talking about. They announced
an investment in Intel just this week. There's been some
announcements by Huawei as well. When we come back, talking
about in Nvidia and the China connection. Next on the
Financial Exchange.
Speaker 1 (28:49):
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Speaker 2 (29:21):
Mark depending on the day and video is either the
first or second largest publicly traded company in the world
right now. They are a four point three trillion dollar
company today, and a lot of that is based on
the premise that this company is going to be able
to continue to develop and sell the absolute best semiconductors
(29:43):
in the world and sell more of them at good
prices in the future at heavy profits. Because that's what
they've been doing. They have defied all expectations in terms
of how much how much they can have in sales,
how much they can develop, and how much how many
customers actually want these things. So that's a pretty simple
explanation of the Nvidia story today. They're not trying to develop,
(30:06):
at least currently, the first and latest and greatest, you
know AI tool that's out there that everybody's using. They're
not trying to get into social media. They are not
trying to have a retail customer facing business. I think
the biggest shift in business you might be able to
see is their investments in Intel, which to me indicates
they might want to try and manufacture some of this
(30:27):
stuff in the United States in the future. But other
than that, that's that's the Nvidia business model. And for
quite some time now, people have been making the comparisons
to the dot com era, and you know, you can't
talk about those comparisons without comparing the largest company out there.
And so I'll be the first to say that I
have no idea if there's a legitimate comparison to the
(30:50):
Internet of the late nineties and the AI infatuation that
is the twenty twenties. Now, certainly there's fair comparisons when
it comes to valuations there, We've talked about them. The
only time that priced to sales ratio on the S
and P five hundred has been actually, it's never been
higher than it is right now. But the only time
that it was even close was during the dot com bubble.
(31:12):
And the only time that pe ratios were higher was
during that dot com bubble. So the comparisons are.
Speaker 3 (31:19):
Being made here, Gonta make a point about that.
Speaker 4 (31:22):
Please the dot com bubble, that era, in many ways
that looks respectable relative to this. This seems narrower. And
I say that. I make that. I say that because
we all experienced in real time the benefits of that
new technology. We went from Lotus Notes to Microsoft Office.
We got a new version of that every eighteen months,
very exciting. We all got new computers every eighteen months.
(31:45):
They made you more productive, they were faster, They allowed
you to interact more remotely. I think it's hard to overstate. Yeah,
and it showed up, and it eventually showed up. It
took a little while, but it showed up in the
productivity data. There was a huge leap in productivity, which
translates directly into higher living standards. Only lasted about eight years,
but it was real. In the late nineties, people weren't sure.
(32:05):
Measurements were raw. By the early two thousands, we knew
it was real. But if you lived through that period,
you worked through that period in a desk job, it was.
Speaker 3 (32:13):
Very real to you.
Speaker 4 (32:14):
So some it was a little more believable, a little
more tangible than this is.
Speaker 2 (32:17):
I don't know, I'm seeing it pretty real in the
AI space too.
Speaker 4 (32:20):
Changing your life was that stuff was.
Speaker 2 (32:22):
Like the Internet was life changing. I think for a
lot of folks AI might be, or it's starting to
be starting to be more so and starting to.
Speaker 4 (32:30):
Yeah, I'm not to ex potential. I'm just saying we've
it was. It was, it was concrete.
Speaker 2 (32:35):
So I then lead to China because we just talked
about in video's business, which is designing and selling semiconductors.
And for whatever reason, uh, probably a lot of good reasons,
the Chinese government has been telling their own tech companies
do not buy in videos semiconductors, even if you're allowed to,
even if the US government has a path for you
(32:56):
to buy the H twenty chips is what they're called,
they are not doing so. And I take that to
read a few things. One the government's probably worried about
being spied upon, because you know, the Chinese would certainly
do it to us. I'm sure that we would do
it to them too. I think that they are very
interested in developing their own domestic semiconductor industry, and those
(33:17):
two things I think are influencing the government's decision to
push back. And I don't know that that will last forever.
And I am not an expert in what Huawei is
able to do, for instance, in terms of semiconductor development.
I have no idea. What I do know is that
China today is not the China of thirty years ago
when it comes to manufacturing. And I was talking to
(33:38):
Jimplito about this this morning, and his takeaway was, you know,
my I think his brother used to work for you know,
a tech company, and they always talked about Chinese manufacturing
and what garbage it produced, and that was probably the
case twenty years ago in terms of quality control. But
today they seem to be making some of the best
automobiles in the world. They dominate the solar panel industry,
(34:00):
they dominate the steel industry. And what you can say
about China is they are not usually the first to
innovate something in terms of high tech. But man, are
they good at ramping up production and making a crapload
of whatever they build. And so if you want a
you know, path for this bubble collapse, I don't know
(34:25):
that you need to have people come to the conclusion
that oh Ai isn't as cool as we thought it was,
It's not as great as it was. What if China
just becomes extremely good at making semiconductors for an extremely
cheap price, Well.
Speaker 4 (34:38):
That's okay, we just buy their semiconductors and Radia goes
the way the Dodo. But my point would activity benefits
remain though?
Speaker 2 (34:45):
Yes, and so the benefits to the overall global economy
I think still exist, but it suddenly does call into
question the value of a whole bunch of US companies
if something like that.
Speaker 4 (34:54):
Was Yeah, but if the benefits of AI are realized,
it'll make everybody else more productive in whatever they're doing.
Speaker 3 (34:59):
Percent not even know. Yeah, I know.
Speaker 2 (35:01):
And that's and that's that's the point that I keep
making with this on the comparison to the Internet, is
the Internet was the most revolutionary technology. We did see
productivity benefits, the US economy benefited from it, but we
had to go through a bubble burst to get there.
And that's the piece that.
Speaker 3 (35:15):
All people we didn't have to, but we did.
Speaker 2 (35:17):
We did well. Yeah, whether we had to or not,
we did. It did happen, And so that's the piece
that I always keep getting pushed back, like, no, it's
different this time because AI is so important, And I
pushed back to say, the Internet was pretty darn important
and we still went through it.
Speaker 4 (35:32):
A little bit further electrification, the internal combustion engine, and
all the knock on technologies. If you're interested in this topic,
Robert Gordon wrote a great book, The Rise and Fall
of American Growth. It's more or less an economic history
of the country since the Industrial Revolution. If you think
this will be more beneficial than being able to go
to the bathroom, indoors in the winter. Seriously. Now Gordon
(35:54):
makes this point or being able to do any number
of things that we take for granted. Would you give
up indoor plumbing for AI power for an AI powered friend?
Speaker 2 (36:04):
This type of thing is obviously fascinating to us. If
it's of interest to you. What's been going on in
markets where the economy goes with productivity due to artificial intelligence?
What's going on with inflation that we've been talking about
all morning housing costs? We welcome you to join us
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Speaker 1 (37:23):
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Speaker 2 (37:39):
As we head over to the top of the hour,
closing in at eleven o'clock, here we've got the Dow
Jones Industrial Average just barely holding on to gains here
up twenty four points, the SMP five hundred up seven points,
or a tenth of a percent, the Nasdaq leading the
way as it has the last several weeks, up seventy
one points or one third of one percent. In terms
(37:59):
of in restraates, we're still seeing bond yields move higher,
with the ten year moving up to four point one
three three percent, and oil down slightly by about fifty
cents or two thirds of one percent. We'll be right
back with a whole lot more from the financial exchange.
Stay tuned, folks, We'll be right back
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:12):
Happy Friday, everybody, you made it. Congratulations the first time
I worked like a full week and a few weeks
just because of conferences and other things that I've had.
So I'm just breathing a big sigh of relief. Hope
everybody's having a great day out there. It looks like
we're having a good weekend ahead of us. So get
out there, do some apple picking and and come back
(01:33):
refreshed on Monday. But a lot of stuff to cover today.
We had a FED meeting this week. We've got ongoing
talks between the President and Chinese President Hu jing Ping.
This morning, just six minutes ago, we got some state
level unemployment data that we're going to dig into. So Mark,
where do you want to start today? Wants to start
on the Fed?
Speaker 3 (01:53):
Always?
Speaker 2 (01:54):
Do you even need me to YEA? So the Fed?
What did they do earlier this week? They cut rates
just as anticipated. All eleven of twelve voting members voted
for a twenty five basis point rate cut. And then
you had the new guy, Steven Myron question for the
(02:16):
fifty and no big surprise there. The President's been calling
for three hundred basis points of rate cuts. I'm not
terribly surprised that he wanted to buck the trend and
push for the lower rates, and nonetheless you now have
the FED moving forward with their twenty five basis point cut.
I'm sure that the meeting itself was interesting and dramatic
(02:38):
to set the context for people, right. You have new
guy Stephen Myron, who's a bit controversial only because he
hasn't resigned from his post at the Economic Council, so
he's the first person who's part of the White House
still since I think the nineteen twenties or nineteen thirties
to serve on the FED. Generally speaking, you get a
point to the Fed. You resigned from your other job.
He's instead taking a leave of absence. You have Lisa Cook,
(03:01):
who the President is trying to fire, has not successfully
yet done so, but has now appealed it to the
Supreme Court, who may weigh in on it any day,
but she was able to vote at that meeting. And
then you have j Powell, who seems to be running
things fine, but let's call it what it is. You know,
when your boss has a limited time where he's still
(03:22):
going to be your boss, I think it's natural to
pay a little bit less attention to said boss. And
that's the case of j Powell, right he is out
as FED chair in it may of next year. May
of next year, so I won't call him a lame duck.
But he's getting there in terms of his role on
the Federal Reserve. So while I'm sure it was interesting,
the results were pretty standard and boring on what would
(03:45):
like to see.
Speaker 4 (03:45):
Monetary policy is a mess right now. FED independence is
in peril. It's because politicians, namely the President, has injected
himself into it. You may think that's the right thing.
You may think our elected officials should have more of
a say, maybe even a direct say, in monetary policy.
That's fine, let's have that debate. But we're going about
it the wrong way. A witch hunt, to use his
favorite phrase against Lisa Cook on very flimsy. As we're
(04:10):
learning by the day. Here more evidence dribbles out that
these charges allege well, charges haven't been brought yet. Maybe
that's evidence that they're flimsy. So Mike policy is a mess.
The Fed's cutting into a growing economy with elevated inflation.
Under normal circumstances that would be incredibly risky. Add the
political dynamic, and we're setting the stage here for a
(04:31):
big mistake by the FED, clearly an avoidable one to
the extent that it is politically driven, possibly bigger than
the one they made in early twenty twenty one.
Speaker 2 (04:41):
Well, look, all of this said, we will see I think,
as I've said before, my view is, well, we'll justify,
we will see about it. Yeah, we will see about
whether or not the FED embarks on a severe rate
cutting path that sparks more inflation. I think that's the
only piece that I would say is up for debate.
Is the FED pressure from the White House to cut rates? Yes?
(05:02):
Is there independence being threatened? Yes, we're grateful threatened.
Speaker 4 (05:05):
There's a member of the White House serving on the
FOMC that's not just threatened. The rubicon has been crossed.
We no longer have an independent Federal Reserve. If this
doesn't have inflationary consequences, nothing for will arguably right.
Speaker 2 (05:19):
And so that's the piece that I think is under
question is will this have inflationary consequences for all of us?
And what do we do as investors or as people
that are looking at the economy if this is what?
If this is the potential threat here. If they FED
is under threat of no longer being independent, where where
do things go? There? But to the point I think
(05:40):
you would agree we are seeing weakness in the labor market.
I do think J. Powell is genuine in his perception
of weakness in the labor market, and genuine in his
view that hey, rates should come down, not because the
President says so, but because I actually think.
Speaker 4 (05:54):
I think they are responding to political pressure. I think
there is an argument for reducing There's plenty of serious economists,
more certainly with more impressive credentials than I have, have
made the argument for a rate cut. But you also
can't deny the response to political heavyheadedness that's maybe driving
(06:15):
the timetable, the tempo, and the remarks of some policy
makers Mike and Moreover, you know, there's probably there's an
equally good argument against rate cuts. Underlying inflation remains elevated.
Underlying inflation is something that FED controls directly through their
control of the money supply. GDP is growing, according to
(06:36):
now casts like those produced by the Atlanta and New
York Federal Reserve Banks, at potential or above potential rates,
out or above trend. If you prefer there's a strong
argument for not cutting. We're exposing the economy to supply shocks.
We're reducing the labor force. Fat is a supply shock
that pushes output down and prices up. There are other
examples too, that are policy driven. You may like those policies,
(06:58):
that's fine, but they are they are supply shock, so
to speak, in nature. So there's just as good an
argument for not cutting MIC, and you're not hearing that
from the chair or the FOMC, which is why I
feel like they're making another mistake, compounded by political factors.
Speaker 2 (07:12):
This time. Let me talk about one area where I
think we are seeing some of that pushback, which was
the step. So every other FED meeting they put together
their summary of economic projections and in there you get
a number of different things, but one of them is
the dot plot on where members think that rates will
need to go by calendar year. They do it for
end of this year, end of next year, end of
(07:33):
I think twenty seven and twenty eight, which quite honestly.
Speaker 3 (07:36):
I don't know, and then so called longer term.
Speaker 2 (07:38):
Yeah. I can't imagine why anybody would think that a
FED member forecasting where rates should be in twenty twenty
eight is terribly useful.
Speaker 4 (07:44):
But economists need to distinguish between short and long term,
and you got to draw the lines.
Speaker 3 (07:48):
So it's sort of a.
Speaker 2 (07:50):
So in terms of what investors are anticipating, just to
you know, kind of throw it out there, investors are
saying right now that they anticipate two more rate cuts
prior to December thirty. First, I'm gathering this from the
Chicago Mercantallics Change, who has their fed watch tool, which
basically weighs out how how different people are betting on
(08:12):
this thing, and there is an eighty two point three
percent likelihood that rates are half a percent lower by
your end, meaning two more cuts from here. On the
other hand, when you look at the summary of economic projections,
there is a tendency for more rate cuts. The median
is showing, hey, you know, we would see rate cuts
(08:32):
further and landing in this target range. But the point's
been made that it's actually not so clear because when
you look at the median, that's what you get, But
in fact, what you get is a group of six
members that thinks that the cut that was just done
is the last one that's needed. Another group of nine
that thinks that we need two more cuts and then
so you get into a median here where it's somewhere
(08:54):
in between. But it's not so clear to me, and
we don't know which members are are sitting where. I
think we know where Stephen Myron is, but you know,
we don't know which of those dots represent voting members.
And to that end, yeah, I think there is some
as I would expect different opinions in terms of where
things go from here.
Speaker 4 (09:13):
It doesn't even matter if they don't cut again, real
Fed funds, which is the nominal rate you see quoted
in the newspaper, four percent is the target. Although they
quoted they stated as arrange now less underlying inflation, real
Fed funds might be point five percent. It sure as
hell ain't more than one percent? Is that enough? Or
(09:34):
is that restrictive? Is it neutral? Is it lacks? It's
probably lacks at this point that worries me because GDP
is a pen. Now, this this is gonna sound stupid
if in six months the economy is in recession. Yeah,
those who are arguing for and there's an argument for it.
I'm not denying the argument for easing policy more aggressively
(09:55):
right now, but I submit that you will have been lucky,
not right due to skill. If you argued for easing
right now, you're making a guess. You're saying the labor
market's going to continue to weaken, the economy is going
to continue to deteriorate. We can't know that today. All
we know today is that GDP is growing at least
in line with potential or trend if you prefer, inflation
remains elevated. Those are the facts. Anything else's speculation. This
(10:17):
aggressive drive to lower rates today is probably mostly politically motivated,
clearly in the case of Moran, who's just a puppet
less obviously, but probably also in the case of the
rest of the FOMC, who are trying to protect themselves
insulate themselves from incoming fire from the administration.
Speaker 2 (10:34):
Let's take a quick break when we come back. Two
pieces on all of this that I want to focus
on a little bit more. One would be the implications
of what Mark just said, if they continue cutting into
what's maybe an inflationary environment, what exactly ends up happening.
Two seeing some deja vu when it comes to long
term rates. I want to set the context for that
because last fall we went through pretty similar things in
(10:57):
terms of timing on rate cuts, and similar things on
in terms of timing on long term bonds and mortgage
rates and everything else. We'll be connecting those dots next
here on the Financial Exchange.
Speaker 1 (11:06):
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Speaker 2 (12:09):
All right, Mark last fall, The Fed embarked on a
rate cutting cycle. We started off in September. They found themselves,
I guess, in their own opinion, a little bit behind
the eight ball on cutting. So they started off with
a fifty basis point cut back in September of twenty
twenty four, and followed it with two more cuts in
October or early November, I don't remember which, and then December.
(12:32):
So they cut a full percentage point between September and
December of last year, going from what was it five
and a quarter down to four and a quarter until
this week, until this week where we cut more. But okay,
so that's the context is they move FED funds rates
down by that percentage point, as I mentioned, started in September,
ended in December. In September, I'm looking at September thirteenth,
(12:55):
the average thirty year fixed rate mortgage back in back
then was six point one four percent September thirteenth. This
is according to Mortgage News Daily. By the way, if
you're looking to follow along at home, by January, by
December thirtieth of twenty twenty four, that same thirty year
fixed rate mortgage was sitting at seven point zero six percent.
(13:17):
How why I thought the FED was lowering rates. I
think this is important to.
Speaker 4 (13:21):
Actually absolutely, it's a great teachable moment.
Speaker 2 (13:24):
So what the FED is controlling when they move rates.
They have other mechanisms too, but when they move rates,
they are controlling effectively influencing the very short end of
the curve. And they're not even actually controlling the rates.
They don't do this by dictate. They do this by
market action of buying securities and moving things around. But
that's what they are targeting is those short term interest rates,
(13:45):
and so they might influence things like your credit card rates,
your home equity line of credit. They could influence how
much you get paid at the bank on a CD
or money market five ime, righting thought about that prime rate. Yeah,
it influences all of those shorter term or floating interest
rates that you see on all these different types of things.
(14:06):
What it does not do is influence at all the
longer end of the curve. If the FED chooses to,
the FED could utilize tools to try and influence that
they have in the past. Many other central banks do
what's called yield curve control. That's not typical of the
US Central Bank, but they haven't here, And so what
we just saw in the fall of last year, was
(14:28):
the Fed cut rates, but long term rates went up.
Why does that happen? Mark, I guess just give you theory.
Speaker 4 (14:35):
Yeah, like you said, Fed controls the money supply influences,
basically controls short term interest rates. It could buy instead
longer term treasury bonds. If you think about the FED
buying and selling short term treasury bonds of bills. Technically,
that's the easiest way to think about the FED exerting
indirect control over demand, which is what it's trying to do.
By the way, the Fed indirectly controls overall demand nominal
(14:57):
demand before inflation nominal GDP really, which we don't talk
about a lot. We always talk about real GDP. But
FED controls though they don't target. Used to talk about
doing so it's faded. They target nominal GDP. You could
think about it that way for all intents and purposes.
So longer term interest rates, why might they go up
if the FED cuts rates? Well, one theory says long
(15:18):
term interest rates are a function of expected future short
term interest rates, which your in turn a function of
expected future short term inflation. Think about it this way, Mike,
You could buy it you could buy. Well, you could
buy a ten year treasury bond note technically and sit
on it and collect your coupons twice a year over
the next ten years, and then collect the face value
(15:41):
at the end. Right, you should do that. You could
sit on it, go fishing forget about it.
Speaker 2 (15:44):
Yep.
Speaker 4 (15:44):
You could instead buy a one year treasury Would that
be a bill?
Speaker 2 (15:49):
Yep? Right?
Speaker 4 (15:49):
You could buy a one year When it matures, you
re up if you will roll it over whatever you
want to term you want to use for that reup
in a year reup and a year reup in a year.
Speaker 2 (15:57):
These questions make more money reup than I will holding
for ten years.
Speaker 4 (16:02):
In reasonably competitive markets where prices are set regularly and
people can transact freely, the rates of return on those
two strategies should be the same. You shouldn't be able
to earn more over time by buying a ten year
and sitting on it versus buying a one year and
rolling it, rolling it, rolling it, rolling it until year ten.
This is the expectations theory of the so called yield
(16:23):
curve of the term structure of interest rates. So if
if logo term interest rates are going up in response
to a fadcut. What you could infer from that is
the market expects by the market I mean all of us,
but the average all of those that participates and participate
in capital markets, and that includes you. If you have
a four to one K plan with a target date
fund or a bond fund. People think short term interest
(16:45):
rates will have to be higher than they are today
at some point in the future, maybe due to higher inflation,
may yeah, any number of factors. That's what's expected. Then
there's the so called term premium, the X factor risk.
There may be left out of left field things that
push interest rights up at some point in the future.
(17:05):
You're more exposed to those if you hold a ten
year bond than you are a one year bond. Therefore
you should be compensated for that risk. So there are
a couple different components, Mike, to that that explanation of
long versus shorter term rates.
Speaker 2 (17:20):
So obvious question is, Mike, why are you bringing up
with the FED did last year? Not relevant? It is
a year ago. So on Tuesday of this week, that
same measure, the thirty year fixed rate mortgage on Tuesday
of this week was sitting at six point one three percent.
Since then since the FED cut rates, we have now
seen that average thirty year fixed rate spike five twenty
(17:43):
five or so basis points. We're up now to six
point three seven percent on that thirty year fixed rate mortgage.
That's a fairly big jump over two days.
Speaker 3 (17:51):
That's bigger than I expect.
Speaker 2 (17:52):
That's a fairly big jump over two days. Now, there's
other influences here, but you've seen something similar. You know,
if I take a look at, let's see what we
did on the ten year treasury yield as well, just
to kind of set this, that's up ten So the
ten year treasury from Tuesday of this week is up
ten basis points compared to the thirty year fixed rate mortgage.
(18:14):
So again, a lot of different things could be at
play here, but I take your point that the Fed
right now, no matter where you sit, is cutting into
what many would describe as fundamentals in the economy that
are at least questionable as to how weak they are.
Right Unemployment sitting at four point three percent, you have
(18:34):
stock markets hitting all time highs. The financial conditions are
not definitively weak.
Speaker 4 (18:41):
My god, through the opposite, aren't they? Objectively speaking? Just
go with the facts. Unemployment four point three percent GDP
according to the Atlanta Fed, growing at over three percent.
That's fifty percent more than the trend rate. Jobless claims
they spike last week. Everybody panic, they came back down.
Speaker 3 (18:56):
Whoop?
Speaker 4 (18:56):
Somebody fat finger dating things in Texas by what may
of economic health or financial market conditions? Do do do?
Speaker 3 (19:05):
Does the uh?
Speaker 4 (19:06):
Does the overall picture scream for for the FED? Stimulating
demand when we're cutting labor supply by the way, right.
Speaker 2 (19:15):
So if I read just purely, like without talking to people,
what I what I read into these moves would be Yeah,
investors might be a little bit more concerned about inflation
than they are a giant recession right now, quick break,
Wall Street watches Next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall Street.
Watch a complete look at what's moving markets so far
today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Well as a FED filled week wraps up. Marcus today
are seeing more gains as Wall Street monitors developments from
the call between President Trump and Chinese President Gi this morning.
At the moment the Dow is up two tenths of
one percent, or ninety six points higher. SMP five hundred
dollars up two tenths of one percent or fifteen points.
(20:21):
Nasdaq is up nearly half a percent or ninety eight
points higher. Russell two thousand dipping into negative territory Tenure
treas reeled up two basis points at four point one
two seven percent, and crude oiled down about a third
of one percent, trading at sixty three dollars and thirty
four cents a barrel. FedEx shares rising over two percent
(20:42):
after the delivery giants said it expects a one billion
dollar terror related hit to its annual earnings. As for
the previous quarter, FedEx posted stronger than expected results. Meanwhile,
home builder Lennar saw its profit decline for a fourth
straight quarter as its sales for the previous quarter miss forecast.
(21:03):
Earnings did, however, beat expectations. Lenar's shares are down about
two percent, well after its stock surged twenty two percent
yesterday in reaction to Nvidia's five billion dollar investment in
the company. Intel shares are pulling back about one percent today. Furthermore,
City downgraded the stock to sell from neutral. Saying Intel
(21:25):
stock is pricing in success in its leading edge foundry
business that it believes has minimal chance to succeed elsewhere.
JP Morgan upgraded its price target of Apple stock to
two hundred and eighty dollars from two hundred and fifty
five dollars per share, with firm said demand for the
tech giants new slate of iPhone seventeen's is strong based
(21:46):
on early sales across Asia. Apple shares are up over
one percent, and children's book publisher Scholastic posted a wider
quarterly loss as schools delayed or pulled back on purchases
due to un certain federal and state funding, sending that
stock down by fourteen percent. I'm Tucker Silvan. That is
Wall Street Watch.
Speaker 2 (22:07):
Scholastic is a publicly traded company. How do they even
still exist? Sorry? That just maybe laugh for a minute. Sorry.
I want to focus on China and trade because quite honestly,
I don't. We haven't really had to talk about it
for like thirty days, which has been quite pleasant. But
(22:29):
the President and the President Trump and President Xi Jinping
spoke over the phone today probably about a number of
different subjects. There's been an announcement of a TikTok framework
deal for how that is going to continue to operate
in the United States. I know that this is a
big issue for big contingents of voters in the United States.
(22:54):
It just has no market or economic impact, and I
don't use it personally, so I just can't bring my
self to care all that much. But it looks like
something is going to happen there. The piece that I
care about has always been data privacy and security, and
there's been a lot of questions as to whether or
not this deal actually fixes those problems. I'm unsure about that,
(23:15):
but again, we don't even know what the framework exactly
looks like, so we will have to wait and see
the other big deadlines just to keep I guess on
your calendar. So the heightened tariffs are currently looking at
deadlines of November tenth and November twenty ninth when it
comes to China, when it comes to all these reciprocal tariffs,
meaning we set into a ninety day suspension of these
(23:37):
higher levels and on November tenth, those those higher levels
are due to go back into place. If I'm China,
I'm probably not terribly interested in negotiating at this point.
In time, as the Supreme Court is currently reviewing whether
or not the President even has the power to implement
reciprocal tariffs. As a reminder, he's using a raw a
(24:00):
law that's you know, basically says, hey, we're in a
national emergency, and therefore I'm using tariffs as a tool.
The Trump administration is currently being sued by I don't
even remember who questioning whether or not a it's a
national emergency, and B even if it is, whether or
not they can use tariff. So if I'm chan Jingping,
I'm not going to go negotiate some giant trade deal
(24:23):
if I don't even know. Hey, well this needs to
be ratified by US Congress and all sorts of big
picture questions. In the background, we also have all these
rare earth discussions. But again, it seems to me that
while there is going to be an ongoing race to
domestically produce rare earth materials, and probably every country is
(24:43):
thinking the same thing, it has not been rearing its
ugly head again, which I take as I guess good
news on the trade side between the United States and China.
I know I've just been talking at you, Mark, before
I go on to Nvidia. Do you have anything else
to mention on China?
Speaker 4 (24:58):
And do you other than to say I'm here infrequently
many of you would say thank God. So I'll just
point out if the purpose of it, I just.
Speaker 3 (25:06):
Meant the audience, yeah, eighty percent of the audience, small sliver.
Speaker 4 (25:10):
If the purpose of all these frantic trade scrambles and
the helter skelter tariff's on, tariff's off, if the purpose
is to lower the trade deficit, it's not working out
year over year July to July, which is the latest
we have for the trade balance, that's goods and services
we are if you think the trade I'll just give
(25:31):
you the facts. The trade deficit is twenty billion dollars
worse year over year than it was last year.
Speaker 3 (25:37):
If you want to look.
Speaker 2 (25:37):
At that China specifically overall.
Speaker 4 (25:39):
I'm just talking overall, because I don't think anybody's going
to care if by if the deficit, if the bilateral
deficit country to country improves with China but deteriorates elsewhere,
the focus, I think is on the trade deficit that's
gotten worse year over year by twenty billion dollars in
percentage terms. Let's just look at the calendar year to date,
though since the new administration has not been in office
(26:01):
for the last twelve months calendar year over year, the
deficit is up twenty nine rounded up to thirty percent.
Trade deficit is up thirty percent. Maybe you could say, well,
it's too soon. The tariffs have been on again, off again.
It's been a pretty fitful start. You've just give this
a couple of years to work. Maybe that's fair. But
(26:24):
when looking just at hard metrics, it's like looking at
the overall budget deficit. It's about the same as it
It's a little bit lower, but no dramatic difference over
last year. So all of these theatrics have to at
some point be tested by reality and by the test
that I've suggested. Maybe you could suggest another one, the
size of the budget deficit. We're expending a lot of
(26:44):
energy for nothing.
Speaker 2 (26:45):
Yeah, look, I think the timing side of it is
a fair point, because if I am any global company
right now that is facing tariffs, I'm probably taking the
same attitude that China is taking, which is, I don't
know if these are still going to be in place
sixty days from now. If they are in place a
year from now, then I can see a reason why
(27:07):
I would want to manufacture a whole lot more stuff
in the United States. But you know how much money
am I going to spend on doing that if it's
really under question as to whether or not the president
has the power to do all this, And I think
that's a disservice to all of us, you know, to
have it in limbo here, And so I hope it's
resolved pretty quickly. But yeah, if I'm a business I can.
Speaker 3 (27:30):
Well, Mike if so.
Speaker 4 (27:31):
If you like tariffs, I don't, if few you know
the textbook.
Speaker 2 (27:35):
I'm not saying that I want it resolved for the president.
I just want it to be clear as to whether that.
Speaker 4 (27:40):
Power they Republicans have Congress and the White House. Sure,
they could have passed a damn tariff bill in February
or March. It all would have been legal. We could
have complained and waved our hands about tariffs, but it
would have been legal. No one would be questioning the
constitutional issue here. But because they.
Speaker 2 (28:01):
Chose to do it, Yeah, the reason that doesn't exist
is a fewfold. One. Democrats still have power to block things.
Speaker 4 (28:08):
Oh no, nobody ever introduced a bill, but they didn't
want to vote on Trump.
Speaker 2 (28:12):
That would be that would be my point. I don't
think there we.
Speaker 4 (28:15):
Wouldn't be having this discussion had they done it, you know,
the traditional way where Congress passes laws.
Speaker 2 (28:20):
I don't think there was even close to universal agreement
among Republicans that tariffs areg.
Speaker 4 (28:24):
Maybe we should have to damn conversation, and so they
don't want to vote on it.
Speaker 3 (28:27):
That's what Congress.
Speaker 2 (28:28):
Let's take a quick break. When we come back. I
alluded to in Vidia, and this is again a China
connection that I think is worth talking about. They announced
an investment in Intel just this week. There's been some
announcements by Huawei as well. When we come back, talking
about in Nvidia and the China connection. Next on the
Financial Exchange.
Speaker 1 (28:49):
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 and Network.
Thanks to us six one, seven, three, six two thirteen
eighty five with your comments and questions about today's show
and let us know what you think about the stories
we are covering. This is the Financial Exchange Radio Network.
Speaker 2 (29:21):
Mark depending on the day and video is either the
first or second largest publicly traded company in the world
right now. They are a four point three trillion dollar
company today, and a lot of that is based on
the premise that this company is going to be able
to continue to develop and sell the absolute best semiconductors
(29:43):
in the world and sell more of them at good
prices in the future at heavy profits. Because that's what
they've been doing. They have defied all expectations in terms
of how much how much they can have in sales,
how much they can develop, and how much how many
customers actually want these things. So that's a pretty simple
explanation of the Nvidia story today. They're not trying to develop,
(30:06):
at least currently, the first and latest and greatest, you
know AI tool that's out there that everybody's using. They're
not trying to get into social media. They are not
trying to have a retail customer facing business. I think
the biggest shift in business you might be able to
see is their investments in Intel, which to me indicates
they might want to try and manufacture some of this
(30:27):
stuff in the United States in the future. But other
than that, that's that's the Nvidia business model. And for
quite some time now, people have been making the comparisons
to the dot com era, and you know, you can't
talk about those comparisons without comparing the largest company out there.
And so I'll be the first to say that I
have no idea if there's a legitimate comparison to the
(30:50):
Internet of the late nineties and the AI infatuation that
is the twenty twenties. Now, certainly there's fair comparisons when
it comes to valuations there, We've talked about them. The
only time that priced to sales ratio on the S
and P five hundred has been actually, it's never been
higher than it is right now. But the only time
that it was even close was during the dot com bubble.
(31:12):
And the only time that pe ratios were higher was
during that dot com bubble. So the comparisons are.
Speaker 3 (31:19):
Being made here, Gonta make a point about that.
Speaker 4 (31:22):
Please the dot com bubble, that era, in many ways
that looks respectable relative to this. This seems narrower. And
I say that. I make that. I say that because
we all experienced in real time the benefits of that
new technology. We went from Lotus Notes to Microsoft Office.
We got a new version of that every eighteen months,
very exciting. We all got new computers every eighteen months.
(31:45):
They made you more productive, they were faster, They allowed
you to interact more remotely. I think it's hard to overstate. Yeah,
and it showed up, and it eventually showed up. It
took a little while, but it showed up in the
productivity data. There was a huge leap in productivity, which
translates directly into higher living standards. Only lasted about eight years,
but it was real. In the late nineties, people weren't sure.
(32:05):
Measurements were raw. By the early two thousands, we knew
it was real. But if you lived through that period,
you worked through that period in a desk job, it was.
Speaker 3 (32:13):
Very real to you.
Speaker 4 (32:14):
So some it was a little more believable, a little
more tangible than this is.
Speaker 2 (32:17):
I don't know, I'm seeing it pretty real in the
AI space too.
Speaker 4 (32:20):
Changing your life was that stuff was.
Speaker 2 (32:22):
Like the Internet was life changing. I think for a
lot of folks AI might be, or it's starting to
be starting to be more so and starting to.
Speaker 4 (32:30):
Yeah, I'm not to ex potential. I'm just saying we've
it was. It was, it was concrete.
Speaker 2 (32:35):
So I then lead to China because we just talked
about in video's business, which is designing and selling semiconductors.
And for whatever reason, uh, probably a lot of good reasons,
the Chinese government has been telling their own tech companies
do not buy in videos semiconductors, even if you're allowed to,
even if the US government has a path for you
(32:56):
to buy the H twenty chips is what they're called,
they are not doing so. And I take that to
read a few things. One the government's probably worried about
being spied upon, because you know, the Chinese would certainly
do it to us. I'm sure that we would do
it to them too. I think that they are very
interested in developing their own domestic semiconductor industry, and those
(33:17):
two things I think are influencing the government's decision to
push back. And I don't know that that will last forever.
And I am not an expert in what Huawei is
able to do, for instance, in terms of semiconductor development.
I have no idea. What I do know is that
China today is not the China of thirty years ago
when it comes to manufacturing. And I was talking to
(33:38):
Jimplito about this this morning, and his takeaway was, you know,
my I think his brother used to work for you know,
a tech company, and they always talked about Chinese manufacturing
and what garbage it produced, and that was probably the
case twenty years ago in terms of quality control. But
today they seem to be making some of the best
automobiles in the world. They dominate the solar panel industry,
(34:00):
they dominate the steel industry. And what you can say
about China is they are not usually the first to
innovate something in terms of high tech. But man, are
they good at ramping up production and making a crapload
of whatever they build. And so if you want a
you know, path for this bubble collapse, I don't know
(34:25):
that you need to have people come to the conclusion
that oh Ai isn't as cool as we thought it was,
It's not as great as it was. What if China
just becomes extremely good at making semiconductors for an extremely
cheap price, Well.
Speaker 4 (34:38):
That's okay, we just buy their semiconductors and Radia goes
the way the Dodo. But my point would activity benefits
remain though?
Speaker 2 (34:45):
Yes, and so the benefits to the overall global economy
I think still exist, but it suddenly does call into
question the value of a whole bunch of US companies
if something like that.
Speaker 4 (34:54):
Was Yeah, but if the benefits of AI are realized,
it'll make everybody else more productive in whatever they're doing.
Speaker 3 (34:59):
Percent not even know. Yeah, I know.
Speaker 2 (35:01):
And that's and that's that's the point that I keep
making with this on the comparison to the Internet, is
the Internet was the most revolutionary technology. We did see
productivity benefits, the US economy benefited from it, but we
had to go through a bubble burst to get there.
And that's the piece that.
Speaker 3 (35:15):
All people we didn't have to, but we did.
Speaker 2 (35:17):
We did well. Yeah, whether we had to or not,
we did. It did happen, And so that's the piece
that I always keep getting pushed back, like, no, it's
different this time because AI is so important, And I
pushed back to say, the Internet was pretty darn important
and we still went through it.
Speaker 4 (35:32):
A little bit further electrification, the internal combustion engine, and
all the knock on technologies. If you're interested in this topic,
Robert Gordon wrote a great book, The Rise and Fall
of American Growth. It's more or less an economic history
of the country since the Industrial Revolution. If you think
this will be more beneficial than being able to go
to the bathroom, indoors in the winter. Seriously. Now Gordon
(35:54):
makes this point or being able to do any number
of things that we take for granted. Would you give
up indoor plumbing for AI power for an AI powered friend?
Speaker 2 (36:04):
This type of thing is obviously fascinating to us. If
it's of interest to you. What's been going on in
markets where the economy goes with productivity due to artificial intelligence?
What's going on with inflation that we've been talking about
all morning housing costs? We welcome you to join us
in October at one of our two events. We're doing
one on October ninth down at the Margaritaville Resort on
Cape Cod The other one's going to be at the
(36:26):
Showcase super Lux and Chestnut Hill, Massachusetts on October sixteenth.
It's a live broadcast of this show followed by lunch
and a conversation with the folks over at Armstrong Advisory
Group for our views on the markets, the economy and
what it means for your financial strategy. If you would
like to register, I'm going to give you the information
how to do so. There's a phone number, there's also
(36:47):
a website. Space is limited. We do sell out on
these things and We would love to have you all,
but again, space is limited and we would love for
you to come. The website is Armstrongory dot com. There's
a banner right up top for you to be able
to sign up for our event. Otherwise you can call
us at eight hundred three nine three for zero zero
(37:08):
one and reserve your spot. But again October ninth, October sixteenth,
Cape Cod and Chestnut Hill, please join us live broadcast
of the show, followed by a chat with the folks
at Armstrong Advisory Group eight hundred three to nine three
for zero zero one or Armstrong Advisory dot com.
Speaker 1 (37:23):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (37:39):
As we head over to the top of the hour,
closing in at eleven o'clock, here we've got the Dow
Jones Industrial Average just barely holding on to gains here
up twenty four points, the SMP five hundred up seven points,
or a tenth of a percent, the Nasdaq leading the
way as it has the last several weeks, up seventy
one points or one third of one percent. In terms
(37:59):
of in restraates, we're still seeing bond yields move higher,
with the ten year moving up to four point one
three three percent, and oil down slightly by about fifty
cents or two thirds of one percent. We'll be right
back with a whole lot more from the financial exchange.
Stay tuned, folks, We'll be right back
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