July 15, 2025 • 38 mins
Mike Armstrong and Paul Lane discuss the CPI report that came in slightly higher than expected. Why is inflation data still not showing an impact from tariffs? Big banks report earnings with mixed results. How did JPMorgan escape the bad news but Wells Fargo didn't? Nvidia can sell AI chips to China again after CEO meets with Trump. America's biggest rare-earth producer makes a play to end China's dominance.
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Episode Transcript
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Speaker 1 (00:00):
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(01:07):
and fall Lane.
Speaker 2 (01:10):
Good morning, and welcome back to the Financial Exchange. It
was shaping up to be a busy Tuesday in a
busy week here on the Financial Exchange, and it is proving.
It is proving such. So I'm gonna talk really fast
the entire show to make sure we have time to
get all of it. Does that sound good to you, Tucker?
Does that make for a good Medea problem?
Speaker 3 (01:26):
Awesome radio?
Speaker 2 (01:26):
Okay, let's see how fast we can go, and we'll
get through this as quickly as possible. At a thirty
this morning, we had inflation data released by the Bureau
of Labor Statistics, so the CPI came out, will be
covering that, we've got major bank earnings from the likes
of JP Morgan, Wells, Fargo and others. We'll be diving
in there, and then major news for in video when
it comes to China being announced as well. That was
(01:48):
not on the docket and a bit of a surprise
to investors this morning, so we'll be jumping in there
as well. But I do want to start with that
all important inflation data. And I call it all important
because we on this program and every major economic analyst
out there has been talking and wondering about when and
if we will see inflation data start to print evidence
(02:11):
of tariffs, and to this point, there has been We
talked about this yesterday, Chuck and I hesitated to come
up with a single economic data point that you could
look at and say, definitively, here is your evidence of
tariff effect on the overall economy. And when we get
the inflation data this morning, I can't say that we
(02:32):
can really look at it definitively and prove that out either.
So let's start with the headline numbers. The CPI print
came in month over month at zero point three percent.
A couple things about that. It's right where it was
anticipated to be. It's also the highest reading we've gotten
month over month since January. So January came in at
half a percent month over month. This came in at
(02:55):
zero point three percent. When we look at that year
over year number, we're looking at two point seven percent
on the headline inflation two point nine percent. When we
look at that core number, core, if you may recall,
strips out the impact of food and energy. Core is
a way that some economists use to look at. Okay,
when we strip out really volatile items that interest rates
(03:17):
setting policy probably doesn't have anything to do with what's
the real rate that we're seeing here still printing in
here under three percent. I think most are going to
take that as good news. When we look at the
month over a month on core, so again, take out
the impact of food, take out the impact of energy
because those are volatile. We saw prices only increasing zero
(03:38):
point two percent month over month. We're going to dive
in here into the weeds and start looking through some
of the individual points here and see if there's any
real evidence of tariff inflation. But I think one thing
is certain. The President is going to use this once
again as evidence that, look, there is no tariff effect
(03:58):
on inflation.
Speaker 3 (04:00):
FED can lower rates. They should be lowering rates.
Speaker 2 (04:02):
Already, and quite honestly, there's nothing in this report I
think that contradicts that statement terribly. Yes, underlying inflation is
higher than where the FED would like it long term,
but our reading like this does not change the overall narrative,
which is inflation's pretty low and it's been remaining pretty low.
Speaker 3 (04:19):
Yeah.
Speaker 4 (04:20):
That seems to be my takeaway, Mike, is just that
we've been trying to glean anything that we can from
these recent economic reports to get any indication that we
are seeing impacts from tariffs. But you look through this
particular report and the headline number, like you mentioned, a
little bit hotter than anticipated. Some of that on the
(04:40):
headline CPI is probably tied to the fact that we
did see energy and energy prices increase point nine percent
month over month. That's something that's not likely to repeat itself,
so that contributed to the higher number. And then you
have some anomalies on the downside to where you have
negative impact from the decrease in price is for used
(05:01):
and new vehicles, sort of softening out that energy increase.
But if you want to make the tariff argument, and
I'm not saying I'm making it, you did see a
little bit of an uptick on the apparel side of things.
To be clear, we import a significant amount of apparel
from overseas. The T shirts, shirts, shoes, et cetera. That
(05:21):
most of us are wearing comes from overseas. We did
see an increase month over month zero point four percent
on apparel. You saw furnishings as well as some other
areas where we did see some uptick in prices. But
I'm not going to sit here and tell you that
that is, you know, clear cut evidence that there were
seeing some substantial impact.
Speaker 2 (05:39):
Yeah, I'm going to do what every major economist would
tell you definitely don't do right now, and just go
and look through the list of Okay, when we strip
out food and energy, because I think most would admit
that probably isn't tariff related. Sure, you know, if we
have tariffs on certain types of ten, maybe food prices
will go up for canned goods. But I'm going to
ignore that for a moment and look at just all
(06:01):
the other items outside of food and energy. What went
up by more than one and a half percent on
a month over month basis, That seems like a significant threshold.
That would be eighteen percent annualized inflation if you got
it for a year. Other linens, that's just a category.
Those went up five and a half percent month over month.
That's a pretty big jump. Other furniture one point six
(06:23):
percent jump month over month. Major appliances up nearly two percent,
and appliance is generally up about two percent. Non electric
cookwaar and tableware up three point seven percent month of
a month. So if you're looking for that, that's a
fairly big jump there. Taking a look at other categories here,
(06:45):
we saw men's shirts and sweaters up four point three
percent and women's dresses up three point nine percent. I
can't really explain why women's dresses went up by three
point nine yet women's outer wear went down boy by
three point three percent, which is why looking at these
individual categories is usually not something that you want to do.
But again, if you're cherry picking and looking for some
(07:08):
form of tariff effect here, this is where you're finding it.
Women's underwear, nightwear, swimwear, and accessories up one point six
percent month over month, men's footwear up two point six
and that really rounds out most of what I.
Speaker 3 (07:24):
Oh, sorry, no, toy prices is there?
Speaker 2 (07:26):
Up is another one, yep, recreation so other video equipment
up four and a half percent. You mentioned toy prices already,
so I don't need to highlight that. You really do
need to go cherry picking in here to try and
to find some sort of effective tariffs. And it'd be
difficult for me to say that, oh, yeah, you know,
(07:47):
toy prices and men's sweaters and shirts are the definitive evidence.
Speaker 3 (07:52):
Of tariffs that we were looking at.
Speaker 2 (07:54):
When you had other similar categories going down in pricing
month over month, And so the answer on all of
this is, at least for me today, my opinion would be,
there are some categories that seem to be jumping. Overall
inflation has not moved substantially from the effect of tariffs,
(08:15):
and whether or not these individual categories that I mentioned
are actually tariff impact or are just coincidence. Because you
do just have random categories jumping month of a month.
This is a this is a survey. They do not
have the ability to the government does not monitor the
pricing of every single item that gets sold every single month.
That's not how they do this. They just go and
sample a bunch of stuff. There are errors all over
(08:37):
the place here. Time will tell us as to whether
or not this slight uptick in inflation that we saw
this month turns into any sort of trend later this year,
or if it is simply noise that gets worked out
in the details. When you speak to, you know, people
in consumer branding company, consumer brand company, when you listen
(09:01):
to their CEOs talk about these things, largely, what you've
heard is, yeah, there is some teriff tariff effect, and
we're trying to find our ways to avoid raising prices.
I think there is a genuine concern about being the
first one to raise prices. You saw Walmart and Amazon
get dragged through the media for doing so, and specifically
by the White House. You have a story that popped
(09:24):
up the other day about Levi, the gene company, finding
ways to basically limit the availability of products rather than
raise prices. So they just said, Okay, we're going to
kill a bunch of these products. That'll allow us to
save some money on the complexity of delivery and returns,
and therefore we won't need to raise prices. So many
companies are doing anything that they can to avoid at
(09:47):
least being first to the clubhouse when it comes to tariffs.
That I think is also going to be the most
commonly asked question during this earning season. What has been
the effect of tariffs you raised prices, do you intend
to in the future, and are you seeing an impact
on your margins because you have not.
Speaker 3 (10:06):
Yet raised prices.
Speaker 2 (10:08):
We will see, but thus far, I don't think you
can look at this CPI report and call it anything
other than fine, not terrible, not amazing, No real evidence
of tariff impact, and markets seem to be taking it
that way as well. It's a bit of a weird
market today. We've got the Dow off in the Nasdaq up,
(10:29):
which will be covering later, but largely investors shrugging this
one off and continuing to say, let's wait and see
what the real tariff effects are, which has been the
right place so far.
Speaker 4 (10:40):
Yeah, looking forward, one of the things you might think
about here with this inflation report is does this change
the feeder reserve in its path in terms of interest rates?
Looking at the CME FED futures probabilities, where they get
a sense for just what the likelihood we'd see a
ray cut ninety seven percent that the end of July
meeting we will see no raycut. That's largely been well
(11:02):
telegraphed if you look at the subsequent meeting in the
middle of September on the seventeenth. I haven't followed this
recently bike but right now showing a fifty six percent
probability that they would be a ray cut. I believe
the last time I looked at it was more like
sixty five or sixty six percent, So not a whole
lot of change either. So not to say that this
(11:23):
inflation report has moved those probabilities substantially.
Speaker 2 (11:26):
Here, let's take a quick break when we come back.
We had a whole bunch of banks, big banks releasing
their earnings this morning. We'll cover them next on the
Financial Exchange.
Speaker 1 (11:34):
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Speaker 2 (12:09):
Well, Paul, we're kicking off earning season this week in
earnest with the big banks reporting today, we had JP Morgan, Wells, Fargo,
Blackrock City, and BNY Mellon all reporting prior to the bell.
In terms of later this week tomorrow, in terms of banks,
we're gonna have Bank America, Morgan, Stanley, Goldman, Sachs. Will
(12:31):
also have Johnson and Johnson reporting earnings tomorrow morning before
the bell. Finally, Thursday, banks are pretty much done at
that stage, but the biggest one out there, you will
have Netflix reporting earnings after the bell on Thursday. Geo Aerospace, Novardes,
Abbott Labs, some other big companies Pepsi also reporting all
(12:54):
this week as well, but kicking things off here with
the ten thousand pound gorilla b JP Morgan. Their earnings
not strong enough to lift the stock this morning, but
JP Morgan stock has been on a bit of a
tear this year before all this. They're up nearly or
more than nineteen and a half percent since the beginning
(13:15):
of this year. Stocks down about half a percent this morning.
What did we hear from Jamie Diamond and leadership at
JP Morgan in terms of their earnings, It.
Speaker 4 (13:24):
Seems like a little bit more positive sentiment. JP Morgan
has a great pulse on what's going on from an
economic standpoint, and Jamie Diamond came out in their earnings
release stating that the US economy has remained resilient in
the quarter. The finalization of tax reform and potential deregulation
are positive for the economic outlook. Of course, risk persists,
(13:46):
and he goes on to mention the typical ones that
you would expect tariffs and geopolitical concernty in terms of
the underlying numbers. I would take away that seeing some
increase in merger and acquisitions activity fees that they were
generating there that was up about eight percent, as well
as a jump in the amount of revenue that they
took on from debt underwriting. So what that means is
(14:10):
there's more economic activity, there's more deal activity out there.
It seems as if that the fears that were significantly
present in Q one in terms of what is the
economic backdrop going to look like, perhaps pausing some mergers
or deal activity in general, a lot of that seems
to have subsided. That's what I would take away as
a positive from JP Morgan's earnings. Less so focusing on,
(14:34):
you know, their metrics on a year over year basis
or anything like that.
Speaker 2 (14:37):
I don't care about JP Morgan's details of what they
did in terms of interest, revenue and trading exactly a
year over year. Unless you are an analyst or shareholder
of the company. It's not really going to change your life.
But in terms of what are their big indications for
the US economy, I agree with you there. Analysts had
been predicting a fourteen percent decline in deal making revenue.
Instead they saw seven percent jump you think about right
(15:00):
now compared to the last time we heard from leadership
in mid April, it is a very different economic environment
right now. Mid April, we were just coming off the
tales of the UHCI tariff tariff announcements on April second,
the cancelation of those announcements on April ninth. Markets had
taken a brief but significant dive, and so there are
(15:22):
significant questions, Hey, our company is actually going to want
to announce mergers right now, you know, list new shares
on the markets in the midst of all of this,
And the answer from most in the community was no,
probably not. In our deal making activity might be pretty
pretty hampered by all this. With markets running up pretty significantly,
it looks like the second half of the quarter was
actually pretty good for deal making, and you can look
(15:44):
at that as a sign of confidence on the part
of not really JP Morgan because they're the ones just
facilitating the deals and getting the revenue on it, but
from you know, CEO's of major companies saying, hey, yeah,
we do have the confidence to go do that merger,
to go buy that company, to take the action we
might not have otherwise taken. So that was my main
takeaway from JP Morgan as well. Although stock not moving
(16:07):
a whole lot this morning in terms of Wells Fargo,
what we saw from them was more bad news. Stocks
down nearly five percent in early trading so far. Really,
what we saw the miss on was their net interest
income estimates. So what the heck does that mean? How
much did jur in lending out? How much did you
(16:28):
pay out an interest to customers on those deposits? That's
your net interest income. They didn't earn as much as
they were anticipating earning.
Speaker 4 (16:35):
The biggest thing to point out here is something that
dates back to twenty seventeen on their earnings here where
we all recall the millions of unauthorized accounts that were
opened back in twenty seventeen.
Speaker 3 (16:46):
The federalists, we forget, we're gonna bring that up every
time we talked.
Speaker 4 (16:49):
We really stick it to them when we bring it.
But I think what they did merits us continuing to
mention over time, and the Fed felt that way too.
They took an unprecedented action of saying that we are
going to cap the amount of assets that you have
on your balance sheet as a bank. So back in
twenty seventeen Wells Fargo had close to two trillion dollars
(17:10):
in assets, they said back in twenty seventeen. The FED
this is that over the next eight years they have
to continue Wells Fargo to have their assets at that
same level. They could not grow their asset base. If
you're not able to grow your asset base as a bank,
you can't boost your loan volume, you can't generate more
profitability or deposits on the balance sheet. So in that
(17:31):
same period of time, where JP Morgan had a different
not bound by the same constraints, they went from two
and a half trillion in assets to four trillion in
assets over the last eight years, where Wells Fargo had
to sit at the same level for good reason. By
the way, I'm not saying that they should have been.
Speaker 3 (17:49):
Able to grow, poor guys.
Speaker 4 (17:50):
But the reason I bring that up is this is
the last quarter that you'll see the impacts from them
not being able to grow their assets on the balance sheet.
So perhaps the CEO mentioning Charlie Schaeff a Scharf that
this could be the final sort of negative headline that
they have behind them. They can now actually focus on
potentially growing their asset base eight years later, and over
(18:13):
that period of time you've seen JP Morgan and Goldman
Sachs well out earned the stock of Wells Fargo, which
has done okay, but it's been a period of time
for the markets that have done quite well from twenty
seventeen to twenty twenty five, but not as good as
some of other banking peers.
Speaker 2 (18:27):
Finally, City Group reported their earnings this morning as well,
topping analyst expectations after they have really dramatically outperformed the market.
This stock is up some twenty seven and a half
percent this year. It's up another one point nine percent
this morning, their earnings caming in a dollar ninety six
per share versus a bucks sixty estimated revenue in at
(18:49):
twenty one point sixty seven billion versus twenty point nine
to eight billion estimated, And yeah, shares are moving up
in reaction to all of that as well. And equity
revenue alone rows six percent this year from City Group
and banking similar to JP Morgan up some eighteen percent
(19:10):
in the second quarter.
Speaker 4 (19:11):
We'll get Goldman Sachs, Bank of America and Morgan Stanley.
They're set to report on Wednesday. That will, like you
mentioned earlier, in the program round out kind of the
earnings week here on the bank side of things.
Speaker 2 (19:23):
Let's take a quick break. When we come back. Full
market update for you with Wall Street Watch.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving market so
far today right here on the final Ninchel Exchange Radio Network.
Speaker 5 (20:01):
Busy day on tap as Wallstree reacts to the Consumer
Price Index for the latest measure of inflation, where consumer
prices increased two point seven percent on an annual basis,
slightly higher than estimates of two point six percent. Investor
is also sifting through second quarter bank earnings and also
reacting to major news from Nvidia. Right now, Dow is
(20:23):
off by half a percent, or two hundred and twenty
two points. SMP five hundred is edging six points higher
about a tenth per percent. Nasdaq is up by seven
tenths of one percent to one hundred and forty three points.
Rusted two thousand is off by four tenths of one percent.
Tenure Treasure reeled up by four basis points now at
four point four to seven percent, and crude oil is
(20:45):
off about six tenths of one percent trading and sixty
six dollars in fifty seven cents a barrel. JP Morgan
posted a better than expected quarterly profit on the heels
of its investment, banking and trading revenue. That stock is flats.
Fargo shares are falling nearly five percent after the bank
lowered its twenty twenty five net income guidance to roughly
(21:06):
in line with last year's levels. City Group beat second
quarter expectations, lifted by higher fees from deal making and trading.
That stock is up by two percent. And Blackrock reported
higher than expected quarterly earnings per share but disappointed on revenue,
sending that stock down five percent lower outside of bank earnings,
(21:27):
and Video shares jumping over four percent after the AI
and Chip Giant received assurances from the White House that
it can sell its eight twenty artificial chips in China.
Other chip makers, including AMD and Taiwan Semi, are seeing
gains on the news as well. More breaking news in
the tech space to report after Apple and minor NP
(21:48):
Materials announced to five hundred million dollars deal for rare
Earth magnets in the development of recycling facility that will
reinforce the iPhone maker's US supply chain. Apple shares are
up modestly, while MP material stock is surging twenty three percent.
Coreweave stock is up more than nine percent after the
(22:08):
company announced a six billion dollar AI data center project
in Pennsylvania. Trade Desk got by ten percent following news
that the advertising platform will join the S and P
five hundred on Friday, replacing ANSAs, which is being sold
to Synopsis. And Tomorrow morning ahead of the opening Bell,
Johnson and Johnson, Bank of America, Goldman Sachs, Morgan Stanley,
(22:29):
and ASML will report their second quarter results. I'm Tucker Silvan.
That is Wall Street Watch.
Speaker 2 (22:36):
That in Vidia story is where I want to focus
on next. So the company Vidia designed a special chip,
the H twenty chip, to sell directly to the Chinese
customers that would comply with US export restrictions. Back in April,
the Trump administration banned it from being sold. Kind of
part of the overall China trade escalation back and forth
(22:59):
that we were experienced. So they restricted magnets, we restricted
certain semiconductors. Since then, Jensen Wong, the leader of Nvidia
has been pushing hard in DC to make sure that
this gets approved, and his argument has been basically, or
at least his public argument has been this, let us
sell these chips all across the world, even to countries
(23:23):
you might not like and trust all that much, because
if you don't, they're going to start their own research
and development and chip design and they are going to
catch up to us. What you want to do is
allow the US to be the dominant leader in chip design.
Don't let the Chinese research it quite as actively. We
will sell the chips into China, we will sell the
(23:43):
chips into the Middle East, and they won't be able
to research and catch up because we are going to
have that revenue, continue to develop the latest and greatest,
and continue to be the dominant player in the market.
Whether that argument worked or whether this was just, you know,
part of the exchange we needed with China in order
to get magnets back flowing into the United States, I'm
(24:04):
not entirely sure. In either case. I can understand the argument.
I can understand from the Trump administration why you allow
this to go, And certainly good news for Nvidia this morning,
whose stock is up big. These these chips, in particular
that in Vidia designs. They're manufactured by TSMC over in Taiwan.
They haven't been able to be shifted for some months.
Stock is now moving and dragging the entire market higher
(24:27):
in reaction to this overall news.
Speaker 4 (24:29):
Yeah, Jensen Wong had said back in I believe it
was May that they had lost market share, going from
ninety five percent to fifty percent in China over the
course of the last several months when they were not
able to sell these eight twenty chips in terms of
a revenue impact. The reason that you're seeing in Vidia
tickup I believe four or five percent today is that
in Q one and Vidia indicated that they lost two
(24:50):
and a half billion of direct sales from this AH
twenty chip and had to take a four point five
billion dollar inventory charge. They were anticipating that it would
be an eight billion dollar drag on revenue in Q two,
So allowing this to resume selling would be a big
boost to them from a revenue perspective. So certainly that's
why the stock is trending upwards today on that news.
Speaker 3 (25:12):
Now I'm going to take the other side of this argument.
Speaker 2 (25:15):
Jensen Wong's entire reason for doing this is because China
is a massive market and it's going to affect his
stock price. That's his job, which is to increase the
profitability of this company. China is a massive market with
a lot of dough. He's getting this done so that
he can benefit himself, his shareholders, and his company.
Speaker 3 (25:31):
Absolutely, that's your job.
Speaker 2 (25:35):
The other side of this that I would point out
if you're the Chinese, put yourself in Chinese leadership's position.
This specific product is as important as critical rare earth
materials to the US. There is no way they're going
to sit back and say, yeah, we're happy to have
(25:56):
our entire supply of the latest and greatest semiconductors that
power every new technology that we're going to develop designed
and restricted in terms of sales to US.
Speaker 3 (26:05):
By the United States government. Not a chance.
Speaker 2 (26:08):
And so as such I want to turn to another
big company who saw some big dollar signs of the
course of the last decade. As a piece from the
Financial Times points out the title of the piece, which
is a really good read, how b WYD caught up
with Tesla in the global ev race. If you're not
familiar with BYD, they are now or soon to be
(26:29):
the largest seller of electric vehicles and one of the
largest vehicle producers in the world because they do more
than electric But in mid twenty twenty two, basically, you know,
this company was just starting to catch up with Tesla's
technology and starting to make some moves. At this point,
(26:51):
there's some evidence that it is better than technology that
Tesla is able to produce. Tesla entered the Chinese market
years and years ago. I forget when they actually opened
up their Chinese manufacturing facility, but effectively they saw the
same thing that everyone else did, which is, hey, this
is a massive market for us to be able to
(27:12):
sell into. It also happens to be one of the
best manufacturing country countries in the world, so if we
want to sell to other markets, it's a way too
cheapen our manufacturing process. While other Western carmakers were forced
to form joint ventures with local groups, China's kind of
changed their investment rules and allowed Tesla to fully own
(27:33):
and operate their Chinese subsidiary doing business in China via
these two massive plants that were used to produce the
producer stuff, and they kind of hoped that hey, you know,
even though Tesla's operating it's still going to give us
the expertise we need to learn. Tesla accepted that risk.
They knew that, hey, there's a risk of hardware and
(27:55):
IP being transferred, but decided it was worth it, and
guess what.
Speaker 3 (28:00):
Few years later, By all accounts, these vehicles are as
good or approaching better.
Speaker 2 (28:05):
At least their claims are that they're as good or
better than the Tesla evs that are being made today.
Speaker 3 (28:10):
A few things that people have pointed to.
Speaker 2 (28:14):
One they just recently in February announced the BYD did
announce their God's Eye and Advanced Driver Assistance system that's
a precursor to fully autonomous vehicles, so that has been
one of the main selling points of Tesla. They also
announced a new battery charging system that's allegedly capable of
adding a driving range of about four hundred and seventy
kilometers in five minutes. My only point is this is
(28:41):
only the latest in stories of major American and other
foreign manufacturers, industrial companies, technology companies entering the Chinese market
because they see dollar signs having their IP ripped off,
and then those Chinese manufacturers making either close to US
go product at a cheaper price or a better product
(29:02):
eventually at a cheaper price and putting those companies out
of business, or at least putting their Chinese business out
of business, right Like you know, China's ability to rip
off Fords Technology thirty years ago did not put Forward
out of business, but it pretty much put them out
of business in China.
Speaker 4 (29:19):
Mm well, I mean, ultimately, if you're Tesla, though I
agree with all that you're saying there, you have to
keep you have to innovate to keep up right. And
the bottom line is they haven't. You know, they haven't
come out with a new model in a long period
of time, and Bid has been able to come in
and undercut them on price. And now the quality piece
(29:41):
is reaching that level too, where you're seeing that from
twenty twenty to twenty twenty four, Tesla had sold five
hundred thousand vehicles in twenty twenty up to one point
eight million in twenty twenty four. However, during that same
span of time, you've got Bid now selling one point
seventy six million in just evs alone last year in
(30:01):
twenty twenty four and four point two million cars total,
ten times more than what they were selling back in
twenty twenties.
Speaker 2 (30:09):
I think My primary point with this is, yes, Tesla
execution problems, Elon Musk being distracted over the last eighteen
months and not focusing on his core business, all sorts
of other issues that rattled Tesla. There are dozens of
dead companies or dying companies that face the same thing.
Go to China for the dollars have your IP ripped
(30:30):
off if we don't go in eyes wide open with
in Nvidia and their own products entering the Chinese market
and how that IP is going to get ripped off
again they're not manufacturing in mainland China. I just I
think that there is a severe risk of that happening.
And I think again, I don't think it's going to
put in Vidiata business. But if you're China, you have
one goal when it comes to the semiconductor industry, learn
(30:53):
how to design and manufacture these things domestically so you
don't have to be dependent on a US company.
Speaker 4 (30:58):
Yeah, I mean that's the competition and mistake though, you know,
and Video has got to innovate too, because believe it
or you know, China is not the only one doing this.
You know, they have and Videos reached a four and
a half trillion dollar market cap. So there's domestic competitors
who want to beat them, sure too, and that's just
the way things go, and that to us as end
consumers is to our benefit for more competition from more
(31:19):
advanced technology. So it's an interesting feel, but you're right,
they're nipping at our heels, that's for sure.
Speaker 2 (31:25):
Let's take a quick break here. When we come back,
Big American rare Earth producer trying to make a play
to end China's dominance, will be cover that next. On
The Financial Exchange.
Speaker 1 (31:38):
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Speaker 5 (32:03):
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(32:27):
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Speaker 2 (32:34):
Tucker mentioned it briefly earlier, but Apple has inked a
five hundred million dollars deal for rare earth magnets from
little known company before before last week, MP Materials. So
this is the the Fort Worth, Texas company that is
working on making the United States something of a presence
(32:56):
when it comes to producing magnets where we have almost
none today. General Motors is signed to start taking.
Speaker 3 (33:03):
Deliveries later this year. And obviously this.
Speaker 2 (33:05):
Is the same company who saw an investment from the Pentagon.
Was it just last week, Paul? I think you guys
covered this just last week. Look, this is an open question.
I would view it as one of those areas that's
fairly critical for the government to be involved in because
China has pretty much a ninety nine percent market share
(33:27):
on these types of rare earth magnets. They go into
all sorts of defense items that we need, and we
saw the stranglehold that they can put on the United
States and the event of any sort of conflict over
the course of the last few months here. So I
agree with everything that's being done. I think where history
(33:47):
would tell us this might go is that the unas
might need to be, might need to remain very involved
in this for quite some time in order to make
it actually successful and actually profitable, because can dump this
stuff onto the markets and try and put them out
of business down the road.
Speaker 4 (34:03):
Yeah, I think that investors have to be a little
bit wary or going in with eyes wide open. That
this has been an industry that the US has struggled
to compete really since the nineties and two thousands. It
fell apart entirely domestically, and there have been multiple attempts
to try and make a US presence, But because trying
to control so much of the market share, they're able
(34:25):
to flood materials onto the market and crash prices down
and put these companies and it's really just empy materials
if you're talking about a domestic option in a very
difficult spot from a profitability standpoint. So to Mike's point,
the backstopping of the DoD and others are really going
to be necessary to get this business to continue to
(34:46):
move off the ground some of the trading that we're
seeing today. A lot of enthusiasm around this announcement, but
there are a couple of years away from really even
just putting these magnets out there.
Speaker 3 (34:59):
What do you mean?
Speaker 2 (35:00):
Seems pretty easy to just dig a mine and start
getting the raw earths out of the ground and then
transferring those into magnets that Apple will want to use
in its technology, right.
Speaker 3 (35:10):
That seems My head.
Speaker 4 (35:11):
Started spinning on the sixth step process that they laid
out here in the Wall Street Journal piece, which was
supposed to be a very easy way to digest it. Yeah,
not easy business and not something that there's a ton
of talent here either for this type of work.
Speaker 3 (35:28):
You bring that up.
Speaker 2 (35:29):
I have my wife's cousin as well as her husband,
both attended the Colorado School of Mines, which I didn't
know existed until recently. Their work options that they found
after graduating were Western Canada, about an hour and a
half outside of Tucson. Or what they chose to do,
which is moved to Australia and work for mining companies
(35:50):
out in Australia.
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Speaker 2 (36:48):
Uh the Bloomberg, The Bloomberg, Let's go with the Bloomberg
has a piece this morning from an opinion piece from
Clive Crook, asking is the dollars era of exorbitant privilege ending.
We've talked about this at length, the dollars having its
worst year compared to a basket of major's currency since
the nineteen seventies. A lot of people asking the same question, Hey,
(37:10):
with deficits this large, with trade imbalance, with trade wars,
could this lead to the end of an era? And
I think eventually all of this stuff starts to matter
and could have a real glaring impact on the dollar.
I will also point out that I spent a little
bit of time this morning looking for articles going all
(37:30):
the way back to the nineteen seventies and eighties detailing
theories as to why the dollar's dominance was going to
be on the verge of ending any moment now, and
we've so far made it another five decades without that happening.
So I'd be awfully surprised if twenty twenty five happened
to be the year where the dollars dominance and deficits
(37:51):
and all this stuff started to really matter for American investors.
I have grave concerns about how much debt our nation
has and how terribly that's going to play out. I'm
merely saying that We've been calling for the death of
the dollar and the death of the dominance for five decades,
half a century, and it hasn't happened yet.
Speaker 3 (38:09):
Quick break, A lot more to cover.
Speaker 2 (38:10):
In the second hour, two of the three major industries
have turned negative for the day. We'll be covering that
in a lot more Next on the financial exchange.
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(01:07):
and fall Lane.
Speaker 2 (01:10):
Good morning, and welcome back to the Financial Exchange. It
was shaping up to be a busy Tuesday in a
busy week here on the Financial Exchange, and it is proving.
It is proving such. So I'm gonna talk really fast
the entire show to make sure we have time to
get all of it. Does that sound good to you, Tucker?
Does that make for a good Medea problem?
Speaker 3 (01:26):
Awesome radio?
Speaker 2 (01:26):
Okay, let's see how fast we can go, and we'll
get through this as quickly as possible. At a thirty
this morning, we had inflation data released by the Bureau
of Labor Statistics, so the CPI came out, will be
covering that, we've got major bank earnings from the likes
of JP Morgan, Wells, Fargo and others. We'll be diving
in there, and then major news for in video when
it comes to China being announced as well. That was
(01:48):
not on the docket and a bit of a surprise
to investors this morning, so we'll be jumping in there
as well. But I do want to start with that
all important inflation data. And I call it all important
because we on this program and every major economic analyst
out there has been talking and wondering about when and
if we will see inflation data start to print evidence
(02:11):
of tariffs, and to this point, there has been We
talked about this yesterday, Chuck and I hesitated to come
up with a single economic data point that you could
look at and say, definitively, here is your evidence of
tariff effect on the overall economy. And when we get
the inflation data this morning, I can't say that we
(02:32):
can really look at it definitively and prove that out either.
So let's start with the headline numbers. The CPI print
came in month over month at zero point three percent.
A couple things about that. It's right where it was
anticipated to be. It's also the highest reading we've gotten
month over month since January. So January came in at
half a percent month over month. This came in at
(02:55):
zero point three percent. When we look at that year
over year number, we're looking at two point seven percent
on the headline inflation two point nine percent. When we
look at that core number, core, if you may recall,
strips out the impact of food and energy. Core is
a way that some economists use to look at. Okay,
when we strip out really volatile items that interest rates
(03:17):
setting policy probably doesn't have anything to do with what's
the real rate that we're seeing here still printing in
here under three percent. I think most are going to
take that as good news. When we look at the
month over a month on core, so again, take out
the impact of food, take out the impact of energy
because those are volatile. We saw prices only increasing zero
(03:38):
point two percent month over month. We're going to dive
in here into the weeds and start looking through some
of the individual points here and see if there's any
real evidence of tariff inflation. But I think one thing
is certain. The President is going to use this once
again as evidence that, look, there is no tariff effect
(03:58):
on inflation.
Speaker 3 (04:00):
FED can lower rates. They should be lowering rates.
Speaker 2 (04:02):
Already, and quite honestly, there's nothing in this report I
think that contradicts that statement terribly. Yes, underlying inflation is
higher than where the FED would like it long term,
but our reading like this does not change the overall narrative,
which is inflation's pretty low and it's been remaining pretty low.
Speaker 3 (04:19):
Yeah.
Speaker 4 (04:20):
That seems to be my takeaway, Mike, is just that
we've been trying to glean anything that we can from
these recent economic reports to get any indication that we
are seeing impacts from tariffs. But you look through this
particular report and the headline number, like you mentioned, a
little bit hotter than anticipated. Some of that on the
(04:40):
headline CPI is probably tied to the fact that we
did see energy and energy prices increase point nine percent
month over month. That's something that's not likely to repeat itself,
so that contributed to the higher number. And then you
have some anomalies on the downside to where you have
negative impact from the decrease in price is for used
(05:01):
and new vehicles, sort of softening out that energy increase.
But if you want to make the tariff argument, and
I'm not saying I'm making it, you did see a
little bit of an uptick on the apparel side of things.
To be clear, we import a significant amount of apparel
from overseas. The T shirts, shirts, shoes, et cetera. That
(05:21):
most of us are wearing comes from overseas. We did
see an increase month over month zero point four percent
on apparel. You saw furnishings as well as some other
areas where we did see some uptick in prices. But
I'm not going to sit here and tell you that
that is, you know, clear cut evidence that there were
seeing some substantial impact.
Speaker 2 (05:39):
Yeah, I'm going to do what every major economist would
tell you definitely don't do right now, and just go
and look through the list of Okay, when we strip
out food and energy, because I think most would admit
that probably isn't tariff related. Sure, you know, if we
have tariffs on certain types of ten, maybe food prices
will go up for canned goods. But I'm going to
ignore that for a moment and look at just all
(06:01):
the other items outside of food and energy. What went
up by more than one and a half percent on
a month over month basis, That seems like a significant threshold.
That would be eighteen percent annualized inflation if you got
it for a year. Other linens, that's just a category.
Those went up five and a half percent month over month.
That's a pretty big jump. Other furniture one point six
(06:23):
percent jump month over month. Major appliances up nearly two percent,
and appliance is generally up about two percent. Non electric
cookwaar and tableware up three point seven percent month of
a month. So if you're looking for that, that's a
fairly big jump there. Taking a look at other categories here,
(06:45):
we saw men's shirts and sweaters up four point three
percent and women's dresses up three point nine percent. I
can't really explain why women's dresses went up by three
point nine yet women's outer wear went down boy by
three point three percent, which is why looking at these
individual categories is usually not something that you want to do.
But again, if you're cherry picking and looking for some
(07:08):
form of tariff effect here, this is where you're finding it.
Women's underwear, nightwear, swimwear, and accessories up one point six
percent month over month, men's footwear up two point six
and that really rounds out most of what I.
Speaker 3 (07:24):
Oh, sorry, no, toy prices is there?
Speaker 2 (07:26):
Up is another one, yep, recreation so other video equipment
up four and a half percent. You mentioned toy prices already,
so I don't need to highlight that. You really do
need to go cherry picking in here to try and
to find some sort of effective tariffs. And it'd be
difficult for me to say that, oh, yeah, you know,
(07:47):
toy prices and men's sweaters and shirts are the definitive evidence.
Speaker 3 (07:52):
Of tariffs that we were looking at.
Speaker 2 (07:54):
When you had other similar categories going down in pricing
month over month, And so the answer on all of
this is, at least for me today, my opinion would be,
there are some categories that seem to be jumping. Overall
inflation has not moved substantially from the effect of tariffs,
(08:15):
and whether or not these individual categories that I mentioned
are actually tariff impact or are just coincidence. Because you
do just have random categories jumping month of a month.
This is a this is a survey. They do not
have the ability to the government does not monitor the
pricing of every single item that gets sold every single month.
That's not how they do this. They just go and
sample a bunch of stuff. There are errors all over
(08:37):
the place here. Time will tell us as to whether
or not this slight uptick in inflation that we saw
this month turns into any sort of trend later this year,
or if it is simply noise that gets worked out
in the details. When you speak to, you know, people
in consumer branding company, consumer brand company, when you listen
(09:01):
to their CEOs talk about these things, largely, what you've
heard is, yeah, there is some teriff tariff effect, and
we're trying to find our ways to avoid raising prices.
I think there is a genuine concern about being the
first one to raise prices. You saw Walmart and Amazon
get dragged through the media for doing so, and specifically
by the White House. You have a story that popped
(09:24):
up the other day about Levi, the gene company, finding
ways to basically limit the availability of products rather than
raise prices. So they just said, Okay, we're going to
kill a bunch of these products. That'll allow us to
save some money on the complexity of delivery and returns,
and therefore we won't need to raise prices. So many
companies are doing anything that they can to avoid at
(09:47):
least being first to the clubhouse when it comes to tariffs.
That I think is also going to be the most
commonly asked question during this earning season. What has been
the effect of tariffs you raised prices, do you intend
to in the future, and are you seeing an impact
on your margins because you have not.
Speaker 3 (10:06):
Yet raised prices.
Speaker 2 (10:08):
We will see, but thus far, I don't think you
can look at this CPI report and call it anything
other than fine, not terrible, not amazing, No real evidence
of tariff impact, and markets seem to be taking it
that way as well. It's a bit of a weird
market today. We've got the Dow off in the Nasdaq up,
(10:29):
which will be covering later, but largely investors shrugging this
one off and continuing to say, let's wait and see
what the real tariff effects are, which has been the
right place so far.
Speaker 4 (10:40):
Yeah, looking forward, one of the things you might think
about here with this inflation report is does this change
the feeder reserve in its path in terms of interest rates?
Looking at the CME FED futures probabilities, where they get
a sense for just what the likelihood we'd see a
ray cut ninety seven percent that the end of July
meeting we will see no raycut. That's largely been well
(11:02):
telegraphed if you look at the subsequent meeting in the
middle of September on the seventeenth. I haven't followed this
recently bike but right now showing a fifty six percent
probability that they would be a ray cut. I believe
the last time I looked at it was more like
sixty five or sixty six percent, So not a whole
lot of change either. So not to say that this
(11:23):
inflation report has moved those probabilities substantially.
Speaker 2 (11:26):
Here, let's take a quick break when we come back.
We had a whole bunch of banks, big banks releasing
their earnings this morning. We'll cover them next on the
Financial Exchange.
Speaker 1 (11:34):
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Speaker 2 (12:09):
Well, Paul, we're kicking off earning season this week in
earnest with the big banks reporting today, we had JP Morgan, Wells, Fargo,
Blackrock City, and BNY Mellon all reporting prior to the bell.
In terms of later this week tomorrow, in terms of banks,
we're gonna have Bank America, Morgan, Stanley, Goldman, Sachs. Will
(12:31):
also have Johnson and Johnson reporting earnings tomorrow morning before
the bell. Finally, Thursday, banks are pretty much done at
that stage, but the biggest one out there, you will
have Netflix reporting earnings after the bell on Thursday. Geo Aerospace, Novardes,
Abbott Labs, some other big companies Pepsi also reporting all
(12:54):
this week as well, but kicking things off here with
the ten thousand pound gorilla b JP Morgan. Their earnings
not strong enough to lift the stock this morning, but
JP Morgan stock has been on a bit of a
tear this year before all this. They're up nearly or
more than nineteen and a half percent since the beginning
(13:15):
of this year. Stocks down about half a percent this morning.
What did we hear from Jamie Diamond and leadership at
JP Morgan in terms of their earnings, It.
Speaker 4 (13:24):
Seems like a little bit more positive sentiment. JP Morgan
has a great pulse on what's going on from an
economic standpoint, and Jamie Diamond came out in their earnings
release stating that the US economy has remained resilient in
the quarter. The finalization of tax reform and potential deregulation
are positive for the economic outlook. Of course, risk persists,
(13:46):
and he goes on to mention the typical ones that
you would expect tariffs and geopolitical concernty in terms of
the underlying numbers. I would take away that seeing some
increase in merger and acquisitions activity fees that they were
generating there that was up about eight percent, as well
as a jump in the amount of revenue that they
took on from debt underwriting. So what that means is
(14:10):
there's more economic activity, there's more deal activity out there.
It seems as if that the fears that were significantly
present in Q one in terms of what is the
economic backdrop going to look like, perhaps pausing some mergers
or deal activity in general, a lot of that seems
to have subsided. That's what I would take away as
a positive from JP Morgan's earnings. Less so focusing on,
(14:34):
you know, their metrics on a year over year basis
or anything like that.
Speaker 2 (14:37):
I don't care about JP Morgan's details of what they
did in terms of interest, revenue and trading exactly a
year over year. Unless you are an analyst or shareholder
of the company. It's not really going to change your life.
But in terms of what are their big indications for
the US economy, I agree with you there. Analysts had
been predicting a fourteen percent decline in deal making revenue.
Instead they saw seven percent jump you think about right
(15:00):
now compared to the last time we heard from leadership
in mid April, it is a very different economic environment
right now. Mid April, we were just coming off the
tales of the UHCI tariff tariff announcements on April second,
the cancelation of those announcements on April ninth. Markets had
taken a brief but significant dive, and so there are
(15:22):
significant questions, Hey, our company is actually going to want
to announce mergers right now, you know, list new shares
on the markets in the midst of all of this,
And the answer from most in the community was no,
probably not. In our deal making activity might be pretty
pretty hampered by all this. With markets running up pretty significantly,
it looks like the second half of the quarter was
actually pretty good for deal making, and you can look
(15:44):
at that as a sign of confidence on the part
of not really JP Morgan because they're the ones just
facilitating the deals and getting the revenue on it, but
from you know, CEO's of major companies saying, hey, yeah,
we do have the confidence to go do that merger,
to go buy that company, to take the action we
might not have otherwise taken. So that was my main
takeaway from JP Morgan as well. Although stock not moving
(16:07):
a whole lot this morning in terms of Wells Fargo,
what we saw from them was more bad news. Stocks
down nearly five percent in early trading so far. Really,
what we saw the miss on was their net interest
income estimates. So what the heck does that mean? How
much did jur in lending out? How much did you
(16:28):
pay out an interest to customers on those deposits? That's
your net interest income. They didn't earn as much as
they were anticipating earning.
Speaker 4 (16:35):
The biggest thing to point out here is something that
dates back to twenty seventeen on their earnings here where
we all recall the millions of unauthorized accounts that were
opened back in twenty seventeen.
Speaker 3 (16:46):
The federalists, we forget, we're gonna bring that up every
time we talked.
Speaker 4 (16:49):
We really stick it to them when we bring it.
But I think what they did merits us continuing to
mention over time, and the Fed felt that way too.
They took an unprecedented action of saying that we are
going to cap the amount of assets that you have
on your balance sheet as a bank. So back in
twenty seventeen Wells Fargo had close to two trillion dollars
(17:10):
in assets, they said back in twenty seventeen. The FED
this is that over the next eight years they have
to continue Wells Fargo to have their assets at that
same level. They could not grow their asset base. If
you're not able to grow your asset base as a bank,
you can't boost your loan volume, you can't generate more
profitability or deposits on the balance sheet. So in that
(17:31):
same period of time, where JP Morgan had a different
not bound by the same constraints, they went from two
and a half trillion in assets to four trillion in
assets over the last eight years, where Wells Fargo had
to sit at the same level for good reason. By
the way, I'm not saying that they should have been.
Speaker 3 (17:49):
Able to grow, poor guys.
Speaker 4 (17:50):
But the reason I bring that up is this is
the last quarter that you'll see the impacts from them
not being able to grow their assets on the balance sheet.
So perhaps the CEO mentioning Charlie Schaeff a Scharf that
this could be the final sort of negative headline that
they have behind them. They can now actually focus on
potentially growing their asset base eight years later, and over
(18:13):
that period of time you've seen JP Morgan and Goldman
Sachs well out earned the stock of Wells Fargo, which
has done okay, but it's been a period of time
for the markets that have done quite well from twenty
seventeen to twenty twenty five, but not as good as
some of other banking peers.
Speaker 2 (18:27):
Finally, City Group reported their earnings this morning as well,
topping analyst expectations after they have really dramatically outperformed the market.
This stock is up some twenty seven and a half
percent this year. It's up another one point nine percent
this morning, their earnings caming in a dollar ninety six
per share versus a bucks sixty estimated revenue in at
(18:49):
twenty one point sixty seven billion versus twenty point nine
to eight billion estimated, And yeah, shares are moving up
in reaction to all of that as well. And equity
revenue alone rows six percent this year from City Group
and banking similar to JP Morgan up some eighteen percent
(19:10):
in the second quarter.
Speaker 4 (19:11):
We'll get Goldman Sachs, Bank of America and Morgan Stanley.
They're set to report on Wednesday. That will, like you
mentioned earlier, in the program round out kind of the
earnings week here on the bank side of things.
Speaker 2 (19:23):
Let's take a quick break. When we come back. Full
market update for you with Wall Street Watch.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving market so
far today right here on the final Ninchel Exchange Radio Network.
Speaker 5 (20:01):
Busy day on tap as Wallstree reacts to the Consumer
Price Index for the latest measure of inflation, where consumer
prices increased two point seven percent on an annual basis,
slightly higher than estimates of two point six percent. Investor
is also sifting through second quarter bank earnings and also
reacting to major news from Nvidia. Right now, Dow is
(20:23):
off by half a percent, or two hundred and twenty
two points. SMP five hundred is edging six points higher
about a tenth per percent. Nasdaq is up by seven
tenths of one percent to one hundred and forty three points.
Rusted two thousand is off by four tenths of one percent.
Tenure Treasure reeled up by four basis points now at
four point four to seven percent, and crude oil is
(20:45):
off about six tenths of one percent trading and sixty
six dollars in fifty seven cents a barrel. JP Morgan
posted a better than expected quarterly profit on the heels
of its investment, banking and trading revenue. That stock is flats.
Fargo shares are falling nearly five percent after the bank
lowered its twenty twenty five net income guidance to roughly
(21:06):
in line with last year's levels. City Group beat second
quarter expectations, lifted by higher fees from deal making and trading.
That stock is up by two percent. And Blackrock reported
higher than expected quarterly earnings per share but disappointed on revenue,
sending that stock down five percent lower outside of bank earnings,
(21:27):
and Video shares jumping over four percent after the AI
and Chip Giant received assurances from the White House that
it can sell its eight twenty artificial chips in China.
Other chip makers, including AMD and Taiwan Semi, are seeing
gains on the news as well. More breaking news in
the tech space to report after Apple and minor NP
(21:48):
Materials announced to five hundred million dollars deal for rare
Earth magnets in the development of recycling facility that will
reinforce the iPhone maker's US supply chain. Apple shares are
up modestly, while MP material stock is surging twenty three percent.
Coreweave stock is up more than nine percent after the
(22:08):
company announced a six billion dollar AI data center project
in Pennsylvania. Trade Desk got by ten percent following news
that the advertising platform will join the S and P
five hundred on Friday, replacing ANSAs, which is being sold
to Synopsis. And Tomorrow morning ahead of the opening Bell,
Johnson and Johnson, Bank of America, Goldman Sachs, Morgan Stanley,
(22:29):
and ASML will report their second quarter results. I'm Tucker Silvan.
That is Wall Street Watch.
Speaker 2 (22:36):
That in Vidia story is where I want to focus
on next. So the company Vidia designed a special chip,
the H twenty chip, to sell directly to the Chinese
customers that would comply with US export restrictions. Back in April,
the Trump administration banned it from being sold. Kind of
part of the overall China trade escalation back and forth
(22:59):
that we were experienced. So they restricted magnets, we restricted
certain semiconductors. Since then, Jensen Wong, the leader of Nvidia
has been pushing hard in DC to make sure that
this gets approved, and his argument has been basically, or
at least his public argument has been this, let us
sell these chips all across the world, even to countries
(23:23):
you might not like and trust all that much, because
if you don't, they're going to start their own research
and development and chip design and they are going to
catch up to us. What you want to do is
allow the US to be the dominant leader in chip design.
Don't let the Chinese research it quite as actively. We
will sell the chips into China, we will sell the
(23:43):
chips into the Middle East, and they won't be able
to research and catch up because we are going to
have that revenue, continue to develop the latest and greatest,
and continue to be the dominant player in the market.
Whether that argument worked or whether this was just, you know,
part of the exchange we needed with China in order
to get magnets back flowing into the United States, I'm
(24:04):
not entirely sure. In either case. I can understand the argument.
I can understand from the Trump administration why you allow
this to go, And certainly good news for Nvidia this morning,
whose stock is up big. These these chips, in particular
that in Vidia designs. They're manufactured by TSMC over in Taiwan.
They haven't been able to be shifted for some months.
Stock is now moving and dragging the entire market higher
(24:27):
in reaction to this overall news.
Speaker 4 (24:29):
Yeah, Jensen Wong had said back in I believe it
was May that they had lost market share, going from
ninety five percent to fifty percent in China over the
course of the last several months when they were not
able to sell these eight twenty chips in terms of
a revenue impact. The reason that you're seeing in Vidia
tickup I believe four or five percent today is that
in Q one and Vidia indicated that they lost two
(24:50):
and a half billion of direct sales from this AH
twenty chip and had to take a four point five
billion dollar inventory charge. They were anticipating that it would
be an eight billion dollar drag on revenue in Q two,
So allowing this to resume selling would be a big
boost to them from a revenue perspective. So certainly that's
why the stock is trending upwards today on that news.
Speaker 3 (25:12):
Now I'm going to take the other side of this argument.
Speaker 2 (25:15):
Jensen Wong's entire reason for doing this is because China
is a massive market and it's going to affect his
stock price. That's his job, which is to increase the
profitability of this company. China is a massive market with
a lot of dough. He's getting this done so that
he can benefit himself, his shareholders, and his company.
Speaker 3 (25:31):
Absolutely, that's your job.
Speaker 2 (25:35):
The other side of this that I would point out
if you're the Chinese, put yourself in Chinese leadership's position.
This specific product is as important as critical rare earth
materials to the US. There is no way they're going
to sit back and say, yeah, we're happy to have
(25:56):
our entire supply of the latest and greatest semiconductors that
power every new technology that we're going to develop designed
and restricted in terms of sales to US.
Speaker 3 (26:05):
By the United States government. Not a chance.
Speaker 2 (26:08):
And so as such I want to turn to another
big company who saw some big dollar signs of the
course of the last decade. As a piece from the
Financial Times points out the title of the piece, which
is a really good read, how b WYD caught up
with Tesla in the global ev race. If you're not
familiar with BYD, they are now or soon to be
(26:29):
the largest seller of electric vehicles and one of the
largest vehicle producers in the world because they do more
than electric But in mid twenty twenty two, basically, you know,
this company was just starting to catch up with Tesla's
technology and starting to make some moves. At this point,
(26:51):
there's some evidence that it is better than technology that
Tesla is able to produce. Tesla entered the Chinese market
years and years ago. I forget when they actually opened
up their Chinese manufacturing facility, but effectively they saw the
same thing that everyone else did, which is, hey, this
is a massive market for us to be able to
(27:12):
sell into. It also happens to be one of the
best manufacturing country countries in the world, so if we
want to sell to other markets, it's a way too
cheapen our manufacturing process. While other Western carmakers were forced
to form joint ventures with local groups, China's kind of
changed their investment rules and allowed Tesla to fully own
(27:33):
and operate their Chinese subsidiary doing business in China via
these two massive plants that were used to produce the
producer stuff, and they kind of hoped that hey, you know,
even though Tesla's operating it's still going to give us
the expertise we need to learn. Tesla accepted that risk.
They knew that, hey, there's a risk of hardware and
(27:55):
IP being transferred, but decided it was worth it, and
guess what.
Speaker 3 (28:00):
Few years later, By all accounts, these vehicles are as
good or approaching better.
Speaker 2 (28:05):
At least their claims are that they're as good or
better than the Tesla evs that are being made today.
Speaker 3 (28:10):
A few things that people have pointed to.
Speaker 2 (28:14):
One they just recently in February announced the BYD did
announce their God's Eye and Advanced Driver Assistance system that's
a precursor to fully autonomous vehicles, so that has been
one of the main selling points of Tesla. They also
announced a new battery charging system that's allegedly capable of
adding a driving range of about four hundred and seventy
kilometers in five minutes. My only point is this is
(28:41):
only the latest in stories of major American and other
foreign manufacturers, industrial companies, technology companies entering the Chinese market
because they see dollar signs having their IP ripped off,
and then those Chinese manufacturers making either close to US
go product at a cheaper price or a better product
(29:02):
eventually at a cheaper price and putting those companies out
of business, or at least putting their Chinese business out
of business, right Like you know, China's ability to rip
off Fords Technology thirty years ago did not put Forward
out of business, but it pretty much put them out
of business in China.
Speaker 4 (29:19):
Mm well, I mean, ultimately, if you're Tesla, though I
agree with all that you're saying there, you have to
keep you have to innovate to keep up right. And
the bottom line is they haven't. You know, they haven't
come out with a new model in a long period
of time, and Bid has been able to come in
and undercut them on price. And now the quality piece
(29:41):
is reaching that level too, where you're seeing that from
twenty twenty to twenty twenty four, Tesla had sold five
hundred thousand vehicles in twenty twenty up to one point
eight million in twenty twenty four. However, during that same
span of time, you've got Bid now selling one point
seventy six million in just evs alone last year in
(30:01):
twenty twenty four and four point two million cars total,
ten times more than what they were selling back in
twenty twenties.
Speaker 2 (30:09):
I think My primary point with this is, yes, Tesla
execution problems, Elon Musk being distracted over the last eighteen
months and not focusing on his core business, all sorts
of other issues that rattled Tesla. There are dozens of
dead companies or dying companies that face the same thing.
Go to China for the dollars have your IP ripped
(30:30):
off if we don't go in eyes wide open with
in Nvidia and their own products entering the Chinese market
and how that IP is going to get ripped off
again they're not manufacturing in mainland China. I just I
think that there is a severe risk of that happening.
And I think again, I don't think it's going to
put in Vidiata business. But if you're China, you have
one goal when it comes to the semiconductor industry, learn
(30:53):
how to design and manufacture these things domestically so you
don't have to be dependent on a US company.
Speaker 4 (30:58):
Yeah, I mean that's the competition and mistake though, you know,
and Video has got to innovate too, because believe it
or you know, China is not the only one doing this.
You know, they have and Videos reached a four and
a half trillion dollar market cap. So there's domestic competitors
who want to beat them, sure too, and that's just
the way things go, and that to us as end
consumers is to our benefit for more competition from more
(31:19):
advanced technology. So it's an interesting feel, but you're right,
they're nipping at our heels, that's for sure.
Speaker 2 (31:25):
Let's take a quick break here. When we come back,
Big American rare Earth producer trying to make a play
to end China's dominance, will be cover that next. On
The Financial Exchange.
Speaker 1 (31:38):
Find daily interviews and full shows of the Financial Exchange
on our YouTube page. Like us on YouTube and get
caught up on anything and everything you might have missed.
This is the Financial Exchange Radio Network. The Financial Exchange
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Speaker 5 (32:03):
Now it's a great time to register for the DAV
five k, taking place on Saturday November eighth at Fort
Independence on Castle Island. The race has sold out each
of the past four years and slots are continuing to
fill up quickly, so don't delay visit DAV five k
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here at the Financial Exchange by registering under Team TFE.
(32:27):
That's Saturday, November eighth for this year's DAV five k.
Sign up now at DAV fivek dot Boston.
Speaker 2 (32:34):
Tucker mentioned it briefly earlier, but Apple has inked a
five hundred million dollars deal for rare earth magnets from
little known company before before last week, MP Materials. So
this is the the Fort Worth, Texas company that is
working on making the United States something of a presence
(32:56):
when it comes to producing magnets where we have almost
none today. General Motors is signed to start taking.
Speaker 3 (33:03):
Deliveries later this year. And obviously this.
Speaker 2 (33:05):
Is the same company who saw an investment from the Pentagon.
Was it just last week, Paul? I think you guys
covered this just last week. Look, this is an open question.
I would view it as one of those areas that's
fairly critical for the government to be involved in because
China has pretty much a ninety nine percent market share
(33:27):
on these types of rare earth magnets. They go into
all sorts of defense items that we need, and we
saw the stranglehold that they can put on the United
States and the event of any sort of conflict over
the course of the last few months here. So I
agree with everything that's being done. I think where history
(33:47):
would tell us this might go is that the unas
might need to be, might need to remain very involved
in this for quite some time in order to make
it actually successful and actually profitable, because can dump this
stuff onto the markets and try and put them out
of business down the road.
Speaker 4 (34:03):
Yeah, I think that investors have to be a little
bit wary or going in with eyes wide open. That
this has been an industry that the US has struggled
to compete really since the nineties and two thousands. It
fell apart entirely domestically, and there have been multiple attempts
to try and make a US presence, But because trying
to control so much of the market share, they're able
(34:25):
to flood materials onto the market and crash prices down
and put these companies and it's really just empy materials
if you're talking about a domestic option in a very
difficult spot from a profitability standpoint. So to Mike's point,
the backstopping of the DoD and others are really going
to be necessary to get this business to continue to
(34:46):
move off the ground some of the trading that we're
seeing today. A lot of enthusiasm around this announcement, but
there are a couple of years away from really even
just putting these magnets out there.
Speaker 3 (34:59):
What do you mean?
Speaker 2 (35:00):
Seems pretty easy to just dig a mine and start
getting the raw earths out of the ground and then
transferring those into magnets that Apple will want to use
in its technology, right.
Speaker 3 (35:10):
That seems My head.
Speaker 4 (35:11):
Started spinning on the sixth step process that they laid
out here in the Wall Street Journal piece, which was
supposed to be a very easy way to digest it. Yeah,
not easy business and not something that there's a ton
of talent here either for this type of work.
Speaker 3 (35:28):
You bring that up.
Speaker 2 (35:29):
I have my wife's cousin as well as her husband,
both attended the Colorado School of Mines, which I didn't
know existed until recently. Their work options that they found
after graduating were Western Canada, about an hour and a
half outside of Tucson. Or what they chose to do,
which is moved to Australia and work for mining companies
(35:50):
out in Australia.
Speaker 5 (35:51):
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Speaker 2 (36:48):
Uh the Bloomberg, The Bloomberg, Let's go with the Bloomberg
has a piece this morning from an opinion piece from
Clive Crook, asking is the dollars era of exorbitant privilege ending.
We've talked about this at length, the dollars having its
worst year compared to a basket of major's currency since
the nineteen seventies. A lot of people asking the same question, Hey,
(37:10):
with deficits this large, with trade imbalance, with trade wars,
could this lead to the end of an era? And
I think eventually all of this stuff starts to matter
and could have a real glaring impact on the dollar.
I will also point out that I spent a little
bit of time this morning looking for articles going all
(37:30):
the way back to the nineteen seventies and eighties detailing
theories as to why the dollar's dominance was going to
be on the verge of ending any moment now, and
we've so far made it another five decades without that happening.
So I'd be awfully surprised if twenty twenty five happened
to be the year where the dollars dominance and deficits
(37:51):
and all this stuff started to really matter for American investors.
I have grave concerns about how much debt our nation
has and how terribly that's going to play out. I'm
merely saying that We've been calling for the death of
the dollar and the death of the dominance for five decades,
half a century, and it hasn't happened yet.
Speaker 3 (38:09):
Quick break, A lot more to cover.
Speaker 2 (38:10):
In the second hour, two of the three major industries
have turned negative for the day. We'll be covering that
in a lot more Next on the financial exchange.
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