August 5, 2025 • 38 mins
Mike Armstrong and Marc Fandetti tariff impacts showing up in earnings reports. Is there a case against a September rate cut? The EU continues to look for a tariff exemption on wines and spirits. Is Trump's tax bill actually helping blue states more than red?
Mark as Played
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Episode Transcript
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Speaker 1 (00:00):
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(00:43):
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(01:06):
Armstrong and Mark Vandetti.
Speaker 2 (01:12):
Good morning, Happy Tuesday, and welcome back to the Financial Exchange.
We've got the new England weather of markets the last
few days here. If you didn't like what you saw
on Friday, then just wait today and you'll get Monday
where it erases all the losses. And if you didn't
like the show on Monday, then just wait until Tuesday
because you have two completely new hosts here on the
(01:32):
Financial Exchange. We've got markets and mixed territory as we
kick off our Tuesday show here after a rip roaring
day yesterday where I believe we eclipsed all the losses
from Friday following the bad jobs report, we are continuing
down the earnings calendar here with AMD Mjen reporting after
(01:54):
the bell today. Caterpillar and Pfizer reported before the bell,
as well as Duke Energy reporting tomorrow. We've got McDonald's
before the bell, alongside Walt Disney, Uber, Shopify among others. Thursday,
we will hear from Eli Lilly before the bell, Conoco Phillips,
Constellation Energy, and then Toyota and Gilead will be reporting
(02:16):
as well. And we've got a market here that I
think is probably going to be obsessed with. I guess
two different things that span a litany of them for
the next few weeks. One would be what is the
Fed going to do in September, and so that will
encompass all sorts of jobs data and inflation data. Two
would be what is going to happen with tariffs over
(02:38):
the course of the next few weeks and months? And
guess what, that's the same thing we've been obsessed with all.
Speaker 3 (02:44):
Your the most important forgive me, but you left out
the most important consideration for markets now. And you know
what I'm gonna say.
Speaker 2 (02:51):
I don't know. I'm waiting with baited breath here.
Speaker 3 (02:53):
Mark the reliability of economic data. I know we probably
don't want to get into it too much because it's
no We will inspect and we're going to talk about
it later, yep. But also a big consideration. We don't
know what the President's going to do in terms of
filling the commissioner job, but the Bureau of Labor Statistics,
so maybe the market and maybe this is sensible. Let
(03:15):
me talk myself down from my initial hysterical reaction. Maybe
he'll appoint somebody with credibility and it'll be sufficient for
him that the Biden appoint he was removed, and there
are no ongoing concerns about the reliability of economic data.
If he appoints a toady, however, someone who's going to
ensure that the numbers are skewed favorably when he wants
(03:36):
them to be. This is an enormous This would be
the single biggest challenge facing asset prices, not just in
my fifty three year lifetime, but in any span of
any developed economy that I or anybody who's commented on
this who's informed, has ever seen.
Speaker 2 (03:50):
So Mark here is referring to the removal of the
head of the is the head of the Bureau of
Labor Statistics, or the head of the Data releases, the
chief the commissioner the commission of the Beer of or Statistics.
We are going to get.
Speaker 3 (04:01):
Yeah, I'm sorry, I talk for jumping the gun, but
he brought up markets OCAs.
Speaker 2 (04:05):
My personal view would only be that that is a
long term consideration rather than an immediate consideration. But I
could be wrong.
Speaker 3 (04:13):
I just you know what we should look at there,
because I'm upending your It's a good tease.
Speaker 2 (04:17):
I like it, Mark, It is good too.
Speaker 3 (04:19):
So let's talk about the other. So tariffs people think
what they're either going to be around fifteen to twenty percent,
which is extreme only relative to the post war era,
but not as bad as it could have been on
April second. So markets are now, Yeah, markets have adjusted,
even though inflation is not fully.
Speaker 2 (04:36):
I think they're starting to adjust to that. You still
have a litany of countries who are hoping to negotiate,
and so I think we'll get those headlines, even though
quite honestly, US trade with Switzerland is probably not the
most market moving data point that we will see. And
then obviously you have the suspension of any sort of
re escalation with Mexico at the moment. You've got a
(04:56):
lot of confusion around trade with Canada still, and so
in spite of the fact that we are seeing more
of these deals inked and moving past them, I do
think that trade is going to be the undertone of
this economy and this market for the next few months.
In addition, because I think we've just barely started to
see the tariff impact roll through the economy right now, but.
Speaker 3 (05:18):
We got is I know, we poo pooh ism as
a forecaster of economic activity, I don't, but Chucksada tends
to poopoo it their price is paid. We did get
new data from the Institute for Supply Management. They ask
manufacturers about output. They asked them about the prices they're
(05:40):
paying for inputs, prices paid. It's an index, so the
number doesn't mean a lot. Suffice to say it's at
its highest level since the peak of inflation in late
twenty twenty two.
Speaker 2 (05:54):
So input prices for manufacturers, this is what you're saying,
is input prices.
Speaker 3 (05:59):
High as they've been since the inflation crisis that followed COVID.
Speaker 2 (06:03):
So that would inform me of two things. One, tariffs
are hitting, because if you're a manufacturer, you're in.
Speaker 3 (06:08):
We're seeing that elsewhere too. It's not just here.
Speaker 2 (06:11):
Caterpillar reported it. Other companies have reported tariffs starting to hit.
It would also explain to me that, okay, so I
have to take a step back. But when it came
to tariffs, what we talked about earlier the spring is
they will start to show up in the data somewhere
because they're real, they're not make believe. They will start
showing up. And we counted three places that they could
show up. One would be in prices that foreign suppliers
(06:36):
of goods charge to US customers, Right, so they could say, hey,
you're gonna have to pay a fifteen percent tariffs, so
we're going to lower our price a little bit to
be able to make the products still affordable for that
US customer. Two would be in the profits of US businesses.
That's who pays a tariff. Right. You and me generally
(06:58):
don't pay a tariff unless we're ordering something from one
of those Chinese retailer websites where there's an actual tariff
built in. Usually it's a US company that is paying
the actual tariff and then deciding whether or not to
pass it through to their customers. Third place would be
prices to US customers. It is to me pretty definitive
at this stage that the tariff effect is not showing
(07:20):
up in foreign suppliers of goods to US companies because
import prices are not falling. Import prices are up. Right.
We measure import prices regularly, either through the ISM Survey
or through import prices, and import prices are up year
over year, Meaning it does not appear to me that
foreign suppliers are saying, hey, I know you've got this
(07:42):
tariff to pay, so Walmart, we're going to lower our
price on this soccer ball in order to make it
still affordable in your store. So to me, that means
it's showing up in the other two places, which would
be two consumers. Inflation has been pretty muted to this point,
but still higher than was hoped. And balance not balancees,
but p and ls of US companies, And that's where
(08:04):
we're starting to see it now now that we're getting
past the giant, big tech AI companies and more focused
onto the less sexy and less exciting US companies that
aren't developing AI, but companies like Caterpillar and GM who
are saying, yeah, we saw a tariff impact in the
most recent quarter and we're still kind of navigating through.
(08:26):
And that's what you heard from Caterpillar this morning is yeah, yeah,
you know, billions of dollars in tariff effects if they
stay in effect the way they are. You're trying to
look something up, Mark, did you find I was like,
you know.
Speaker 3 (08:37):
People have pointed out number one headline, inflation has yet
to spike, and it may never spike, but a lot
of components. Some things go down, others go up. On average,
tariff should put prices up, because prices don't all move
at the same time. Prices are rigid.
Speaker 2 (08:54):
A lot of people have points to goods inflation versus services.
Speaker 3 (08:57):
I was looking for a good summary of that. And
there are expenditure categories like furnishings and imports of electronics.
I'm not naming the series correctly, but there's some subcategory
like that that there's evidence of a spike. But it's
an open question as to what happens to headline inflation
(09:17):
because of the way inflation is calculated, and whether or
not it's feeding into underlying inflation will be evident in
the behavior of measures like core inflation, which is we
know strips out food and energy. That's one way to
get an inflation's trend or median or trimmed mean, which
are fancier ways of removing extreme observations from the inflation
(09:42):
data gathering process. It'll probably take several months. It's way
too early for either proponents of tariffs to declare victory
and say, look, they're non inflation areya. But that point
of view makes no sense. The whole point is to
increase prices and shift people to purchase.
Speaker 2 (09:58):
I mean, even members of the Trump administration have not
been described as a contentationary they have. Scott Beston has said, yes,
they will cause inflation, but it'll be a one time
adjustment in prices and then and then that's it. And
so well, I think that viewpoints debatable, but that's been
an admission on the part of the administration that yes,
terrorists will cause inflation, but it won't be permanent and
(10:20):
ongoing inflation.
Speaker 3 (10:21):
So in either case, so your initial when we open
this segment, your question is your question was something to
the effective What are market's warring about right now? Is
it tariffs? Is it what the FED should do? And
I think we nearly exhaustively covered tariffs in that.
Speaker 2 (10:36):
I think they're all kind of interrelated. But I do
want to take I do want to take that. Let's
let's take a break because I want to get to
that second piece now, which is what should and will
the FED do at their next meeting on September seventeenth.
Quick Break FED Talk.
Speaker 1 (10:50):
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Speaker 4 (11:12):
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Speaker 2 (11:44):
During a CNBC interview this morning at eight am, President
Trumps seemingly removed Treasury Secretary Scott Bessant from contention for
the Federal Reserve Chair, but did mention for others who
are in the running currently for that pick and.
Speaker 3 (12:00):
Don Junior Eric, Ivanka and barn.
Speaker 2 (12:05):
Those are not the picks Mark No.
Speaker 3 (12:08):
Sorry.
Speaker 2 (12:09):
The current Fed Chair, Jerome Powell, has been pushing back
against pressure for a rate cut, and that narrative took
a bit of a shift on Friday of last week,
and so I still want to just assume that we're
going to get good and reliable data from the Bureau
of labor statistic.
Speaker 3 (12:29):
Now we're going to talk about this in the next hour. Sorry,
I keep jumping into it.
Speaker 2 (12:32):
Sorry, jump the gun. But at this stage, given that
report from Friday, you had the likelihood of a rate
cut at that September meeting, according to fed Fund's future
is available at the Chicago Mercantile Exchange. Jumping, you now
have a ninety six point one percent chance of a
rate cut at that September seventeenth meeting. And so I
(12:53):
think I before we get into the BLS story, I
want to get into purely based on the data. Know now,
how much does that shift the narrative around the need
for rate cuts? And when we put that the way
what we know now is that hiring in the months
of May and June in particular was a fair bit weaker,
(13:18):
substantially weaker than we previously understood before Friday. And so
it sort of reshapes your thinking on Hey, where does.
Speaker 3 (13:27):
This if you're just looking at that, it does, Mike. Yet,
we got a reasonably solid there were some chinks in
the armor, but a reasonably solid GDP report, and there's
no evidence of economic slow down or worse. I shouldn't
say no, you can always find pockets of weakness, but
there's not evidence of the type of widespread slow down
that the arbiters of recession at the National Bureau of
(13:48):
Economic Research look for when they call a recession. So
until we see industrial production, manufacturing orders, hours worked, income less,
government trans there are a few other series they look
at that I'm forgetting off the top of my head.
Until we see a conspicuous and broad slow down in
(14:09):
and a wide number of measures of economic activity, I
don't know that we should be upping our forecast. First
of all, nobody should be trying to forecast recessions. They're
not fore castable. But I don't think this might raise
the chances a little bit that the revisions which nobody
ever you occasionally talk about on this show, but for
the most part, their ancient history, and by the way,
(14:30):
we should we should expect large revisions from time to time.
When we talk about payrolls being one hundred or one
hundred and fifty K, the confidence interval, the band in
which the true number could reside, is plus or minus
one hundred and twenty. So in every one of those
months in which the numbers were revised, we were well
(14:51):
within the confidence interval. BLS should perhaps report the confidence interval,
as many researchers do when they report their results. They
don't give you the point point estimate is the thing
in the middle. It's not that useful because the probability
the point estimate is not necessarily that much greater than values,
far from it. So maybe the new commissioner at BLS,
if they're if they're a person of substance and integrity,
(15:15):
and I have serious doubts, But if they end up,
by some miracle being actually qualified to take the position,
maybe they'll report the confidence intervals and place more emphasis
on the errors in these estimates.
Speaker 2 (15:26):
So I think you know, one piece of debate about
what you just said would be, hey, do you wait
until you see things like industrial production and that type
of investment tailing off as a sign of recession, or
do you start cutting at the earliest signs of weakness
in the labor market. And I think there are people
of genuine backgrounds that that I would take seriously that
(15:47):
would debate.
Speaker 3 (15:48):
Yeah, disagree, Yeah, I think that's maybe even Yeah, if
they had cut rates by twenty five BIPs, I wouldn't
be screaming from the hilltops. We were risking a pickup
and inflation necessarily, there's an argument for I'm just saying
it's not obvious.
Speaker 2 (16:01):
The question to me is less about these job creation
numbers now. And j Powell made this point at the
last press conference. I'll be interested to see if he
sticks to his guns on this. But the point that
he more or less made was look that job creation number.
And this was, by the way, his commentary on this
was before the weak revisions of that job's report, and
(16:23):
before he even knew about that job's report. He gets
that data usually a day in advance. This press conference
was a Wednesday of last week. That job's data was
out Thursday. What he said was we need to focus
a little bit less on the pace of job creation,
a little bit more on the unemployment rate. And I
think he was pointing to there the denominator how many
(16:43):
people are in that labor force now looking for work.
There has been a substantial shift in migration into the
United States, illegal migration in particular, there has been a
substantial increase in deportations of both primarily workers that are
not registered to be able to work here, but also
(17:06):
some of their family members who might be registered to
work here. And so his point was the you know,
one hundred thousand or seventy two thousand or twenty five
thousand jobs get created in the last month, to him,
is less indicative of where they're going to go with
policy than indicative, isn't the right word? Less informative of
(17:27):
where they should go with policy, rather than the unemployment rate,
which is where he says we should now.
Speaker 3 (17:33):
And why did he say that. It's because during the
months of those law, the months during which those large
revisions occurred, also featured stable, static, unchanging unemployment. They're taken
from two different surveys, so any relationship would have to
be statistical, and it could break down. I'm not going
to get into what I mean by that, just suffice
to say these patterns can can break down, so you've
(17:56):
got to be a little careful there. But I I
guess superficially, yeah, the unemployment rate didn't change despite virtually
non existent new job creation reported by firms.
Speaker 2 (18:07):
Right, So in either case, the next FED meeting coming
up will be September seventeenth. By then, they will have
one additional jobs report several you know, several weeks of
initial jobless claims, which should give you some indication if
the labor market is weakening due to firings and layoffs,
so you know, much more of that data. You'll have
(18:29):
another report on the state of job openings, quits rates,
all of those things. But the markets at least are
now betting that the data will line up well enough.
I guess really the data will line up poorly enough
to justify J. Powell and the FED moving forward with
a quarter of a percent rate hike, a twenty five
(18:51):
basis sorry, rate hike, rate cut at that next September meeting.
And I would just point out that to me, at least,
I am not ninety six percent confident that they will
end up cutting rates at that.
Speaker 3 (19:02):
What do we expect mon and maybe we talk about
this on the other side or at eleven two, at
five past eleven, What do we expect monetary policy? What
should it do? What can the Fed actually do? What
can monetary policy do? Which is what the FED engage
is in and what is it likely to do in
this environment? Is it the right remedy for a slowdown
induced by tariffs?
Speaker 2 (19:19):
Fair question?
Speaker 3 (19:20):
I leave you with that.
Speaker 2 (19:21):
We got to say quick break though, Wall Street Watch
full market update is next.
Speaker 1 (19:41):
Like US on Facebook and follow us on Twitter at
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on the Financial Exchange Radio Network. Time now for Wall Street.
Watch a complete look and what's moving markets so far
today right here on the Financial Exchange Network.
Speaker 4 (20:02):
Markets are slightly pulling back after yesterday's strong rally as
investors digest a new batch of second quarter earnings this morning.
At the moment, Dows off three tenths of one percent,
or one hundred and thirty seven points. SMP five hundred
also down by three tenths of one percent or nineteen points.
Nasdaq is off by two tenths of one percent or
(20:23):
forty seven points. Russell two thousand is up three tenths
of one percent, Tenure treasureilled flat at four point two
zero percent, and crude oil down over one and a
half percent lower today trading its sixty five dollars in
twenty four cents. A barrel Ai software company, Pallenteer, seeing
its stock surge nine percent today after it reported revenue
(20:46):
above one billion dollars for the first time in its history,
well above street expectations. Pallenteer reported fifty three percent growth
in earnings from US government contracts for the previous quarter.
Management also raised its annual revenue outlook. Meanwhile, shares in
telehealth company Hymns and Hers falling nearly one percent after
(21:06):
its quarterly revenue missed expectations. The company had a challenging
breakup with Novo Nordisk back in June related to the
platform sales of copycat weight loss drugs. Elsewhere, Pfizer reported
better than forecasted quarterly results and lifted its annual profit guidance.
The drug maker said its guidance absorbs the impact of
(21:26):
the currently imposed teriffs from China, Canada, and Mexico, as
well as potential price changes this year. Pfizer stock is
up four percent. Caterpillar posted mixed quarterly results and said
it expects incremental tariffs to knock one point three to
one point five billion dollars off its bottom line for
the year. Shares in machinery in the machinery maker down
(21:49):
over half a percent. Chemicals and materials producer DuPont reported
better than expected sales, while its forecast for the current
quarter beat estimates. That stock is up modestly and after
today's closing bell, we'll see earnings from chip maker AMD
tomorrow morning. Ahead of the Open, Novo, Nordisk, McDonald's, Disney, Uber,
(22:09):
and Shopify will all report their quarterly results. I'm Tucker Silvan.
That is Wall Street Watch.
Speaker 2 (22:16):
So Caterpillar reported earnings this morning before the bell. Their
stock is off a bit this morning. They specifically cited
tariffs in their quarterly report here and so what they
cited was that, yeah, their profit did fall, and they
warned of about a one and a half billion dollar
impact from tariff. So I was trying to get a
(22:38):
sense of what that actually means for their business in
the most recent quarter. What they said was a tariff
effect of between four to five hundred million dollars. That's
on a total profit for the quarter of two point
two billion dollars. So not insignificant. But we did have,
for instance, was it four or GM who's in entire
(23:00):
profit margin for the quarter was wiped out by tariffs?
I can't recall, but one of them basically would have
reported a seven hundred million dollar profit instead they had tariffs.
So they reported a loss for the a slight loss
for the quarter. That is not the case with Caterpillar,
but again goes back to this overall story. And by
the way, Caterpillar does a fair bit of manufacturing in
(23:21):
the United States, and there are other reasons that their
stock is down today than just tariffs. They're also warning
of sluggish construction equipment, demanded sales, and other industries that
aren't doing terribly well. But the question that Caterpillar is
navigating is, Okay, how do we get this one point
five billion dollar hit from tariffs down? And is I
(23:44):
guess the other part of the question is it worth
doing so? Because that's an important question, right, Like, Okay,
we could avoid these tariffs if we spend a few
billion dollars on expanding manufacturing in the United States instead
of doing so much in China. Is that worth doing
for a company like Caterpillar. I have no idea what
the answer is, but you can be certain well that
(24:06):
executives at the company are measuring that equation.
Speaker 3 (24:09):
We need tariff certainty here the next step in this
tariff process, and I think this would be the case
in a Democrat administration too. I think that the the
trend clearly is towards terra less free trade or retrenchment
from globalization. So let's just look at the broad themes here.
You can quibble with the way tariff policy has been conducted. Sure,
(24:31):
but maybe there's method in the madness. We'll have to
see how it all shakes out. But either way, companies
are screaming for clarity, consistency. This probably has to be
put to Congress at some point. That would be helpful. Actually,
if it became law, then companies could rely on it
and make those adjustments to their so called supply chains.
Speaker 2 (24:50):
So important points like why does it actually need to
be codified? Why does Congress?
Speaker 3 (24:55):
Because the President right now is acting under emergency authority
and it's statutorily, as I understand it, by law, it's limited.
So these tariffs will expire I guess at some point,
and it's it's like six months or something. You have
to keep re upping them.
Speaker 2 (25:08):
I don't. I don't know that there's a defined period
where it would happen. But we can't have an action
emergency forever, right we couldn't present.
Speaker 3 (25:14):
That's definitely true, because you know government's going to change
hands and there'll be a new president. So President Vance
or President whoever on the Democrats side in four years,
will they re up these Will their trade philosophy be different?
We could use some codification here, at least bring Congress
into the process at some point and give businesses clarity.
Speaker 2 (25:33):
Another reason why you would want Congressional action on this
is because there are lawsuits making their way through the
Trade Court right now to determine if the President.
Speaker 3 (25:42):
Has exceeded and they can strike the whole regime down.
Speaker 2 (25:45):
They could strike it down now. The immediate request would
be for the Supreme Court to then go hear the case.
They don't have to. They could say no, we uh,
you know. They sometimes explain their reason for hearing the case,
they other times don't. But that case is right now
working its way through. I think it's a twelve judge
panel on the use of these emergency tariffs, and we
(26:07):
should have an answer by this fall. So there are
a number of reasons why you would want Congress involved
in these decisions. But I also think their ability to
pass tariffs would be extraordinarily limited because, in spite of
the fact that you think there might be bipartis the
support for some of them. No Democrats going to line
up to vote for a Donald Trump.
Speaker 3 (26:23):
I think it'd be some from the Midwest Wood I think, yeah, Michigan, Pennsylvania, Ohio.
Ohio is now solidly read. There's pretty widespread support, it seems,
for some level of tariffs. The objectives differ. Are they
to raise revenue, which I actually like, it's a consumption
tax if we can shift away from the income tax
toward consumption taxes. There's a good Now that the administration
(26:44):
is not making that argument. I wish they would, because
there's a good, solid argument for consumption taxes as opposed
to income taxes. It's a discussion we should have, and
putting this in the congressional arena and formalizing things would
allow us to flesh all these issues. It could be
an interesting national discussion and take away it takes away
a lot of the acrimony too.
Speaker 2 (27:04):
Is America winning the tariff negotiations.
Speaker 3 (27:10):
Store and then lose on Yeah, it's just it's the
wrong framework.
Speaker 2 (27:13):
I tend to agree there is no definition of winning
or losing on this.
Speaker 3 (27:17):
But revenue's gone up though I mean that's undeniable, and
the deficit, a key number for me relative to last year,
is actually slightly lower, arguably because of that tariff revenue.
Now there will be inflationary and inefficiency consequences in the
long term. But those who are opposed to the sort
of helter skelter tariffs. Forgive me, but that's what the
(27:39):
strategy has been. Maybe again, there's method to the madness,
but it's been a little health skelter. Yes, have to
admit that they do work to raise revenue. That is,
after all the points, So there are pluses and minuses.
Speaker 2 (27:50):
I'm not sure, you know, not sure it's the point,
and I want to keep going back to that because
the point has been thrown out as well. The legal
justification for the griffs are to punish countries who are
abusing things like heroin trafficking into the United States, so
that's the legal justification, or not doing enough to curb
(28:11):
immigration into the United The economic justifications that uh, you know,
the the MAGA movement in general have used have been
a fewfold. Revenue generation, to me, has not been one
of those I've heard that. I have heard it a ton,
but I don't think it's one of the core magaz
(28:31):
shift hearing. Yes, I am okay, I'm hearing it from
the likes of Bessent. I'm hearing it from the likes
of others that I don't really attribute to the core
MAGA movement.
Speaker 3 (28:41):
From the core MAGA movement.
Speaker 2 (28:45):
No, I think it's I think that the likes of
Steve Bannon kind of started it.
Speaker 3 (28:49):
Don't worry well, actually he worked a golden sax.
Speaker 2 (28:51):
He's not an economic he's not an economic and he just, I.
Speaker 3 (28:54):
Said, illiterate in the issue of trade. He you know,
I wouldn't call anybody an idiot.
Speaker 2 (28:58):
I think his view on Harris would be purely based on, Hey,
we want to use these to strengthen American manufacturing. Yeah,
like that's pure play that we're starting, really debatable, agreed.
So I think that's why it is shifting now, because
that would be pretty painful.
Speaker 1 (29:16):
Lift.
Speaker 2 (29:17):
It's shifting now. I think the narrative much more towards Hey,
it might not bring every job back to the US,
because even with fifteen percent or twenty percent or thirty
percent tariffs, we might not be able to compete with
China on manufacturing TVs. And that's okay. Instead, we're shifting
the narrative too. If this can be used to put
America on a more sustainable path regarding its debt, then
(29:39):
maybe they're a good thing and still debatable, and I
think a real problem because you have no certainty about
whether or not they'll be here three years from now.
But I am seeing that shift, and I will admit
that I am pretty surprised that we have landed in
a place now where, for instance, we seem to be
agreeing on fifteen percent tariffs with the EU and UK
(29:59):
and Japan without much in the way of retaliation from
those same countries change.
Speaker 3 (30:05):
The situation feels more stable than it did a few
months ago. No, honest, people can discortet about merits of tariffs.
It doesn't have to get you know, personal, It's not
even ideological. It's just about how you want to raise revenue,
because any tax has inefficiency costs. Of course, income tax does, yep,
we all know it, and tariffs do as well. Just
(30:26):
a question of which piper you want to pay?
Speaker 2 (30:28):
Quick break when we come back a little bit more
on tariff specifically the continued negotiations with the Opinion Union.
That deals not quite angry yet. What are they harping
over now? That's next to the Financial Exchange.
Speaker 1 (30:40):
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(31:01):
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Speaker 2 (31:11):
Mark. We got announcements last week that the European Union
and the United States had agreed to the framework of
a deal, but there were a number of questions to
still be worked out. Semiconductors was one of the areas,
but there were energy and other implications too on this
framework of a deal. Certainly nothing executed and signed yet.
(31:32):
In any case, one of those big items for the
European Union has been access to the US market for
wine and spirits, and that specific item has not been
worked out in terms of what the teriff rate is
going to be for wine and spirits, and there's been
a potential implication that the European Union would retaliate against
American made wine and spirits if there were a teriff
(31:55):
in place there. I find this one interesting, not because
I truly care whether or not French and Spanish wine
faces a tariff coming into the United States. I actually
have a personal preference for California wine, So no skin
off my back, but it's actually one interesting thing here because.
Speaker 3 (32:14):
His birthday is coming up. Your handhand.
Speaker 1 (32:16):
I'm on.
Speaker 2 (32:19):
It is interesting to me because if there is one
state that would very much benefit from fifteen percent tariffs
on European spirits, it's California, right, Like you think about.
Speaker 3 (32:33):
That data on individual company trade surplus and deficit with
various countries individual state.
Speaker 2 (32:37):
Excuse me, no, I have not, but I mean you
think about that, like.
Speaker 3 (32:41):
Like, where do we stand here? We're mess Go ahead, sorry, the.
Speaker 2 (32:44):
You just think about like wine consumption in the United
States when you talk about other things like liquor consumption,
we already primarily consume American made liquor, whether it's whether
it's whiskey obviously would be the big one, but even
vodka in January, Like, these are spirits that we mainly
produced in the United States and consume here, whereas why
does wine is much more globally diversified. And so my
(33:08):
conclusion would be, yeah, if you hit European wine with
a fifteen percent tariff, California wine makers are going to
be those who benefit the most. The state of California
in general would be a beneficiary of that. And so
it doesn't you know, it doesn't immediately line up in
my view with President Trump's political goals there. I don't
know if that sways him at all in one direction
(33:30):
or another. And obviously the European Union is pressuring to
have no terifts on European a lot.
Speaker 3 (33:34):
Does policies help so called blue states? Yeah, the tax
bill heavily favors blue states, wealthier states, for example, their
net contributors to that.
Speaker 2 (33:45):
I want to actually go back to that. But yeah,
I mean on this European Union. Yeah, it's just interesting
to me, and I do wonder how it all shapes out.
Speaker 3 (33:54):
But what okay, So what's your You're wondering what to
what degree vegetation for lower boost prices here factors into
the ultimate what's the I think I missed your point.
Speaker 2 (34:08):
I think my point a lot of interesting facts.
Speaker 3 (34:10):
But I missed the main thrust.
Speaker 2 (34:11):
If we hit foreign made wine with tariffs, they're going
to retaliate. Whether they retaliate or not. Well, let's say
they don't retaliate it in particular, because that's been the
direction in your opin union has gone here is yeah,
you put teriffts on our goods and you turn it retaliate.
The primary beneficiary would be California winemakers in nex Yes, okay,
(34:32):
which I just find politically interesting.
Speaker 4 (34:34):
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Speaker 2 (35:31):
You are making a point mark before about a lot
of policies, including the big tax bill, as largely benefiting
Blue states. Explain to me. I agree with you, but
explain how the tax bill overall kind of benefits Blue states.
In many cases, I.
Speaker 3 (35:46):
Don't know enough about its components. It's just the most
expensive parts of it. Look, when you cut taxes, the
benefits are going to recruit to people that make money
and pay taxes. So this whole argument that will at
benefax Republican tax bills tend to benefit the rich, Well, no, duh.
They they're the ones who pay most of the taxes.
I've just never found that particularly persuasive. You can argue
(36:08):
about whether or not as a good time. Now is
a good time to shut taxes given the fiscal crisis
that we're facing. When it's going to arrive, nobody knows.
We've been warning, but people have been warning about it
for decades now. So I don't really have anything profound
to say, Mike, other than the curate's it's an observation
that it's curious that Republican policies tend to benefit Blue states.
Subsidies to subsidies that induce investment tax credits to corporations.
(36:32):
These corporations are chartered in Delaware. These corporations employ people
mostly just by virtue of population mass in blue or
purplish purplish excuse me, states.
Speaker 2 (36:42):
Yeah, I would. I would simplify it too, Like I mean,
there's a few things to me that benefit blue states here. One,
in order to get the pack tax bill over the
over the line, you needed the votes of a number
of Republicans in blue states like New York, like Jersey
and others, and so you had specific carve outs for
things like the deduction, which is a big benefit to
high income earners in those blue states. The other piece
(37:04):
would just be income is your high income is concentrated
in some of these coastal blue states, right, so Massachusetts,
New York, New Jersey, California, Washington State, that's where a
lot of the highest income earning is. Texas is another one.
But because of that, yeah, when you have a lock
(37:25):
in of that thirty seven percent income tax bracket on
the highest end, yeah, it does benefit those highest income earners,
which are often located in those blue states. So yeah,
there's some truth to that, I think.
Speaker 3 (37:37):
The other general point Mike, oh sorry, go ahead. If
the other general point is tariffs have winners and losers.
Like any tax, there are winners and losers. If you
have to cut spending to finance attax cut, there are
going to be some people come out on the losing end.
And policymaking is about trade offs and making choices. You're
railing against something because railing against free trade or against
(37:57):
tariffs because one or the other ben that's a particular
constituency is not really a good argument. Policymaking is about
trade offs.
Speaker 2 (38:06):
Let's take a quick break. We've got markets now in
fairly strongly negative territory. We've had a three days of
a bit of volatility here. We'll have a full market
recap end more next on the financial exchange
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(01:06):
Armstrong and Mark Vandetti.
Speaker 2 (01:12):
Good morning, Happy Tuesday, and welcome back to the Financial Exchange.
We've got the new England weather of markets the last
few days here. If you didn't like what you saw
on Friday, then just wait today and you'll get Monday
where it erases all the losses. And if you didn't
like the show on Monday, then just wait until Tuesday
because you have two completely new hosts here on the
(01:32):
Financial Exchange. We've got markets and mixed territory as we
kick off our Tuesday show here after a rip roaring
day yesterday where I believe we eclipsed all the losses
from Friday following the bad jobs report, we are continuing
down the earnings calendar here with AMD Mjen reporting after
(01:54):
the bell today. Caterpillar and Pfizer reported before the bell,
as well as Duke Energy reporting tomorrow. We've got McDonald's
before the bell, alongside Walt Disney, Uber, Shopify among others. Thursday,
we will hear from Eli Lilly before the bell, Conoco Phillips,
Constellation Energy, and then Toyota and Gilead will be reporting
(02:16):
as well. And we've got a market here that I
think is probably going to be obsessed with. I guess
two different things that span a litany of them for
the next few weeks. One would be what is the
Fed going to do in September, and so that will
encompass all sorts of jobs data and inflation data. Two
would be what is going to happen with tariffs over
(02:38):
the course of the next few weeks and months? And
guess what, that's the same thing we've been obsessed with all.
Speaker 3 (02:44):
Your the most important forgive me, but you left out
the most important consideration for markets now. And you know
what I'm gonna say.
Speaker 2 (02:51):
I don't know. I'm waiting with baited breath here.
Speaker 3 (02:53):
Mark the reliability of economic data. I know we probably
don't want to get into it too much because it's
no We will inspect and we're going to talk about
it later, yep. But also a big consideration. We don't
know what the President's going to do in terms of
filling the commissioner job, but the Bureau of Labor Statistics,
so maybe the market and maybe this is sensible. Let
(03:15):
me talk myself down from my initial hysterical reaction. Maybe
he'll appoint somebody with credibility and it'll be sufficient for
him that the Biden appoint he was removed, and there
are no ongoing concerns about the reliability of economic data.
If he appoints a toady, however, someone who's going to
ensure that the numbers are skewed favorably when he wants
(03:36):
them to be. This is an enormous This would be
the single biggest challenge facing asset prices, not just in
my fifty three year lifetime, but in any span of
any developed economy that I or anybody who's commented on
this who's informed, has ever seen.
Speaker 2 (03:50):
So Mark here is referring to the removal of the
head of the is the head of the Bureau of
Labor Statistics, or the head of the Data releases, the
chief the commissioner the commission of the Beer of or Statistics.
We are going to get.
Speaker 3 (04:01):
Yeah, I'm sorry, I talk for jumping the gun, but
he brought up markets OCAs.
Speaker 2 (04:05):
My personal view would only be that that is a
long term consideration rather than an immediate consideration. But I
could be wrong.
Speaker 3 (04:13):
I just you know what we should look at there,
because I'm upending your It's a good tease.
Speaker 2 (04:17):
I like it, Mark, It is good too.
Speaker 3 (04:19):
So let's talk about the other. So tariffs people think
what they're either going to be around fifteen to twenty percent,
which is extreme only relative to the post war era,
but not as bad as it could have been on
April second. So markets are now, Yeah, markets have adjusted,
even though inflation is not fully.
Speaker 2 (04:36):
I think they're starting to adjust to that. You still
have a litany of countries who are hoping to negotiate,
and so I think we'll get those headlines, even though
quite honestly, US trade with Switzerland is probably not the
most market moving data point that we will see. And
then obviously you have the suspension of any sort of
re escalation with Mexico at the moment. You've got a
(04:56):
lot of confusion around trade with Canada still, and so
in spite of the fact that we are seeing more
of these deals inked and moving past them, I do
think that trade is going to be the undertone of
this economy and this market for the next few months.
In addition, because I think we've just barely started to
see the tariff impact roll through the economy right now, but.
Speaker 3 (05:18):
We got is I know, we poo pooh ism as
a forecaster of economic activity, I don't, but Chucksada tends
to poopoo it their price is paid. We did get
new data from the Institute for Supply Management. They ask
manufacturers about output. They asked them about the prices they're
(05:40):
paying for inputs, prices paid. It's an index, so the
number doesn't mean a lot. Suffice to say it's at
its highest level since the peak of inflation in late
twenty twenty two.
Speaker 2 (05:54):
So input prices for manufacturers, this is what you're saying,
is input prices.
Speaker 3 (05:59):
High as they've been since the inflation crisis that followed COVID.
Speaker 2 (06:03):
So that would inform me of two things. One, tariffs
are hitting, because if you're a manufacturer, you're in.
Speaker 3 (06:08):
We're seeing that elsewhere too. It's not just here.
Speaker 2 (06:11):
Caterpillar reported it. Other companies have reported tariffs starting to hit.
It would also explain to me that, okay, so I
have to take a step back. But when it came
to tariffs, what we talked about earlier the spring is
they will start to show up in the data somewhere
because they're real, they're not make believe. They will start
showing up. And we counted three places that they could
show up. One would be in prices that foreign suppliers
(06:36):
of goods charge to US customers, Right, so they could say, hey,
you're gonna have to pay a fifteen percent tariffs, so
we're going to lower our price a little bit to
be able to make the products still affordable for that
US customer. Two would be in the profits of US businesses.
That's who pays a tariff. Right. You and me generally
(06:58):
don't pay a tariff unless we're ordering something from one
of those Chinese retailer websites where there's an actual tariff
built in. Usually it's a US company that is paying
the actual tariff and then deciding whether or not to
pass it through to their customers. Third place would be
prices to US customers. It is to me pretty definitive
at this stage that the tariff effect is not showing
(07:20):
up in foreign suppliers of goods to US companies because
import prices are not falling. Import prices are up. Right.
We measure import prices regularly, either through the ISM Survey
or through import prices, and import prices are up year
over year, Meaning it does not appear to me that
foreign suppliers are saying, hey, I know you've got this
(07:42):
tariff to pay, so Walmart, we're going to lower our
price on this soccer ball in order to make it
still affordable in your store. So to me, that means
it's showing up in the other two places, which would
be two consumers. Inflation has been pretty muted to this point,
but still higher than was hoped. And balance not balancees,
but p and ls of US companies, And that's where
(08:04):
we're starting to see it now now that we're getting
past the giant, big tech AI companies and more focused
onto the less sexy and less exciting US companies that
aren't developing AI, but companies like Caterpillar and GM who
are saying, yeah, we saw a tariff impact in the
most recent quarter and we're still kind of navigating through.
(08:26):
And that's what you heard from Caterpillar this morning is yeah, yeah,
you know, billions of dollars in tariff effects if they
stay in effect the way they are. You're trying to
look something up, Mark, did you find I was like,
you know.
Speaker 3 (08:37):
People have pointed out number one headline, inflation has yet
to spike, and it may never spike, but a lot
of components. Some things go down, others go up. On average,
tariff should put prices up, because prices don't all move
at the same time. Prices are rigid.
Speaker 2 (08:54):
A lot of people have points to goods inflation versus services.
Speaker 3 (08:57):
I was looking for a good summary of that. And
there are expenditure categories like furnishings and imports of electronics.
I'm not naming the series correctly, but there's some subcategory
like that that there's evidence of a spike. But it's
an open question as to what happens to headline inflation
(09:17):
because of the way inflation is calculated, and whether or
not it's feeding into underlying inflation will be evident in
the behavior of measures like core inflation, which is we
know strips out food and energy. That's one way to
get an inflation's trend or median or trimmed mean, which
are fancier ways of removing extreme observations from the inflation
(09:42):
data gathering process. It'll probably take several months. It's way
too early for either proponents of tariffs to declare victory
and say, look, they're non inflation areya. But that point
of view makes no sense. The whole point is to
increase prices and shift people to purchase.
Speaker 2 (09:58):
I mean, even members of the Trump administration have not
been described as a contentationary they have. Scott Beston has said, yes,
they will cause inflation, but it'll be a one time
adjustment in prices and then and then that's it. And
so well, I think that viewpoints debatable, but that's been
an admission on the part of the administration that yes,
terrorists will cause inflation, but it won't be permanent and
(10:20):
ongoing inflation.
Speaker 3 (10:21):
So in either case, so your initial when we open
this segment, your question is your question was something to
the effective What are market's warring about right now? Is
it tariffs? Is it what the FED should do? And
I think we nearly exhaustively covered tariffs in that.
Speaker 2 (10:36):
I think they're all kind of interrelated. But I do
want to take I do want to take that. Let's
let's take a break because I want to get to
that second piece now, which is what should and will
the FED do at their next meeting on September seventeenth.
Quick Break FED Talk.
Speaker 1 (10:50):
Is next breaking business news as it happens, only here
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to date on breaking business news all morning. Long Face
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Speaker 4 (11:12):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts, and now's the perfect time
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make a donation today, that's DAV fivek dot Boston.
Speaker 2 (11:44):
During a CNBC interview this morning at eight am, President
Trumps seemingly removed Treasury Secretary Scott Bessant from contention for
the Federal Reserve Chair, but did mention for others who
are in the running currently for that pick and.
Speaker 3 (12:00):
Don Junior Eric, Ivanka and barn.
Speaker 2 (12:05):
Those are not the picks Mark No.
Speaker 3 (12:08):
Sorry.
Speaker 2 (12:09):
The current Fed Chair, Jerome Powell, has been pushing back
against pressure for a rate cut, and that narrative took
a bit of a shift on Friday of last week,
and so I still want to just assume that we're
going to get good and reliable data from the Bureau
of labor statistic.
Speaker 3 (12:29):
Now we're going to talk about this in the next hour. Sorry,
I keep jumping into it.
Speaker 2 (12:32):
Sorry, jump the gun. But at this stage, given that
report from Friday, you had the likelihood of a rate
cut at that September meeting, according to fed Fund's future
is available at the Chicago Mercantile Exchange. Jumping, you now
have a ninety six point one percent chance of a
rate cut at that September seventeenth meeting. And so I
(12:53):
think I before we get into the BLS story, I
want to get into purely based on the data. Know now,
how much does that shift the narrative around the need
for rate cuts? And when we put that the way
what we know now is that hiring in the months
of May and June in particular was a fair bit weaker,
(13:18):
substantially weaker than we previously understood before Friday. And so
it sort of reshapes your thinking on Hey, where does.
Speaker 3 (13:27):
This if you're just looking at that, it does, Mike. Yet,
we got a reasonably solid there were some chinks in
the armor, but a reasonably solid GDP report, and there's
no evidence of economic slow down or worse. I shouldn't
say no, you can always find pockets of weakness, but
there's not evidence of the type of widespread slow down
that the arbiters of recession at the National Bureau of
(13:48):
Economic Research look for when they call a recession. So
until we see industrial production, manufacturing orders, hours worked, income less,
government trans there are a few other series they look
at that I'm forgetting off the top of my head.
Until we see a conspicuous and broad slow down in
(14:09):
and a wide number of measures of economic activity, I
don't know that we should be upping our forecast. First
of all, nobody should be trying to forecast recessions. They're
not fore castable. But I don't think this might raise
the chances a little bit that the revisions which nobody
ever you occasionally talk about on this show, but for
the most part, their ancient history, and by the way,
(14:30):
we should we should expect large revisions from time to time.
When we talk about payrolls being one hundred or one
hundred and fifty K, the confidence interval, the band in
which the true number could reside, is plus or minus
one hundred and twenty. So in every one of those
months in which the numbers were revised, we were well
(14:51):
within the confidence interval. BLS should perhaps report the confidence interval,
as many researchers do when they report their results. They
don't give you the point point estimate is the thing
in the middle. It's not that useful because the probability
the point estimate is not necessarily that much greater than values,
far from it. So maybe the new commissioner at BLS,
if they're if they're a person of substance and integrity,
(15:15):
and I have serious doubts, But if they end up,
by some miracle being actually qualified to take the position,
maybe they'll report the confidence intervals and place more emphasis
on the errors in these estimates.
Speaker 2 (15:26):
So I think you know, one piece of debate about
what you just said would be, hey, do you wait
until you see things like industrial production and that type
of investment tailing off as a sign of recession, or
do you start cutting at the earliest signs of weakness
in the labor market. And I think there are people
of genuine backgrounds that that I would take seriously that
(15:47):
would debate.
Speaker 3 (15:48):
Yeah, disagree, Yeah, I think that's maybe even Yeah, if
they had cut rates by twenty five BIPs, I wouldn't
be screaming from the hilltops. We were risking a pickup
and inflation necessarily, there's an argument for I'm just saying
it's not obvious.
Speaker 2 (16:01):
The question to me is less about these job creation
numbers now. And j Powell made this point at the
last press conference. I'll be interested to see if he
sticks to his guns on this. But the point that
he more or less made was look that job creation number.
And this was, by the way, his commentary on this
was before the weak revisions of that job's report, and
(16:23):
before he even knew about that job's report. He gets
that data usually a day in advance. This press conference
was a Wednesday of last week. That job's data was
out Thursday. What he said was we need to focus
a little bit less on the pace of job creation,
a little bit more on the unemployment rate. And I
think he was pointing to there the denominator how many
(16:43):
people are in that labor force now looking for work.
There has been a substantial shift in migration into the
United States, illegal migration in particular, there has been a
substantial increase in deportations of both primarily workers that are
not registered to be able to work here, but also
(17:06):
some of their family members who might be registered to
work here. And so his point was the you know,
one hundred thousand or seventy two thousand or twenty five
thousand jobs get created in the last month, to him,
is less indicative of where they're going to go with
policy than indicative, isn't the right word? Less informative of
(17:27):
where they should go with policy, rather than the unemployment rate,
which is where he says we should now.
Speaker 3 (17:33):
And why did he say that. It's because during the
months of those law, the months during which those large
revisions occurred, also featured stable, static, unchanging unemployment. They're taken
from two different surveys, so any relationship would have to
be statistical, and it could break down. I'm not going
to get into what I mean by that, just suffice
to say these patterns can can break down, so you've
(17:56):
got to be a little careful there. But I I
guess superficially, yeah, the unemployment rate didn't change despite virtually
non existent new job creation reported by firms.
Speaker 2 (18:07):
Right, So in either case, the next FED meeting coming
up will be September seventeenth. By then, they will have
one additional jobs report several you know, several weeks of
initial jobless claims, which should give you some indication if
the labor market is weakening due to firings and layoffs,
so you know, much more of that data. You'll have
(18:29):
another report on the state of job openings, quits rates,
all of those things. But the markets at least are
now betting that the data will line up well enough.
I guess really the data will line up poorly enough
to justify J. Powell and the FED moving forward with
a quarter of a percent rate hike, a twenty five
(18:51):
basis sorry, rate hike, rate cut at that next September meeting.
And I would just point out that to me, at least,
I am not ninety six percent confident that they will
end up cutting rates at that.
Speaker 3 (19:02):
What do we expect mon and maybe we talk about
this on the other side or at eleven two, at
five past eleven, What do we expect monetary policy? What
should it do? What can the Fed actually do? What
can monetary policy do? Which is what the FED engage
is in and what is it likely to do in
this environment? Is it the right remedy for a slowdown
induced by tariffs?
Speaker 2 (19:19):
Fair question?
Speaker 3 (19:20):
I leave you with that.
Speaker 2 (19:21):
We got to say quick break though, Wall Street Watch
full market update is next.
Speaker 1 (19:41):
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 and what's moving markets so far
today right here on the Financial Exchange Network.
Speaker 4 (20:02):
Markets are slightly pulling back after yesterday's strong rally as
investors digest a new batch of second quarter earnings this morning.
At the moment, Dows off three tenths of one percent,
or one hundred and thirty seven points. SMP five hundred
also down by three tenths of one percent or nineteen points.
Nasdaq is off by two tenths of one percent or
(20:23):
forty seven points. Russell two thousand is up three tenths
of one percent, Tenure treasureilled flat at four point two
zero percent, and crude oil down over one and a
half percent lower today trading its sixty five dollars in
twenty four cents. A barrel Ai software company, Pallenteer, seeing
its stock surge nine percent today after it reported revenue
(20:46):
above one billion dollars for the first time in its history,
well above street expectations. Pallenteer reported fifty three percent growth
in earnings from US government contracts for the previous quarter.
Management also raised its annual revenue outlook. Meanwhile, shares in
telehealth company Hymns and Hers falling nearly one percent after
(21:06):
its quarterly revenue missed expectations. The company had a challenging
breakup with Novo Nordisk back in June related to the
platform sales of copycat weight loss drugs. Elsewhere, Pfizer reported
better than forecasted quarterly results and lifted its annual profit guidance.
The drug maker said its guidance absorbs the impact of
(21:26):
the currently imposed teriffs from China, Canada, and Mexico, as
well as potential price changes this year. Pfizer stock is
up four percent. Caterpillar posted mixed quarterly results and said
it expects incremental tariffs to knock one point three to
one point five billion dollars off its bottom line for
the year. Shares in machinery in the machinery maker down
(21:49):
over half a percent. Chemicals and materials producer DuPont reported
better than expected sales, while its forecast for the current
quarter beat estimates. That stock is up modestly and after
today's closing bell, we'll see earnings from chip maker AMD
tomorrow morning. Ahead of the Open, Novo, Nordisk, McDonald's, Disney, Uber,
(22:09):
and Shopify will all report their quarterly results. I'm Tucker Silvan.
That is Wall Street Watch.
Speaker 2 (22:16):
So Caterpillar reported earnings this morning before the bell. Their
stock is off a bit this morning. They specifically cited
tariffs in their quarterly report here and so what they
cited was that, yeah, their profit did fall, and they
warned of about a one and a half billion dollar
impact from tariff. So I was trying to get a
(22:38):
sense of what that actually means for their business in
the most recent quarter. What they said was a tariff
effect of between four to five hundred million dollars. That's
on a total profit for the quarter of two point
two billion dollars. So not insignificant. But we did have,
for instance, was it four or GM who's in entire
(23:00):
profit margin for the quarter was wiped out by tariffs?
I can't recall, but one of them basically would have
reported a seven hundred million dollar profit instead they had tariffs.
So they reported a loss for the a slight loss
for the quarter. That is not the case with Caterpillar,
but again goes back to this overall story. And by
the way, Caterpillar does a fair bit of manufacturing in
(23:21):
the United States, and there are other reasons that their
stock is down today than just tariffs. They're also warning
of sluggish construction equipment, demanded sales, and other industries that
aren't doing terribly well. But the question that Caterpillar is
navigating is, Okay, how do we get this one point
five billion dollar hit from tariffs down? And is I
(23:44):
guess the other part of the question is it worth
doing so? Because that's an important question, right, Like, Okay,
we could avoid these tariffs if we spend a few
billion dollars on expanding manufacturing in the United States instead
of doing so much in China. Is that worth doing
for a company like Caterpillar. I have no idea what
the answer is, but you can be certain well that
(24:06):
executives at the company are measuring that equation.
Speaker 3 (24:09):
We need tariff certainty here the next step in this
tariff process, and I think this would be the case
in a Democrat administration too. I think that the the
trend clearly is towards terra less free trade or retrenchment
from globalization. So let's just look at the broad themes here.
You can quibble with the way tariff policy has been conducted. Sure,
(24:31):
but maybe there's method in the madness. We'll have to
see how it all shakes out. But either way, companies
are screaming for clarity, consistency. This probably has to be
put to Congress at some point. That would be helpful. Actually,
if it became law, then companies could rely on it
and make those adjustments to their so called supply chains.
Speaker 2 (24:50):
So important points like why does it actually need to
be codified? Why does Congress?
Speaker 3 (24:55):
Because the President right now is acting under emergency authority
and it's statutorily, as I understand it, by law, it's limited.
So these tariffs will expire I guess at some point,
and it's it's like six months or something. You have
to keep re upping them.
Speaker 2 (25:08):
I don't. I don't know that there's a defined period
where it would happen. But we can't have an action
emergency forever, right we couldn't present.
Speaker 3 (25:14):
That's definitely true, because you know government's going to change
hands and there'll be a new president. So President Vance
or President whoever on the Democrats side in four years,
will they re up these Will their trade philosophy be different?
We could use some codification here, at least bring Congress
into the process at some point and give businesses clarity.
Speaker 2 (25:33):
Another reason why you would want Congressional action on this
is because there are lawsuits making their way through the
Trade Court right now to determine if the President.
Speaker 3 (25:42):
Has exceeded and they can strike the whole regime down.
Speaker 2 (25:45):
They could strike it down now. The immediate request would
be for the Supreme Court to then go hear the case.
They don't have to. They could say no, we uh,
you know. They sometimes explain their reason for hearing the case,
they other times don't. But that case is right now
working its way through. I think it's a twelve judge
panel on the use of these emergency tariffs, and we
(26:07):
should have an answer by this fall. So there are
a number of reasons why you would want Congress involved
in these decisions. But I also think their ability to
pass tariffs would be extraordinarily limited because, in spite of
the fact that you think there might be bipartis the
support for some of them. No Democrats going to line
up to vote for a Donald Trump.
Speaker 3 (26:23):
I think it'd be some from the Midwest Wood I think, yeah, Michigan, Pennsylvania, Ohio.
Ohio is now solidly read. There's pretty widespread support, it seems,
for some level of tariffs. The objectives differ. Are they
to raise revenue, which I actually like, it's a consumption
tax if we can shift away from the income tax
toward consumption taxes. There's a good Now that the administration
(26:44):
is not making that argument. I wish they would, because
there's a good, solid argument for consumption taxes as opposed
to income taxes. It's a discussion we should have, and
putting this in the congressional arena and formalizing things would
allow us to flesh all these issues. It could be
an interesting national discussion and take away it takes away
a lot of the acrimony too.
Speaker 2 (27:04):
Is America winning the tariff negotiations.
Speaker 3 (27:10):
Store and then lose on Yeah, it's just it's the
wrong framework.
Speaker 2 (27:13):
I tend to agree there is no definition of winning
or losing on this.
Speaker 3 (27:17):
But revenue's gone up though I mean that's undeniable, and
the deficit, a key number for me relative to last year,
is actually slightly lower, arguably because of that tariff revenue.
Now there will be inflationary and inefficiency consequences in the
long term. But those who are opposed to the sort
of helter skelter tariffs. Forgive me, but that's what the
(27:39):
strategy has been. Maybe again, there's method to the madness,
but it's been a little health skelter. Yes, have to
admit that they do work to raise revenue. That is,
after all the points, So there are pluses and minuses.
Speaker 2 (27:50):
I'm not sure, you know, not sure it's the point,
and I want to keep going back to that because
the point has been thrown out as well. The legal
justification for the griffs are to punish countries who are
abusing things like heroin trafficking into the United States, so
that's the legal justification, or not doing enough to curb
(28:11):
immigration into the United The economic justifications that uh, you know,
the the MAGA movement in general have used have been
a fewfold. Revenue generation, to me, has not been one
of those I've heard that. I have heard it a ton,
but I don't think it's one of the core magaz
(28:31):
shift hearing. Yes, I am okay, I'm hearing it from
the likes of Bessent. I'm hearing it from the likes
of others that I don't really attribute to the core
MAGA movement.
Speaker 3 (28:41):
From the core MAGA movement.
Speaker 2 (28:45):
No, I think it's I think that the likes of
Steve Bannon kind of started it.
Speaker 3 (28:49):
Don't worry well, actually he worked a golden sax.
Speaker 2 (28:51):
He's not an economic he's not an economic and he just, I.
Speaker 3 (28:54):
Said, illiterate in the issue of trade. He you know,
I wouldn't call anybody an idiot.
Speaker 2 (28:58):
I think his view on Harris would be purely based on, Hey,
we want to use these to strengthen American manufacturing. Yeah,
like that's pure play that we're starting, really debatable, agreed.
So I think that's why it is shifting now, because
that would be pretty painful.
Speaker 1 (29:16):
Lift.
Speaker 2 (29:17):
It's shifting now. I think the narrative much more towards Hey,
it might not bring every job back to the US,
because even with fifteen percent or twenty percent or thirty
percent tariffs, we might not be able to compete with
China on manufacturing TVs. And that's okay. Instead, we're shifting
the narrative too. If this can be used to put
America on a more sustainable path regarding its debt, then
(29:39):
maybe they're a good thing and still debatable, and I
think a real problem because you have no certainty about
whether or not they'll be here three years from now.
But I am seeing that shift, and I will admit
that I am pretty surprised that we have landed in
a place now where, for instance, we seem to be
agreeing on fifteen percent tariffs with the EU and UK
(29:59):
and Japan without much in the way of retaliation from
those same countries change.
Speaker 3 (30:05):
The situation feels more stable than it did a few
months ago. No, honest, people can discortet about merits of tariffs.
It doesn't have to get you know, personal, It's not
even ideological. It's just about how you want to raise revenue,
because any tax has inefficiency costs. Of course, income tax does, yep,
we all know it, and tariffs do as well. Just
(30:26):
a question of which piper you want to pay?
Speaker 2 (30:28):
Quick break when we come back a little bit more
on tariff specifically the continued negotiations with the Opinion Union.
That deals not quite angry yet. What are they harping
over now? That's next to the Financial Exchange.
Speaker 1 (30:40):
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. Business and financial
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all straight from Wall Street right here on the Financial
(31:01):
Exchange Radio network.
Speaker 2 (31:11):
Mark. We got announcements last week that the European Union
and the United States had agreed to the framework of
a deal, but there were a number of questions to
still be worked out. Semiconductors was one of the areas,
but there were energy and other implications too on this
framework of a deal. Certainly nothing executed and signed yet.
(31:32):
In any case, one of those big items for the
European Union has been access to the US market for
wine and spirits, and that specific item has not been
worked out in terms of what the teriff rate is
going to be for wine and spirits, and there's been
a potential implication that the European Union would retaliate against
American made wine and spirits if there were a teriff
(31:55):
in place there. I find this one interesting, not because
I truly care whether or not French and Spanish wine
faces a tariff coming into the United States. I actually
have a personal preference for California wine, So no skin
off my back, but it's actually one interesting thing here because.
Speaker 3 (32:14):
His birthday is coming up. Your handhand.
Speaker 1 (32:16):
I'm on.
Speaker 2 (32:19):
It is interesting to me because if there is one
state that would very much benefit from fifteen percent tariffs
on European spirits, it's California, right, Like you think about.
Speaker 3 (32:33):
That data on individual company trade surplus and deficit with
various countries individual state.
Speaker 2 (32:37):
Excuse me, no, I have not, but I mean you
think about that, like.
Speaker 3 (32:41):
Like, where do we stand here? We're mess Go ahead, sorry, the.
Speaker 2 (32:44):
You just think about like wine consumption in the United
States when you talk about other things like liquor consumption,
we already primarily consume American made liquor, whether it's whether
it's whiskey obviously would be the big one, but even
vodka in January, Like, these are spirits that we mainly
produced in the United States and consume here, whereas why
does wine is much more globally diversified. And so my
(33:08):
conclusion would be, yeah, if you hit European wine with
a fifteen percent tariff, California wine makers are going to
be those who benefit the most. The state of California
in general would be a beneficiary of that. And so
it doesn't you know, it doesn't immediately line up in
my view with President Trump's political goals there. I don't
know if that sways him at all in one direction
(33:30):
or another. And obviously the European Union is pressuring to
have no terifts on European a lot.
Speaker 3 (33:34):
Does policies help so called blue states? Yeah, the tax
bill heavily favors blue states, wealthier states, for example, their
net contributors to that.
Speaker 2 (33:45):
I want to actually go back to that. But yeah,
I mean on this European Union. Yeah, it's just interesting
to me, and I do wonder how it all shapes out.
Speaker 3 (33:54):
But what okay, So what's your You're wondering what to
what degree vegetation for lower boost prices here factors into
the ultimate what's the I think I missed your point.
Speaker 2 (34:08):
I think my point a lot of interesting facts.
Speaker 3 (34:10):
But I missed the main thrust.
Speaker 2 (34:11):
If we hit foreign made wine with tariffs, they're going
to retaliate. Whether they retaliate or not. Well, let's say
they don't retaliate it in particular, because that's been the
direction in your opin union has gone here is yeah,
you put teriffts on our goods and you turn it retaliate.
The primary beneficiary would be California winemakers in nex Yes, okay,
(34:32):
which I just find politically interesting.
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Speaker 2 (35:31):
You are making a point mark before about a lot
of policies, including the big tax bill, as largely benefiting
Blue states. Explain to me. I agree with you, but
explain how the tax bill overall kind of benefits Blue states.
In many cases, I.
Speaker 3 (35:46):
Don't know enough about its components. It's just the most
expensive parts of it. Look, when you cut taxes, the
benefits are going to recruit to people that make money
and pay taxes. So this whole argument that will at
benefax Republican tax bills tend to benefit the rich, Well, no, duh.
They they're the ones who pay most of the taxes.
I've just never found that particularly persuasive. You can argue
(36:08):
about whether or not as a good time. Now is
a good time to shut taxes given the fiscal crisis
that we're facing. When it's going to arrive, nobody knows.
We've been warning, but people have been warning about it
for decades now. So I don't really have anything profound
to say, Mike, other than the curate's it's an observation
that it's curious that Republican policies tend to benefit Blue states.
Subsidies to subsidies that induce investment tax credits to corporations.
(36:32):
These corporations are chartered in Delaware. These corporations employ people
mostly just by virtue of population mass in blue or
purplish purplish excuse me, states.
Speaker 2 (36:42):
Yeah, I would. I would simplify it too, Like I mean,
there's a few things to me that benefit blue states here. One,
in order to get the pack tax bill over the
over the line, you needed the votes of a number
of Republicans in blue states like New York, like Jersey
and others, and so you had specific carve outs for
things like the deduction, which is a big benefit to
high income earners in those blue states. The other piece
(37:04):
would just be income is your high income is concentrated
in some of these coastal blue states, right, so Massachusetts,
New York, New Jersey, California, Washington State, that's where a
lot of the highest income earning is. Texas is another one.
But because of that, yeah, when you have a lock
(37:25):
in of that thirty seven percent income tax bracket on
the highest end, yeah, it does benefit those highest income earners,
which are often located in those blue states. So yeah,
there's some truth to that, I think.
Speaker 3 (37:37):
The other general point Mike, oh sorry, go ahead. If
the other general point is tariffs have winners and losers.
Like any tax, there are winners and losers. If you
have to cut spending to finance attax cut, there are
going to be some people come out on the losing end.
And policymaking is about trade offs and making choices. You're
railing against something because railing against free trade or against
(37:57):
tariffs because one or the other ben that's a particular
constituency is not really a good argument. Policymaking is about
trade offs.
Speaker 2 (38:06):
Let's take a quick break. We've got markets now in
fairly strongly negative territory. We've had a three days of
a bit of volatility here. We'll have a full market
recap end more next on the financial exchange
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