October 21, 2025 • 38 mins
Mike Armstrong and Marc Fandetti discuss GM raising their outlook as strong truck demand dulls tariff pain. The day Amazon broke the internet for millions of Americans. US banks are hunting for collateral to back $20B Argentina bailout. If the economy is good, why do some Americans feel like everything is falling apart? Gold slumps most in four years as record-breaking rally cools.
Mark as Played
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Speaker 1 (00:00):
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
You had more than happy Tuesday, and welcome back to
the Financial Exchange. It's Mike Armstrong, Mark Fandetti and Tucker
Silva with you here.
Speaker 3 (01:18):
As earning season heats up, we have eighty.
Speaker 2 (01:21):
Nine, eighty nine s and P five hundred companies yes,
reporting earnings this week. That includes Tesla and Netflix, which
will be going today after the bell. In the meantime,
we heard from General Motors, Coca Cola, let's see, let
me get the whole the whole shebang here, Gero Space,
Philip Morris, Raytheon, Dana Hurst. So a whole bunch of
(01:42):
companies have already gone ahead and report. I had to
go look on page two for General Motors given how
small their market cap is these days. But actually some
glimpses of good news from the auto sector, which has
been all bad news as of late. We're gonna trip
take a trip down to Argentina, where Mark's gonna give
us some tango lessons and also hopefully figure out why
the US is considering lending Argentina's government forty billion dollars
(02:07):
and then later in the show will be joined by
Andrew Ross Sorkin the author of nineteen twenty nine, as
he joins us talk about his new book on the
Great Depression. But I guess we'll start with earnings. Mark's
if that's all right by you?
Speaker 4 (02:22):
Sure?
Speaker 2 (02:23):
So, we, like I said, we'll be rolling through a
bunch of companies this week. Friday of this week, we'll
get data on inflation as well. That's the consumer price
index for the month of September, which will be used
to determine cost of living adjustments on Social Security. But
General Motors coming out and reporting fairly strong earnings and
(02:44):
open in pre market trading, they were up a good
nine percent. They're up fourteen wow, fourteen percent now nearly
a General motorstock on better than expected demand and also
better than expected tariff news. So just highlighting the top
line information here. Adjusted earnings before interest in taxes estimated
(03:07):
to be twelve to thirteen billion dollars in twenty twenty five.
That's up from a previous range of ten to twelve
and a half. They're citing strong truck demand. They're also
thanking the Trump administration for some carve outs. When it
comes to auto parts. They extended a twenty thirty tariff
discount on imports for car makers that produce and sell
(03:27):
completed automobiles in the United States, so GM basically reducing
the expected impact of their overall sanctions piece. And I
bring General Motors up in particular, not because they're a
particularly large company, right this is these days a sixty
two and a half billion dollar company, but big employer
(03:49):
in the United States obviously, and also the auto industry
as a whole has been in focus at least on
our program over the course of the last month, given
a few bankruptcies that we have seen in that space.
I wonder, Mark, I haven't really talked to you a
whole lot about the private credit and auto delinquency and
bankruptcy space, but your take on the state of the
(04:12):
automobile market and potential first spill over here if you
have one. We've seen the bankruptcy of Tricolor, We've seen
the bankruptcy of First Brands. Part of that I attribute
to fraud and you know, potential problems with the companies themselves.
But I've also been worried about you know what this
exactly states about the consumer and the demand for automobiles
(04:32):
right now.
Speaker 3 (04:35):
Yeah, that's a.
Speaker 5 (04:36):
Good question to tell you. The truth I we talked
to a lot of In my day job, I talked
to a lot of asset manage Sure, we run people's
we manage people's money for them, but we don't do
it directly. We hire managers to do it, so we
talk to managers who specialize in these areas. So you
asked about private credit and potential spillover effects there for demand,
because if people can't get access to h there are
(05:00):
spillovers from what happened to a tricolor. It's not a spillover,
it's very direct. If there are more subprime lenders who
are in trouble, and there probably are.
Speaker 2 (05:09):
What was the name of the other one that was
being threatened with bankruptcy on Friday of last week?
Speaker 3 (05:14):
Did you send that one to me?
Speaker 4 (05:15):
I'm start at the p primal lend.
Speaker 2 (05:18):
I think it might have been I'll double check in
that one, but another subprime lender being looked at pretty cautiously.
Speaker 5 (05:25):
So years and years of lax lending always culminate in
a crunch. So the question is a wee in the
early stages of a crunch? And I say always that
sounds very confident, very definitive, but it's also it's also true,
but you never really know until after the fact the
times of it, yeah, or whether or not it's going
(05:47):
to take down an appreciable part of the industry. And thus,
to answer your question, SAP demand in her earnings.
Speaker 2 (05:55):
The stuff that I'm seeing in the auto industry, to me,
indicates that there is this continued, real problemroblem with subprime
and I think that feeds into a story that we've
been talking about a lot, right, whether it's Marriott's earnings
and their real success in the premium brands, whether it's
Delta speaking about their success and selling high priced tickets
versus coach cabin tickets. The story of GM versus these
(06:18):
subprime lenders, I think tells a similar story. GM is
seeing a real surgeon profitability by selling sixty, seventy and
eighty thousand dollars pickup trucks, And if you are borrowing
money from the likes of Primal Lend or Tricolor, you're
probably not buying an eighty thousand dollars pickup truck to
begin with.
Speaker 5 (06:35):
Yeah, I think one of the challenges that analysts like me,
I'm not a stocky analyst, but sort of an economic
h and an investment researcher type analyst. One of the
challenges we're going to run into, Mike, is that the
health of big companies is no longer indicative necessarily of
the health of the average consumer. Those two things have decoupled.
(06:55):
I don't know how tightly coupled they've ever been. It
may have just been a miss. Sure, I do know,
and you and Chuck and Paul Lane have talked a
lot about the fact that nearly the majority of spending,
maybe now the majority is being driven by the top percentiles.
Whether it's whether it's top five or top ten percent
doesn't really matter. But the growth in spending is being
(07:18):
driven by the wealthiest households, and that's in turn driving earnings,
which is in turn propelling stocks, which is in turn
abetting the so called wealth effect. How much of people's
stock gains they tend to spend on stuff, so you
get this. I'll call it a virtuous cycle, even though
it's probably not sustainable because you can sense the circularity
and what I'm describing stocks co ops, so people spend more.
(07:39):
That's that in turn pushes stocks up. Raises the question,
what if the economy consisted just of a stock market
and nothing else would people just keep spending. Of course
not that's absurd. But the point is, Mike, I don't know.
It's great that that you and Chuck and Paul talk
about corporate earnings, but I'm not sure how much light
that sheds on the health of the typical consumer or
the typical list to the show.
Speaker 2 (08:01):
Yeah, it's difficult for me to look at, say, the
top ten companies in the S and P five hundred, Yeah,
and reminder that that makes up what forty six percent
of the total index now and point to any of
them and say, oh, yeah, that is a company whose
profits are really driven by a broad spectrum of the
US consumer. Yeah, But I think what we're starting to
(08:22):
see here and there is companies that do serve that
lower income consumer. Primal Lend and Tricolor or you know,
two of them who we didn't know their names prior
to this, and they don't have a big impact on
the stock market. We're seeing real cracks in the foundation
of those companies. And the question that I have is, Okay,
(08:43):
you know, these are two relatively unknown companies. What are
the other ones that are out there that I'm not
really thinking of that also serve a lower income, consumer
and derive.
Speaker 5 (08:54):
This is what Jamie Diamond meant when he when he
cost it's a perfect anal. I mean, if anybody should know,
he should know, Jamie. If you don't know where the
cockroaches are, you're going to go talk to your underwriters
for Pete's sake.
Speaker 2 (09:06):
But yeah, and so what we'll continue to draw that
out as the you know, as the week goes on. Right,
we've got eighty nine different companies who are reporting earnings.
But when I take a look at them, you know,
you go down the list here, right, Netflix, g E R, Space,
Coca Cola, Philip Morris, Raytheon. I suppose a couple of them,
ye right, Like you know, when I think about which
(09:26):
ones could I measure the overall health of the US consumer?
Netflix might be one, yep, Coca Cola could be another.
Philip Morris might be another. Where okay, correct, well, but
those aren't going to be big drive. Those aren't to
be big drives of the stock market. But I do
think they are really useful indicators for hey, will these
companies be able to continue to drive growth? Will they
(09:48):
be able to see the same sales that they have
been become accustomed to and have been priced into given
what we're seeing in the weakening of the bottom half
as you so, this is.
Speaker 5 (09:58):
Why, and you'll talk about this with Andrew Ross Sorkin
in the next hour. Does a market crash Did the
twenty nine market crash instigate or contribute to the factors
that led to the depression? Most economists would say yes,
but it wasn't the proximate cause well, you'll get his
take on that in the next hour. The point I
want to make is the changing complexion of the stock
(10:19):
market and the structure of the economy make forecasting, make
answering the really interesting questions on everybody's mind to wit,
Are we gonna have recession? Is the stock market going
to crash? Is it too pricey? Is spending going to slow?
Am I gonna be able to sell my house when
I have to start selling stocks? When I retire? Are
they going to be down relative where they are? Those
(10:40):
are the big questions on most people's minds. It's hard
to answer those questions using traditional forecasting methods. Speaking just
as an analyst here, when the structure of the economy
is changing, and when the composition of the market is
changing as it has over the past several years.
Speaker 3 (10:57):
Especially let's take a quick break yesterday.
Speaker 2 (11:00):
If you happen to notice many websites weren't working terribly well,
it's been more than twenty four hours now. We've got
a little bit more information on the crash yesterday. We'll
talk about that next on the Financial Exchange.
Speaker 1 (11:11):
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Speaker 4 (11:40):
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Speaker 3 (12:13):
Well Mark.
Speaker 2 (12:14):
This time yesterday Chuck and I were discussing the outages
caused by Amazon Web Service is probably the bigger story
of yesterday and likely the biggest disruption to the Internet
since what was it a few years ago CrowdStrike that
took down you know, billions of dollars worth of business
when they took down Microsoft servers based on a screw
(12:37):
up that they made. Still not exactly clear what happened,
but apparently, according to reporting, the trouble started right after
midnight along the East coast and it was involving an
update to the domain name system. To make a long
story short, Amazon web Services today about thirty percent market
(13:01):
share for all sorts of web service hosting. All sorts
of big and small companies rely upon them to host
everything that they do at their companies that are digital
and on either an Internet or intranet service, and when
a little screw up like this happens, it compounds very quickly.
(13:21):
It was apparent to me that some companies were better
at getting themselves back up and running than others. And
I don't think any of that had to do with
their relationship with Amazon or anything along those lines. I
think it mainly had to do with some companies had
better backups in place. But in speaking to somebody with
a major you know, with a major company yesterday, the
(13:45):
answer was, yes, we've got backups in place that we
can switch to. But it's not this automatic, quick thing
that happens right. You have to physically switch over to
a different server farm or to a different backup that
you use, and it just RUPs all sorts of things
for a long time.
Speaker 5 (14:02):
So forgive me. I don't know a thing about this.
I do know that as you say companies store their
data off site, I'll just say off site, you should
say it's in the cloud. So when the cloud goes down,
I go into my network drive. A lot of most
people know what that means. I'll just use the language.
I'm not, again, not an expert.
Speaker 3 (14:18):
I just know that's what it's called.
Speaker 5 (14:19):
I want to access something I looked at six months ago.
It's not saved locally, it's saved in the so called cloud. Yes,
there were people who because they use AWS yesterday, couldn't
do that. So you want to pull up a spreadsheet
for last quarter to updateat you couldn't get it because or.
Speaker 2 (14:32):
If you wanted to access your payment system that's available
on your website that might be hosted on Amazon's cloud. Again,
you might not be able to accept a payment for
your customer. You might not be able to print a
shipping label to your printer. By the end of the day,
one hundred and forty two different Amazon Web service products
were affected because there was just kind of a ripple
(14:53):
effect and chain effect of you know, switch over to here,
switch over to there, and then that system gets taken
down as well. So, uh, I don't I can't claim
to be an expert on any of this stuff either, Mark,
But I think what we're learning through events like this
is that those systems are quite a concentrated and be fragile,
(15:13):
more fragile than I think most people previously.
Speaker 5 (15:15):
But now that we know about this, do businesses have
an obligation to back there? What is the point of
backing up your data if it's already backed up on
the So it's been it's backed up. When you say
something it's I know it's backed up on your your
seed drive. Most people have a computer know what that means.
It's on your eye drive. But after thirty days it
effectively goes off your sea drive and ends up in
the cloud. Do businesses now have a duty to back up?
Speaker 1 (15:37):
What?
Speaker 5 (15:37):
I thought the whole point of the cloud was it
is the backup.
Speaker 3 (15:40):
So here would be my takeaway.
Speaker 2 (15:44):
This event seems like it's primarily behind us at this stage,
and companies in Amazon has fully recovered from it. Do
businesses have an obligation to back things up?
Speaker 3 (15:56):
No? I guess it depends on what business you are.
Speaker 2 (15:58):
If you're Bank of America, then probably If you are
what was it said I was trying to get on
yesterday r V Trader, which is a company that buys
and sells used RVs.
Speaker 3 (16:08):
Yeah, probably not.
Speaker 2 (16:09):
I don't know that any regulator is going to come
after you and say, hey, r V Trader, you're pretty
integral to the financial system. You have to make sure
that your website has backups. I think the bigger question, right, like,
let's say that this was out for a week, would
companies that have the ability to get back up and
running with their backups within twenty four hours, like those are.
Speaker 5 (16:32):
The questions about pick up the cloud with another cloud server.
Speaker 3 (16:35):
Provide the cloud server provider.
Speaker 4 (16:39):
Cloud that's what I would want.
Speaker 3 (16:40):
Then you're screwed. They both go down. Then forget about it.
Speaker 2 (16:44):
I don't I don't have an answer for you, but
I think the answer clearly is it depends on how
important and big of an institution you are. It depends
on what sort of stuff is relied upon in your network.
Speaker 5 (16:55):
We're gonna end up bringing all these service back on
site at some point. I hate to say it, but
if somebody finds a way to split this vulnerability, or
if these things just become unreliable at a certain scale,
you're going to almost have to have your own servers.
Speaker 2 (17:07):
I think many of these places do. I think that's
the answer, as many of these places do. And in
some cases, you know, like the cloud is the backup.
But I mean that doesn't fix the problem either, Mark,
because ten years ago, when we were evaluating this stuff internally, yeah,
the question was, okay, well what happens if you're building
burns down. Really great that you've got that backup location
(17:28):
you can work from. But if you're building burns down,
then you don't have a website you don't have an intranet,
you don't have any of.
Speaker 3 (17:32):
The files that were stored to that local server.
Speaker 2 (17:35):
And so what's the bigger risk Amazon being out for
a day or week or a month, or you're building
burning down, or thieves walking away with your physical server.
And generally the answer was the risk is bigger that
you're building burns down, and so you better go to
the cloud. And you're probably right. Maybe the pendulum starts
to swing in the other direction here. The more of
these that happen, we don't seem to have any insinuation,
(17:57):
by the way, that this was a attempted hack or
denial of service that could come out at a later
point in time. I would just say, you know, based
on previous events like this, I would consider it equally
likely that somebody punched the wrong number into the keyboard
into a series of code and took down entire string
of systems, similar to what happened in previous events. So
(18:17):
we will we will see what.
Speaker 4 (18:20):
We Apparently it was a minor update from a domain
name system or a DNS or something, and one number
was in reading another number, and it just that's the
ripple effect that happened afterwards, Yeah, just a minor update.
Speaker 2 (18:33):
Yeah, and again I think that speaks to I mean
two concerns that I have. One, why can one can
one bozo like me really screw up a massive update
like that and take down a third of the Internet.
That's pretty concerning if you are Amazon, because I would
assume you're going to be paying some money out to
(18:54):
your customers to take account for the screw up that
you had here. Two, why are we so concentrated with
three companies between Amazon, Microsoft and Google that accounts for
seventy percent of the cloud infrastructure that's out there?
Speaker 5 (19:10):
Again, but we won't let Spirit it's a scale business.
Speaker 2 (19:13):
We won't let Spirit Airlines and Jet Blue merge, but
we will allow these three to control the entirety of
the Internet. There's there's some fair questions to be answered
there quick break. When we come back, we'll be talking Argentina.
But first Wall Street Watches 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 at what's moving market so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:00):
Markets Our mixed territory after yesterday's positive session as investors
sift through a fresh batch of third quarter earnings from
major names including General Motors, GE Aerospace, Coca Cola, and
many more, and now the Dow is up by three
tenths of one percent, or one hundred and forty four
points higher. SMP five hundred is down about a tenth
(20:22):
of a percent only six points, Nasdaq down by about
a third of a percent or seventy eight points lower,
Rustled two thousand down by half a percent, ten year
Treasure Reel down three basis points now and is at
three point nine five three percent, and crude oil is
mostly flat, edging higher training a fifty seven dollars and
(20:42):
fifty five cents a barrel. Before we get into earnings,
some breaking news in the media space this morning, after
several outlets are reporting that Warner Brothers Discovery initiated a
review of strategic alternatives in response to acquisition interest it
has received from multiple PARTIESBC is reporting that Netflix and
(21:02):
Comcast are among the interested parties. Warner Brothers stock is
jumping over nine percent on that news. Meanwhile, shares and
GM surging fourteen percent after the automaker posted a third
quarter earnings in revenue beat and raised its full year guidance.
The company's three point four billion dollars in operating income
(21:22):
adjusted for certain items, exceeded analyst estimates of two point
seven billion dollars. Meanwhile, Jet engine Company GE Aerospace handily
beat third quarter earnings in revenue forecast and also hiked
its full year outlook. Shares are currently up modestly. Elsewhere,
Coca Cola shares edging higher after the beverage and snack
Giant reported better than expected quarterly results as higher prices
(21:46):
helped lift sales. Regional bag Zion Bancorp reported higher quarterly
earnings despite the fifty million dollars charge off it disclosed
last week. Shares are up by about two percent. Philip
Morris lifted it's annual guidance as smokeless tobacco products continue
to drive growth. However, shares it down by over eight percent.
(22:06):
Now and after today's closing bell, we'll see more earnings
from Netflix, Capital One, Mattel, and Texas Instruments. I'm Tucker Silvan.
That is Wall Street watch Mark.
Speaker 2 (22:18):
We have a couple stories about the deal with Argentina
that the United States is currently brokering and negotiating and
working with banks on and for folks that haven't been
following this closely, I feel like we should take a
pretty big step back here and talk about what's happened here.
So Javier Malay has been in charge of the President
(22:39):
of Argentina now for a year and a half two years,
and has enacted sweeping reforms to the country, slashing budgets
and really trying to get inflation under control. And initially
I think you did have some success on the inflation front,
but at the cost a lot of success, at the
(23:01):
cost of spending a lot of US dollars to maintain
the currency. So that's right, take a step back, I guess,
and you know, in relatively terms, describe to me what's
been happening over the course of the last couple of
years to the best your ability.
Speaker 5 (23:20):
Currencies trade like any other asset. Sure dollars trade dollars
trade for euros and vice versa. The ratio of the
two prices is called the exchange rate. Uh So, in
the case of Argentina, they have a lot of debts
that are denominated that are record captain in dollars, so
(23:41):
they need dollars they get throws. They get those through exports. Uh,
this is due a lot of countries. We don't need dollars.
Of course, we can print them, Thank god, the dollars
the world's reserve currency. We can print what we need.
We can manipulate exchange rates, do what we need to.
Speaker 3 (23:55):
Do to get them.
Speaker 2 (23:56):
Argentina needs to get an export beef, yes, export, yeah,
it's really or you could get help from the US government,
which we've recently given them.
Speaker 5 (24:04):
Their currency. By most currency trader and other analysts, reckoning
is overvalued to severely overvalued. It takes too few Argentine
pesos to buy a dollar. The reason for that is
that inflation has been running out of control in Argentina
for years. It's down rot yeah, yeah, for the last
(24:27):
roughly the last hundred years. Argentina is a sad case.
By the way, it went from having the same per
head income as the US about one hundred and twenty
years ago.
Speaker 3 (24:37):
I e.
Speaker 5 (24:37):
It was a rich country and it still is. It's
not a poor country, but it's not among the world's
leading countries in terms of per capita, that is, per
head income. So the bottom line just kind of cutting
to the chase here, in the interest of time. And
like you said, brevity, Argentina needs dollars so it can
maintain the value of the payso on foreign exchange market.
(25:00):
It's why does it want to do that, Because a
cheaper pays a payso which is worthless relative to the
dollar or whatever, imports inflation. So they're controlling the currency
to help control inflation. All these things are related. Currencies, inflation,
interest rates. You can't you can only control two of
those three things. It's it's the trilemma of international economics.
Speaker 2 (25:22):
Now, Malay's party lost a big election stor This happens,
by the way, five every few years in Argentina.
Speaker 5 (25:28):
A center right government like Malaise, who I personally like,
so I'm trying not to be by. He's a libertarian.
He wants to shrink government, he wants to cut taxes.
He's brought inflation down. He's been successful in many ways. Unfortunately,
successful Argentine center right governments are always up against the
clock because their reforms inflict pain on the economy.
Speaker 2 (25:49):
This movie fire a bunch of government employees and tell
others that they can't work as much.
Speaker 5 (25:53):
Yeah, and people get pissed off. Forgive me, but that's
what's happening there. And when they do, they vote the
center right government, whether it's Macri, his predecessor, center right
predecessor or him. I can't even think of the other guys.
But the history of Argentina is a museum of failed
center right governments that tried to do what Malay is doing,
(26:13):
but they ran out of time. Because voters tire of
the sacrifices, they vote in a left wing what they
call a paranist government. It's like us saying he's governing
like a Reaganite, or he's governing like a New Deal person.
They call their left wing populist government's peranist because of Parone.
Most people know Vita Parone. It's her husband that was
(26:34):
the authoritarian, progressive type.
Speaker 3 (26:37):
Anyway, So here we stand right wrong.
Speaker 5 (26:39):
We're in the investis a worry now that they're gonna
start printing money again, spending it like crazy, back to
the bad old days. That's why we gave them, effectively
loaned them, but we may not get it back. Twenty
billion dollars to prop up what's with currency. The United
States of America said to it, said to Argentina, we
will swap dollars for pay you need dollars, we'll take
some pesos. You can have twenty billion in you US dollars.
(27:00):
Give us the equivalent in paysos that's you know, like
fourteen hundred paysos two dollar. So we've got all these
paysos now in exchange for dollars. Argentina is going to
spend those dollars trying to defend its currency. They've got
an election coming up on the twenty sixth. If Malay's
coalition can perform better than expected, I think it's a
regional election, but it's a bell weather. If they can
perform better than expected, that may reassure investors Mike and
(27:23):
stop the run sure by speculators on the Payso but.
Speaker 2 (27:27):
It seems pretty clear to me that there's some questions
as to whether the twenty billion dollars would get the
job done, because why else would the US Treasury be
getting all the big banks together to see if they
might be willing to come up with another twenty billings.
Speaker 5 (27:40):
I mean, no, we're throwing good. This is going down
a hole here. Just the history again of Argentina is
one attempt at reform followed by a currency crisis followed
by a left wing parentist government coming to power. It's
one cycle after another. It's tragic, but it's probably inevitable.
To hope is we've given them enough to beat off
(28:02):
speculators until these elections on the twenty sixth, and then
if Malaise coalition to alt call it his coalition. These
people are somehow allied with them. I don't fully understand it.
Their parties down there are crazier than ours are. If
they do better than expected, that might reassure investors and
staunch the bleeding. But past couple of weeks PESO has
been under severe pressure again despite US assurances.
Speaker 2 (28:23):
And look, I think the obvious question here mark beyond
all the will this be successful?
Speaker 3 (28:29):
Will it not?
Speaker 2 (28:30):
It's the why the hell is the United States involved
in loaning Argentina twenty billion dollars when realistically we have
very little in the way of geopolitical, economic, or other times.
Speaker 5 (28:42):
So we did this for Mexico thirty years ago, and
it worked. Mexico absorbed at the time and does today
even more, ten percent of our imports of our exports.
So we had a direct economic interest in this stax ago.
We shareborder. You don't want lots of distressed people fleeing
Mexico if it comes a failed state or something that
was a real concern in nineteen ninety four. So we
(29:04):
use the so called exchange Stabilization Fund, the same fund
we're using today to help Mexico defend its currency, and
everything worked out. Europeans have done the same. They did
the same for the Greeks in twenty twelve. European Central
Bank famously did well, not the same, something very similar though.
The argument for Argentina, though Mike, is far weaker. They
absorb only a half a percent of our of our exports,
(29:26):
so we're hardly economically dependent on them, and obviously we
don't share a border with them.
Speaker 2 (29:31):
Let's take a quick break when we come back. Another
piece this week about the economy apparently is great, yet
Americans feel like everything's falling apart.
Speaker 3 (29:42):
We'll cover that next year.
Speaker 1 (29:43):
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Speaker 3 (30:23):
Mark market Watch has that piece today.
Speaker 2 (30:24):
If the economy's good, why do some Americans still feel
like everything is quote falling apart? I guess my answer
to that is because we are not, you know, some
homogeneous society where everybody is doing the exact same And obviously,
in any economy any time in history, there are those
(30:47):
that are doing extraordinarily well and those who are doing
extraordinarily poorly. Yep, and there's always going to be the case.
But I guess more importantly I want to ask the question,
is is there something here that's unique in twenty twenty
five that a larger share of Americans feel like things
are falling apart?
Speaker 3 (31:07):
Is there evidence that.
Speaker 2 (31:11):
More and more Americans are actually pessimistic about the state
of things today than at other times in the past.
I mean, I know I can point to things like
you Michigan and other surveys, but how would you answer that?
Speaker 3 (31:24):
Go about answering that question? And that second question would
be does it matter?
Speaker 5 (31:28):
So the first question is is their evidence.
Speaker 3 (31:30):
Is that it is uniquely bad? Right now?
Speaker 5 (31:33):
In terms of uniquely bad, it's tough to compare survey
responses to pass survey ressurances, so uniquely hard to say
bad for some cohorts for some groups. If you just
look at the survey data, which you've already said is weak,
some are reporting financial distress. Yeah, I'll take them at
their word. It is Is it different than it used
(31:56):
to be? Probably because in equality, no matter how you
want to measure that has grown. We've all seen the
famous I think Beave did the original chart on the
share of spending attributable to top earners. How it's grown
steadily over the past couple of decades. The wealth effect
of the stock market may have something to do with that,
(32:16):
and the FED. The Fed's obsession with keeping equity prices
up it is because it believes in the wealth effect,
and it believes it can use the stock market to
influence demand. The FED is probably partly to blame for that.
Do I have a better idea? Not necessarily. If the
alternatives letting the economy grow more slowly, maybe we all
be worse off. I have a gut response to that,
I don't like it, but I don't necessarily have a
better idea.
Speaker 2 (32:36):
Let's assum I buy the premise that a larger share
of Americans in economy that, by all measurable effects that
we use at the FED and elsewhere, is a good
economy right, low unemployment, relatively low inflation. I think the
misery indexes around where we were in twenty sixteen. If
I buy the premise that more Americans are falling behind, though,
(32:58):
I have to assume it does eventually matter, but I
certainly don't see it showing up in any earnings or
stock market data.
Speaker 5 (33:08):
I mean, maybe we're looking if your main concern is
how is the average earner doing? You wouldn't cite GDP.
We get data on median income, which is close to
the average, but not quite the same thing. Use that.
I mean, no one is forcing people who lament and
and criticize the widespread use of things like GDP and
(33:31):
other broad averages. They're just not using them for the
r It's like saying, my damn thermometer didn't tell me
I had cancer. Well, that's not really what it's for, dude.
I I guess at some point you would start running
a fever as your immune system win and overdrive. But
maybe so, maybe a bad example. I don't know, not
my area, but you know what I mean, we're using
these tools to solve the wrong problem. There are plenty
(33:52):
of measures out there, including some of those cited in
this article, that you can cite if your concern is
how does the sort of average wage earner or middling
net worth, which is most of us, feel about the economy.
Speaker 2 (34:04):
Yeah, My main takeaway is that we might not be
able to see this showing up in any of the
immediate stock marketer spending data because of how well that
top level consumer is doing.
Speaker 3 (34:15):
No nobody, but you don't really long.
Speaker 2 (34:18):
For a society where wealth and income inequality is growing
to uncomfortable levels. That seems like it's unlikely to produce
stock market problems and very likely to produce societal problems
like wild swings in voting, popularly different voting groups, and all.
Speaker 3 (34:37):
Sorts of No.
Speaker 5 (34:37):
It's good, look, Mike, we're having societal problems. I mean,
we've had a populist revolution in this country in the
past ten years. You may love or hate what the
Trump or Biden administrations have done, but you cannot deny
that they're exercising, especially the Trump administration, unprecedented power in
the executive He's setting tariffs on a whim. He's shifting
spending around without and Congress hasn't been in session for
(34:59):
like Gouy knows how long he's allocating spending around. He's
building ballrooms in the White House. He's just sort of
governing like someone with all the power. You could say
you like that, you trust a judgment, or you don't.
But there has been a political revolution. It is the
result of probably probably is the result of growing inequality.
Things like free trade, although I would defend it have
played a role. We haven't managed the consequences of it,
(35:20):
probably very well. That is evident in the populist revolution,
and a rising stock market is not going to play
kate anybody.
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Speaker 2 (36:36):
A bit of a big market, no, not a bit
of a big market move in commodities, likes which we
haven't seen quite some time. Silver currently off over seven
and a half percent, Gold off five and a half percent.
At one point, the silver drop was the biggest that
we've seen since twenty twenty one. I guess briefly here Mark,
what have most experts attributed the rise in commodities to
(36:59):
and what, if anything, does this rapid drop in a
single day insinuate about a reversal in that trend if
you can point to anything.
Speaker 5 (37:07):
Well, focusing just on gold for a moment, because it
ties into some of the other macroeconomic and geo economic
I don't even know that that's a word, but any way, issues.
We've been talking about the explanations provided for gold, and
you should always question these because they always come after
the fact. People are worried about big deficits in developed
countries high debt. They're going to have to inflate that
(37:29):
debt away. That's the way it's always been resolved. This
is not good for the dollar or other traditional safe
assets or safe assets denominated record kept in US dollars
like US treasuries, So investors are looking for other safe
haven assets. Gold fits the bill, maybe some other precious metals,
a subset of the commodities group fits the bill, and
(37:50):
maybe that's helped pull up the entire commodities complex. That's
one explanation. Why is that all unraveling over the last
couple of days when none of the underlying factors have change.
Speaker 2 (38:00):
Well, because clearly every developed nation has gotten much more
fiscally responsible today.
Speaker 5 (38:04):
Yeah. None of the fundamentals, of course, changed.
Speaker 2 (38:06):
Yeah, everything is the same on the ground, and yet
we're seeing some big price swings here quick break, A
lot more to cover in the second hour of the
Financial Exchange.
Speaker 3 (38:15):
We will be right back, folks,
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Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
You had more than happy Tuesday, and welcome back to
the Financial Exchange. It's Mike Armstrong, Mark Fandetti and Tucker
Silva with you here.
Speaker 3 (01:18):
As earning season heats up, we have eighty.
Speaker 2 (01:21):
Nine, eighty nine s and P five hundred companies yes,
reporting earnings this week. That includes Tesla and Netflix, which
will be going today after the bell. In the meantime,
we heard from General Motors, Coca Cola, let's see, let
me get the whole the whole shebang here, Gero Space,
Philip Morris, Raytheon, Dana Hurst. So a whole bunch of
(01:42):
companies have already gone ahead and report. I had to
go look on page two for General Motors given how
small their market cap is these days. But actually some
glimpses of good news from the auto sector, which has
been all bad news as of late. We're gonna trip
take a trip down to Argentina, where Mark's gonna give
us some tango lessons and also hopefully figure out why
the US is considering lending Argentina's government forty billion dollars
(02:07):
and then later in the show will be joined by
Andrew Ross Sorkin the author of nineteen twenty nine, as
he joins us talk about his new book on the
Great Depression. But I guess we'll start with earnings. Mark's
if that's all right by you?
Speaker 4 (02:22):
Sure?
Speaker 2 (02:23):
So, we, like I said, we'll be rolling through a
bunch of companies this week. Friday of this week, we'll
get data on inflation as well. That's the consumer price
index for the month of September, which will be used
to determine cost of living adjustments on Social Security. But
General Motors coming out and reporting fairly strong earnings and
(02:44):
open in pre market trading, they were up a good
nine percent. They're up fourteen wow, fourteen percent now nearly
a General motorstock on better than expected demand and also
better than expected tariff news. So just highlighting the top
line information here. Adjusted earnings before interest in taxes estimated
(03:07):
to be twelve to thirteen billion dollars in twenty twenty five.
That's up from a previous range of ten to twelve
and a half. They're citing strong truck demand. They're also
thanking the Trump administration for some carve outs. When it
comes to auto parts. They extended a twenty thirty tariff
discount on imports for car makers that produce and sell
(03:27):
completed automobiles in the United States, so GM basically reducing
the expected impact of their overall sanctions piece. And I
bring General Motors up in particular, not because they're a
particularly large company, right this is these days a sixty
two and a half billion dollar company, but big employer
(03:49):
in the United States obviously, and also the auto industry
as a whole has been in focus at least on
our program over the course of the last month, given
a few bankruptcies that we have seen in that space.
I wonder, Mark, I haven't really talked to you a
whole lot about the private credit and auto delinquency and
bankruptcy space, but your take on the state of the
(04:12):
automobile market and potential first spill over here if you
have one. We've seen the bankruptcy of Tricolor, We've seen
the bankruptcy of First Brands. Part of that I attribute
to fraud and you know, potential problems with the companies themselves.
But I've also been worried about you know what this
exactly states about the consumer and the demand for automobiles
(04:32):
right now.
Speaker 3 (04:35):
Yeah, that's a.
Speaker 5 (04:36):
Good question to tell you. The truth I we talked
to a lot of In my day job, I talked
to a lot of asset manage Sure, we run people's
we manage people's money for them, but we don't do
it directly. We hire managers to do it, so we
talk to managers who specialize in these areas. So you
asked about private credit and potential spillover effects there for demand,
because if people can't get access to h there are
(05:00):
spillovers from what happened to a tricolor. It's not a spillover,
it's very direct. If there are more subprime lenders who
are in trouble, and there probably are.
Speaker 2 (05:09):
What was the name of the other one that was
being threatened with bankruptcy on Friday of last week?
Speaker 3 (05:14):
Did you send that one to me?
Speaker 4 (05:15):
I'm start at the p primal lend.
Speaker 2 (05:18):
I think it might have been I'll double check in
that one, but another subprime lender being looked at pretty cautiously.
Speaker 5 (05:25):
So years and years of lax lending always culminate in
a crunch. So the question is a wee in the
early stages of a crunch? And I say always that
sounds very confident, very definitive, but it's also it's also true,
but you never really know until after the fact the
times of it, yeah, or whether or not it's going
(05:47):
to take down an appreciable part of the industry. And thus,
to answer your question, SAP demand in her earnings.
Speaker 2 (05:55):
The stuff that I'm seeing in the auto industry, to me,
indicates that there is this continued, real problemroblem with subprime
and I think that feeds into a story that we've
been talking about a lot, right, whether it's Marriott's earnings
and their real success in the premium brands, whether it's
Delta speaking about their success and selling high priced tickets
versus coach cabin tickets. The story of GM versus these
(06:18):
subprime lenders, I think tells a similar story. GM is
seeing a real surgeon profitability by selling sixty, seventy and
eighty thousand dollars pickup trucks, And if you are borrowing
money from the likes of Primal Lend or Tricolor, you're
probably not buying an eighty thousand dollars pickup truck to
begin with.
Speaker 5 (06:35):
Yeah, I think one of the challenges that analysts like me,
I'm not a stocky analyst, but sort of an economic
h and an investment researcher type analyst. One of the
challenges we're going to run into, Mike, is that the
health of big companies is no longer indicative necessarily of
the health of the average consumer. Those two things have decoupled.
(06:55):
I don't know how tightly coupled they've ever been. It
may have just been a miss. Sure, I do know,
and you and Chuck and Paul Lane have talked a
lot about the fact that nearly the majority of spending,
maybe now the majority is being driven by the top percentiles.
Whether it's whether it's top five or top ten percent
doesn't really matter. But the growth in spending is being
(07:18):
driven by the wealthiest households, and that's in turn driving earnings,
which is in turn propelling stocks, which is in turn
abetting the so called wealth effect. How much of people's
stock gains they tend to spend on stuff, so you
get this. I'll call it a virtuous cycle, even though
it's probably not sustainable because you can sense the circularity
and what I'm describing stocks co ops, so people spend more.
(07:39):
That's that in turn pushes stocks up. Raises the question,
what if the economy consisted just of a stock market
and nothing else would people just keep spending. Of course
not that's absurd. But the point is, Mike, I don't know.
It's great that that you and Chuck and Paul talk
about corporate earnings, but I'm not sure how much light
that sheds on the health of the typical consumer or
the typical list to the show.
Speaker 2 (08:01):
Yeah, it's difficult for me to look at, say, the
top ten companies in the S and P five hundred, Yeah,
and reminder that that makes up what forty six percent
of the total index now and point to any of
them and say, oh, yeah, that is a company whose
profits are really driven by a broad spectrum of the
US consumer. Yeah, But I think what we're starting to
(08:22):
see here and there is companies that do serve that
lower income consumer. Primal Lend and Tricolor or you know,
two of them who we didn't know their names prior
to this, and they don't have a big impact on
the stock market. We're seeing real cracks in the foundation
of those companies. And the question that I have is, Okay,
(08:43):
you know, these are two relatively unknown companies. What are
the other ones that are out there that I'm not
really thinking of that also serve a lower income, consumer
and derive.
Speaker 5 (08:54):
This is what Jamie Diamond meant when he when he
cost it's a perfect anal. I mean, if anybody should know,
he should know, Jamie. If you don't know where the
cockroaches are, you're going to go talk to your underwriters
for Pete's sake.
Speaker 2 (09:06):
But yeah, and so what we'll continue to draw that
out as the you know, as the week goes on. Right,
we've got eighty nine different companies who are reporting earnings.
But when I take a look at them, you know,
you go down the list here, right, Netflix, g E R, Space,
Coca Cola, Philip Morris, Raytheon. I suppose a couple of them,
ye right, Like you know, when I think about which
(09:26):
ones could I measure the overall health of the US consumer?
Netflix might be one, yep, Coca Cola could be another.
Philip Morris might be another. Where okay, correct, well, but
those aren't going to be big drive. Those aren't to
be big drives of the stock market. But I do
think they are really useful indicators for hey, will these
companies be able to continue to drive growth? Will they
(09:48):
be able to see the same sales that they have
been become accustomed to and have been priced into given
what we're seeing in the weakening of the bottom half
as you so, this is.
Speaker 5 (09:58):
Why, and you'll talk about this with Andrew Ross Sorkin
in the next hour. Does a market crash Did the
twenty nine market crash instigate or contribute to the factors
that led to the depression? Most economists would say yes,
but it wasn't the proximate cause well, you'll get his
take on that in the next hour. The point I
want to make is the changing complexion of the stock
(10:19):
market and the structure of the economy make forecasting, make
answering the really interesting questions on everybody's mind to wit,
Are we gonna have recession? Is the stock market going
to crash? Is it too pricey? Is spending going to slow?
Am I gonna be able to sell my house when
I have to start selling stocks? When I retire? Are
they going to be down relative where they are? Those
(10:40):
are the big questions on most people's minds. It's hard
to answer those questions using traditional forecasting methods. Speaking just
as an analyst here, when the structure of the economy
is changing, and when the composition of the market is
changing as it has over the past several years.
Speaker 3 (10:57):
Especially let's take a quick break yesterday.
Speaker 2 (11:00):
If you happen to notice many websites weren't working terribly well,
it's been more than twenty four hours now. We've got
a little bit more information on the crash yesterday. We'll
talk about that next on the Financial Exchange.
Speaker 1 (11:11):
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Speaker 3 (12:13):
Well Mark.
Speaker 2 (12:14):
This time yesterday Chuck and I were discussing the outages
caused by Amazon Web Service is probably the bigger story
of yesterday and likely the biggest disruption to the Internet
since what was it a few years ago CrowdStrike that
took down you know, billions of dollars worth of business
when they took down Microsoft servers based on a screw
(12:37):
up that they made. Still not exactly clear what happened,
but apparently, according to reporting, the trouble started right after
midnight along the East coast and it was involving an
update to the domain name system. To make a long
story short, Amazon web Services today about thirty percent market
(13:01):
share for all sorts of web service hosting. All sorts
of big and small companies rely upon them to host
everything that they do at their companies that are digital
and on either an Internet or intranet service, and when
a little screw up like this happens, it compounds very quickly.
(13:21):
It was apparent to me that some companies were better
at getting themselves back up and running than others. And
I don't think any of that had to do with
their relationship with Amazon or anything along those lines. I
think it mainly had to do with some companies had
better backups in place. But in speaking to somebody with
a major you know, with a major company yesterday, the
(13:45):
answer was, yes, we've got backups in place that we
can switch to. But it's not this automatic, quick thing
that happens right. You have to physically switch over to
a different server farm or to a different backup that
you use, and it just RUPs all sorts of things
for a long time.
Speaker 5 (14:02):
So forgive me. I don't know a thing about this.
I do know that as you say companies store their
data off site, I'll just say off site, you should
say it's in the cloud. So when the cloud goes down,
I go into my network drive. A lot of most
people know what that means. I'll just use the language.
I'm not, again, not an expert.
Speaker 3 (14:18):
I just know that's what it's called.
Speaker 5 (14:19):
I want to access something I looked at six months ago.
It's not saved locally, it's saved in the so called cloud. Yes,
there were people who because they use AWS yesterday, couldn't
do that. So you want to pull up a spreadsheet
for last quarter to updateat you couldn't get it because or.
Speaker 2 (14:32):
If you wanted to access your payment system that's available
on your website that might be hosted on Amazon's cloud. Again,
you might not be able to accept a payment for
your customer. You might not be able to print a
shipping label to your printer. By the end of the day,
one hundred and forty two different Amazon Web service products
were affected because there was just kind of a ripple
(14:53):
effect and chain effect of you know, switch over to here,
switch over to there, and then that system gets taken
down as well. So, uh, I don't I can't claim
to be an expert on any of this stuff either, Mark,
But I think what we're learning through events like this
is that those systems are quite a concentrated and be fragile,
(15:13):
more fragile than I think most people previously.
Speaker 5 (15:15):
But now that we know about this, do businesses have
an obligation to back there? What is the point of
backing up your data if it's already backed up on
the So it's been it's backed up. When you say
something it's I know it's backed up on your your
seed drive. Most people have a computer know what that means.
It's on your eye drive. But after thirty days it
effectively goes off your sea drive and ends up in
the cloud. Do businesses now have a duty to back up?
Speaker 1 (15:37):
What?
Speaker 5 (15:37):
I thought the whole point of the cloud was it
is the backup.
Speaker 3 (15:40):
So here would be my takeaway.
Speaker 2 (15:44):
This event seems like it's primarily behind us at this stage,
and companies in Amazon has fully recovered from it. Do
businesses have an obligation to back things up?
Speaker 3 (15:56):
No? I guess it depends on what business you are.
Speaker 2 (15:58):
If you're Bank of America, then probably If you are
what was it said I was trying to get on
yesterday r V Trader, which is a company that buys
and sells used RVs.
Speaker 3 (16:08):
Yeah, probably not.
Speaker 2 (16:09):
I don't know that any regulator is going to come
after you and say, hey, r V Trader, you're pretty
integral to the financial system. You have to make sure
that your website has backups. I think the bigger question, right, like,
let's say that this was out for a week, would
companies that have the ability to get back up and
running with their backups within twenty four hours, like those are.
Speaker 5 (16:32):
The questions about pick up the cloud with another cloud server.
Speaker 3 (16:35):
Provide the cloud server provider.
Speaker 4 (16:39):
Cloud that's what I would want.
Speaker 3 (16:40):
Then you're screwed. They both go down. Then forget about it.
Speaker 2 (16:44):
I don't I don't have an answer for you, but
I think the answer clearly is it depends on how
important and big of an institution you are. It depends
on what sort of stuff is relied upon in your network.
Speaker 5 (16:55):
We're gonna end up bringing all these service back on
site at some point. I hate to say it, but
if somebody finds a way to split this vulnerability, or
if these things just become unreliable at a certain scale,
you're going to almost have to have your own servers.
Speaker 2 (17:07):
I think many of these places do. I think that's
the answer, as many of these places do. And in
some cases, you know, like the cloud is the backup.
But I mean that doesn't fix the problem either, Mark,
because ten years ago, when we were evaluating this stuff internally, yeah,
the question was, okay, well what happens if you're building
burns down. Really great that you've got that backup location
(17:28):
you can work from. But if you're building burns down,
then you don't have a website you don't have an intranet,
you don't have any of.
Speaker 3 (17:32):
The files that were stored to that local server.
Speaker 2 (17:35):
And so what's the bigger risk Amazon being out for
a day or week or a month, or you're building
burning down, or thieves walking away with your physical server.
And generally the answer was the risk is bigger that
you're building burns down, and so you better go to
the cloud. And you're probably right. Maybe the pendulum starts
to swing in the other direction here. The more of
these that happen, we don't seem to have any insinuation,
(17:57):
by the way, that this was a attempted hack or
denial of service that could come out at a later
point in time. I would just say, you know, based
on previous events like this, I would consider it equally
likely that somebody punched the wrong number into the keyboard
into a series of code and took down entire string
of systems, similar to what happened in previous events. So
(18:17):
we will we will see what.
Speaker 4 (18:20):
We Apparently it was a minor update from a domain
name system or a DNS or something, and one number
was in reading another number, and it just that's the
ripple effect that happened afterwards, Yeah, just a minor update.
Speaker 2 (18:33):
Yeah, and again I think that speaks to I mean
two concerns that I have. One, why can one can
one bozo like me really screw up a massive update
like that and take down a third of the Internet.
That's pretty concerning if you are Amazon, because I would
assume you're going to be paying some money out to
(18:54):
your customers to take account for the screw up that
you had here. Two, why are we so concentrated with
three companies between Amazon, Microsoft and Google that accounts for
seventy percent of the cloud infrastructure that's out there?
Speaker 5 (19:10):
Again, but we won't let Spirit it's a scale business.
Speaker 2 (19:13):
We won't let Spirit Airlines and Jet Blue merge, but
we will allow these three to control the entirety of
the Internet. There's there's some fair questions to be answered
there quick break. When we come back, we'll be talking Argentina.
But first Wall Street Watches 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 at what's moving market so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:00):
Markets Our mixed territory after yesterday's positive session as investors
sift through a fresh batch of third quarter earnings from
major names including General Motors, GE Aerospace, Coca Cola, and
many more, and now the Dow is up by three
tenths of one percent, or one hundred and forty four
points higher. SMP five hundred is down about a tenth
(20:22):
of a percent only six points, Nasdaq down by about
a third of a percent or seventy eight points lower,
Rustled two thousand down by half a percent, ten year
Treasure Reel down three basis points now and is at
three point nine five three percent, and crude oil is
mostly flat, edging higher training a fifty seven dollars and
(20:42):
fifty five cents a barrel. Before we get into earnings,
some breaking news in the media space this morning, after
several outlets are reporting that Warner Brothers Discovery initiated a
review of strategic alternatives in response to acquisition interest it
has received from multiple PARTIESBC is reporting that Netflix and
(21:02):
Comcast are among the interested parties. Warner Brothers stock is
jumping over nine percent on that news. Meanwhile, shares and
GM surging fourteen percent after the automaker posted a third
quarter earnings in revenue beat and raised its full year guidance.
The company's three point four billion dollars in operating income
(21:22):
adjusted for certain items, exceeded analyst estimates of two point
seven billion dollars. Meanwhile, Jet engine Company GE Aerospace handily
beat third quarter earnings in revenue forecast and also hiked
its full year outlook. Shares are currently up modestly. Elsewhere,
Coca Cola shares edging higher after the beverage and snack
Giant reported better than expected quarterly results as higher prices
(21:46):
helped lift sales. Regional bag Zion Bancorp reported higher quarterly
earnings despite the fifty million dollars charge off it disclosed
last week. Shares are up by about two percent. Philip
Morris lifted it's annual guidance as smokeless tobacco products continue
to drive growth. However, shares it down by over eight percent.
(22:06):
Now and after today's closing bell, we'll see more earnings
from Netflix, Capital One, Mattel, and Texas Instruments. I'm Tucker Silvan.
That is Wall Street watch Mark.
Speaker 2 (22:18):
We have a couple stories about the deal with Argentina
that the United States is currently brokering and negotiating and
working with banks on and for folks that haven't been
following this closely, I feel like we should take a
pretty big step back here and talk about what's happened here.
So Javier Malay has been in charge of the President
(22:39):
of Argentina now for a year and a half two years,
and has enacted sweeping reforms to the country, slashing budgets
and really trying to get inflation under control. And initially
I think you did have some success on the inflation front,
but at the cost a lot of success, at the
(23:01):
cost of spending a lot of US dollars to maintain
the currency. So that's right, take a step back, I guess,
and you know, in relatively terms, describe to me what's
been happening over the course of the last couple of
years to the best your ability.
Speaker 5 (23:20):
Currencies trade like any other asset. Sure dollars trade dollars
trade for euros and vice versa. The ratio of the
two prices is called the exchange rate. Uh So, in
the case of Argentina, they have a lot of debts
that are denominated that are record captain in dollars, so
(23:41):
they need dollars they get throws. They get those through exports. Uh,
this is due a lot of countries. We don't need dollars.
Of course, we can print them, Thank god, the dollars
the world's reserve currency. We can print what we need.
We can manipulate exchange rates, do what we need to.
Speaker 3 (23:55):
Do to get them.
Speaker 2 (23:56):
Argentina needs to get an export beef, yes, export, yeah,
it's really or you could get help from the US government,
which we've recently given them.
Speaker 5 (24:04):
Their currency. By most currency trader and other analysts, reckoning
is overvalued to severely overvalued. It takes too few Argentine
pesos to buy a dollar. The reason for that is
that inflation has been running out of control in Argentina
for years. It's down rot yeah, yeah, for the last
(24:27):
roughly the last hundred years. Argentina is a sad case.
By the way, it went from having the same per
head income as the US about one hundred and twenty
years ago.
Speaker 3 (24:37):
I e.
Speaker 5 (24:37):
It was a rich country and it still is. It's
not a poor country, but it's not among the world's
leading countries in terms of per capita, that is, per
head income. So the bottom line just kind of cutting
to the chase here, in the interest of time. And
like you said, brevity, Argentina needs dollars so it can
maintain the value of the payso on foreign exchange market.
(25:00):
It's why does it want to do that, Because a
cheaper pays a payso which is worthless relative to the
dollar or whatever, imports inflation. So they're controlling the currency
to help control inflation. All these things are related. Currencies, inflation,
interest rates. You can't you can only control two of
those three things. It's it's the trilemma of international economics.
Speaker 2 (25:22):
Now, Malay's party lost a big election stor This happens,
by the way, five every few years in Argentina.
Speaker 5 (25:28):
A center right government like Malaise, who I personally like,
so I'm trying not to be by. He's a libertarian.
He wants to shrink government, he wants to cut taxes.
He's brought inflation down. He's been successful in many ways. Unfortunately,
successful Argentine center right governments are always up against the
clock because their reforms inflict pain on the economy.
Speaker 2 (25:49):
This movie fire a bunch of government employees and tell
others that they can't work as much.
Speaker 5 (25:53):
Yeah, and people get pissed off. Forgive me, but that's
what's happening there. And when they do, they vote the
center right government, whether it's Macri, his predecessor, center right
predecessor or him. I can't even think of the other guys.
But the history of Argentina is a museum of failed
center right governments that tried to do what Malay is doing,
(26:13):
but they ran out of time. Because voters tire of
the sacrifices, they vote in a left wing what they
call a paranist government. It's like us saying he's governing
like a Reaganite, or he's governing like a New Deal person.
They call their left wing populist government's peranist because of Parone.
Most people know Vita Parone. It's her husband that was
(26:34):
the authoritarian, progressive type.
Speaker 3 (26:37):
Anyway, So here we stand right wrong.
Speaker 5 (26:39):
We're in the investis a worry now that they're gonna
start printing money again, spending it like crazy, back to
the bad old days. That's why we gave them, effectively
loaned them, but we may not get it back. Twenty
billion dollars to prop up what's with currency. The United
States of America said to it, said to Argentina, we
will swap dollars for pay you need dollars, we'll take
some pesos. You can have twenty billion in you US dollars.
(27:00):
Give us the equivalent in paysos that's you know, like
fourteen hundred paysos two dollar. So we've got all these
paysos now in exchange for dollars. Argentina is going to
spend those dollars trying to defend its currency. They've got
an election coming up on the twenty sixth. If Malay's
coalition can perform better than expected, I think it's a
regional election, but it's a bell weather. If they can
perform better than expected, that may reassure investors Mike and
(27:23):
stop the run sure by speculators on the Payso but.
Speaker 2 (27:27):
It seems pretty clear to me that there's some questions
as to whether the twenty billion dollars would get the
job done, because why else would the US Treasury be
getting all the big banks together to see if they
might be willing to come up with another twenty billings.
Speaker 5 (27:40):
I mean, no, we're throwing good. This is going down
a hole here. Just the history again of Argentina is
one attempt at reform followed by a currency crisis followed
by a left wing parentist government coming to power. It's
one cycle after another. It's tragic, but it's probably inevitable.
To hope is we've given them enough to beat off
(28:02):
speculators until these elections on the twenty sixth, and then
if Malaise coalition to alt call it his coalition. These
people are somehow allied with them. I don't fully understand it.
Their parties down there are crazier than ours are. If
they do better than expected, that might reassure investors and
staunch the bleeding. But past couple of weeks PESO has
been under severe pressure again despite US assurances.
Speaker 2 (28:23):
And look, I think the obvious question here mark beyond
all the will this be successful?
Speaker 3 (28:29):
Will it not?
Speaker 2 (28:30):
It's the why the hell is the United States involved
in loaning Argentina twenty billion dollars when realistically we have
very little in the way of geopolitical, economic, or other times.
Speaker 5 (28:42):
So we did this for Mexico thirty years ago, and
it worked. Mexico absorbed at the time and does today
even more, ten percent of our imports of our exports.
So we had a direct economic interest in this stax ago.
We shareborder. You don't want lots of distressed people fleeing
Mexico if it comes a failed state or something that
was a real concern in nineteen ninety four. So we
(29:04):
use the so called exchange Stabilization Fund, the same fund
we're using today to help Mexico defend its currency, and
everything worked out. Europeans have done the same. They did
the same for the Greeks in twenty twelve. European Central
Bank famously did well, not the same, something very similar though.
The argument for Argentina, though Mike, is far weaker. They
absorb only a half a percent of our of our exports,
(29:26):
so we're hardly economically dependent on them, and obviously we
don't share a border with them.
Speaker 2 (29:31):
Let's take a quick break when we come back. Another
piece this week about the economy apparently is great, yet
Americans feel like everything's falling apart.
Speaker 3 (29:42):
We'll cover that next year.
Speaker 1 (29:43):
On the Financial Exchange, 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.
Miss any of the show, catch up and you can
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(30:05):
our interviews in full shows. This is your home for
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Speaker 3 (30:23):
Mark market Watch has that piece today.
Speaker 2 (30:24):
If the economy's good, why do some Americans still feel
like everything is quote falling apart? I guess my answer
to that is because we are not, you know, some
homogeneous society where everybody is doing the exact same And obviously,
in any economy any time in history, there are those
(30:47):
that are doing extraordinarily well and those who are doing
extraordinarily poorly. Yep, and there's always going to be the case.
But I guess more importantly I want to ask the question,
is is there something here that's unique in twenty twenty
five that a larger share of Americans feel like things
are falling apart?
Speaker 3 (31:07):
Is there evidence that.
Speaker 2 (31:11):
More and more Americans are actually pessimistic about the state
of things today than at other times in the past.
I mean, I know I can point to things like
you Michigan and other surveys, but how would you answer that?
Speaker 3 (31:24):
Go about answering that question? And that second question would
be does it matter?
Speaker 5 (31:28):
So the first question is is their evidence.
Speaker 3 (31:30):
Is that it is uniquely bad? Right now?
Speaker 5 (31:33):
In terms of uniquely bad, it's tough to compare survey
responses to pass survey ressurances, so uniquely hard to say
bad for some cohorts for some groups. If you just
look at the survey data, which you've already said is weak,
some are reporting financial distress. Yeah, I'll take them at
their word. It is Is it different than it used
(31:56):
to be? Probably because in equality, no matter how you
want to measure that has grown. We've all seen the
famous I think Beave did the original chart on the
share of spending attributable to top earners. How it's grown
steadily over the past couple of decades. The wealth effect
of the stock market may have something to do with that,
(32:16):
and the FED. The Fed's obsession with keeping equity prices
up it is because it believes in the wealth effect,
and it believes it can use the stock market to
influence demand. The FED is probably partly to blame for that.
Do I have a better idea? Not necessarily. If the
alternatives letting the economy grow more slowly, maybe we all
be worse off. I have a gut response to that,
I don't like it, but I don't necessarily have a
better idea.
Speaker 2 (32:36):
Let's assum I buy the premise that a larger share
of Americans in economy that, by all measurable effects that
we use at the FED and elsewhere, is a good
economy right, low unemployment, relatively low inflation. I think the
misery indexes around where we were in twenty sixteen. If
I buy the premise that more Americans are falling behind, though,
(32:58):
I have to assume it does eventually matter, but I
certainly don't see it showing up in any earnings or
stock market data.
Speaker 5 (33:08):
I mean, maybe we're looking if your main concern is
how is the average earner doing? You wouldn't cite GDP.
We get data on median income, which is close to
the average, but not quite the same thing. Use that.
I mean, no one is forcing people who lament and
and criticize the widespread use of things like GDP and
(33:31):
other broad averages. They're just not using them for the
r It's like saying, my damn thermometer didn't tell me
I had cancer. Well, that's not really what it's for, dude.
I I guess at some point you would start running
a fever as your immune system win and overdrive. But
maybe so, maybe a bad example. I don't know, not
my area, but you know what I mean, we're using
these tools to solve the wrong problem. There are plenty
(33:52):
of measures out there, including some of those cited in
this article, that you can cite if your concern is
how does the sort of average wage earner or middling
net worth, which is most of us, feel about the economy.
Speaker 2 (34:04):
Yeah, My main takeaway is that we might not be
able to see this showing up in any of the
immediate stock marketer spending data because of how well that
top level consumer is doing.
Speaker 3 (34:15):
No nobody, but you don't really long.
Speaker 2 (34:18):
For a society where wealth and income inequality is growing
to uncomfortable levels. That seems like it's unlikely to produce
stock market problems and very likely to produce societal problems
like wild swings in voting, popularly different voting groups, and all.
Speaker 3 (34:37):
Sorts of No.
Speaker 5 (34:37):
It's good, look, Mike, we're having societal problems. I mean,
we've had a populist revolution in this country in the
past ten years. You may love or hate what the
Trump or Biden administrations have done, but you cannot deny
that they're exercising, especially the Trump administration, unprecedented power in
the executive He's setting tariffs on a whim. He's shifting
spending around without and Congress hasn't been in session for
(34:59):
like Gouy knows how long he's allocating spending around. He's
building ballrooms in the White House. He's just sort of
governing like someone with all the power. You could say
you like that, you trust a judgment, or you don't.
But there has been a political revolution. It is the
result of probably probably is the result of growing inequality.
Things like free trade, although I would defend it have
played a role. We haven't managed the consequences of it,
(35:20):
probably very well. That is evident in the populist revolution,
and a rising stock market is not going to play
kate anybody.
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Speaker 2 (36:36):
A bit of a big market, no, not a bit
of a big market move in commodities, likes which we
haven't seen quite some time. Silver currently off over seven
and a half percent, Gold off five and a half percent.
At one point, the silver drop was the biggest that
we've seen since twenty twenty one. I guess briefly here Mark,
what have most experts attributed the rise in commodities to
(36:59):
and what, if anything, does this rapid drop in a
single day insinuate about a reversal in that trend if
you can point to anything.
Speaker 5 (37:07):
Well, focusing just on gold for a moment, because it
ties into some of the other macroeconomic and geo economic
I don't even know that that's a word, but any way, issues.
We've been talking about the explanations provided for gold, and
you should always question these because they always come after
the fact. People are worried about big deficits in developed
countries high debt. They're going to have to inflate that
(37:29):
debt away. That's the way it's always been resolved. This
is not good for the dollar or other traditional safe
assets or safe assets denominated record kept in US dollars
like US treasuries, So investors are looking for other safe
haven assets. Gold fits the bill, maybe some other precious metals,
a subset of the commodities group fits the bill, and
(37:50):
maybe that's helped pull up the entire commodities complex. That's
one explanation. Why is that all unraveling over the last
couple of days when none of the underlying factors have change.
Speaker 2 (38:00):
Well, because clearly every developed nation has gotten much more
fiscally responsible today.
Speaker 5 (38:04):
Yeah. None of the fundamentals, of course, changed.
Speaker 2 (38:06):
Yeah, everything is the same on the ground, and yet
we're seeing some big price swings here quick break, A
lot more to cover in the second hour of the
Financial Exchange.
Speaker 3 (38:15):
We will be right back, folks,
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