August 26, 2025 • 38 mins
Mike and Marc react to the news of President Trump ordering the firing of Fed Governor Lisa Cook and what could possibly follow in the days ahead. Given the sitaution, the guys discuss why the independence of the Fed is so pivotal when it comes to inflation and the economy. Plus, does it matter that there are more ETF's than individual stocks? And why is the Massachusetts biotech industry seeing a rare job decline?
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Transcript
Episode Transcript
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Speaker 1 (00:00):
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(01:06):
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Speaker 2 (01:10):
Good morning, Happy Tuesday, and welcome back to the Financial Exchange.
It's Mike Armstrong, Mark Fandetti and Tucker Silva with you
on a Tuesday where I wouldn't normally cover markets this early,
but I have to report that I think this is
the flattest stock market that I have ever seen at
the beginning of a radio show for me personally. We've
got the Dow off nine points, We've got the S
(01:34):
and P off less than half a point, and the
Nasdaq off less than two points, all of which are
basically exactly flat for the day, which again not anything
particularly notable, but I just have to know that this
is the literal flattest market that I have ever seen
at the beginning of one of our programs, so I
thought it was worth mentioning. We've got a fair bit
(01:54):
to cover today, including new escalations on the tariff side
of things, after that's been quiet for a few weeks now,
lots of talk about in terms of the housing market
car purchases as well, but the only thing that is
dominating financial news this morning is yesterday's firing of a
Federal Reserve governor, Lisa Cook and so we're going to
(02:16):
start things off right there. Markets, like I said, barely
moving on this news, but certainly financial reporting has been
all over it since last night, and futures at least
initially had a quick reaction to it. We on this
program have talked a lot about federal reserve independence and
the importance of it, and I think before we get
(02:38):
into the firing of Lisa Cook and all the questions
about legality that's surrounded, I wanted to spend a few
minutes just kind of recapping. I don't want to go
into the weeds on it, but recapping in I don't know,
mark three minutes or less. Why US central bank independence,
which is kind of the origination of central bank independence,
(02:59):
has become such a cornerstone of the US financial system
and perhaps even its dominance in the global financial system.
Why that independence is deemed so important by economists and
financial experts.
Speaker 3 (03:12):
It's important to remember that what the FED does is
controls the money supply. It's not interest rates they target them,
but they control the money supply. So the question is
when inflation and indirectly therefore they control inflation because in
the long run, though not the short run, it's the
money supply or it's growth. More accurately, that determines the
(03:35):
rate of inflation. So just keep that relationship in mind.
The Fed's responsible for controlling inflation. Inevitably inflation will be
hotter than the FED would prefer, then people would prefer.
We had a very recent example of this, YEP. So
the question is how much pain is going to be
involved in getting inflation down. In the most recent episode,
(03:55):
which is being referred to now by researchers as a
miraculous disinflation isn't a lot of pain. Although inflation is
not completely back to target either by many measures, it
remains elevated.
Speaker 2 (04:05):
There are some political turboil there was a lot of
people voted out of office, but right in terms of
pain on the general I'm.
Speaker 3 (04:11):
Getting so you asked, you want me to get to that. No, no, no,
and no, this is good. I don't want this to
be a freaking lecture. I'm not qualified to give one.
There should be a conversation. I'm just trying to draw
the connection between what the FED does and why independence
is important. And the reason independence is important in a nutshell,
is that for the FED to bring inflation down when
it inevitably has to. It makes it a lot easier
(04:33):
if people believe the FED can bring inflation down. They've
got to be And you see this word over and
over again in the literature credible and economist didn't make
that word up. Obviously, we all use it. Credible conjures
up images of someone with integrity, someone who can be believed.
It's a good it's a nice word as a it's
a it's a it has positive. Positive associations are easy
(04:56):
to make with that word.
Speaker 4 (04:57):
Basically, I think maybe maybe a mystery.
Speaker 2 (04:59):
But what what you're getting at with that credibility piece
is the Fed's job is a lot easier to control
inflation if people believe that they actually have ZA.
Speaker 3 (05:10):
I think I did a good job setting that up
because you just made the key point very.
Speaker 2 (05:12):
Well that they have both the willingness and the ability
to crush the economy into submission.
Speaker 4 (05:19):
If they need to control inflation, and.
Speaker 3 (05:20):
You so, then they won't have to. It's like as
a parent, you don't want to punish your kid. Just
the threat is enough to get them to behave because
punishment is hard, it's unpleasant for you. They don't like
it either, but just the threat of it is enough
to keep them in line, and once in a while
you get to lower the boom, but you'd rather not.
So you are a credible parent if you can get
(05:41):
your kid to behave the way you want without actually
disciplining them. And there are other analogies too. What we
learned in the nineteen seventies here and elsewhere is that
credibility makes disinflation a lot less painful. So it is
important as a consequence to have a credible federal reserve.
And the danger in where we are going where we've
(06:03):
already gone, I mean, we've already crossed the rubicon here.
The danger with a politicized FED, a FED that's beholden
to either party or a particular president, is that they're
perceived as not being credible. They're going to put the
president's goals. In this case, the administration prefers cheap deficit financing.
They're going to put that goal above controlling inflation.
Speaker 2 (06:25):
And I would I think it's pretty safe to say
that any president wants lower interest rates, cheaper deficit financing,
but lower interest rates, sure, yeah.
Speaker 4 (06:34):
Right, I mean, I mean maybe in June of twenty twenty.
Speaker 2 (06:38):
Two, Biden didn't want lower interest rates because he would
have looked like a complete moron had he called for them.
But other than those specific examples, where you are navigating
a very high inflation environment, you generally want lower interest
rates as president, or at least you don't. Yeah, it
boosts the economy, it and it you know, helps you
(06:59):
out generally digging with reelection.
Speaker 3 (07:01):
Yeah, it's not so much that I don't think is
every president wants the FED to take it easy close
to re election time. They don't want the Reagan's treasury.
I think it was a Jim Baker, Jim Baker who
was a chief Staff treasure Secretary effort. I always get
screwed up in my head about the timing of this
because they all traded jobs after the first term. But anyway,
(07:23):
he cornered Vulkar and this, Yah, this is Jim Baker.
This is something he would do, tough Texan like LBJ
cornered Vulgar, putting his finger in his chest. You're not
going to raise it. There was nineteen eighty four. I'm
not going to this is I wasn't there. Obviously, this
isn't a book by Alan Blinder. You're not going to
raise interest rates this year and Vulgar's like, well, I
wasn't going to anyway, but okay, last time I know
of something like that happening was then, and this was
(07:44):
not public of course.
Speaker 4 (07:45):
Sure.
Speaker 3 (07:46):
The larger point, Mike, is that politicians have stayed out
of the Fed's business, and Clinton really established this as
a practice.
Speaker 2 (07:55):
And important because obviously, if well maybe not obviously, if
the central bank isn't in dependent and it's instead controlled
by politicians who want to artificially keep interest rates lower,
what inevitably will happen is inflation will spike at some point.
Speaker 3 (08:09):
Yes, it's a lot harder once the horse is out
of the barn.
Speaker 2 (08:12):
Yeah, And again that leads to all sorts of problems.
But let's just think about the most basic one. You
are a large foreign institution that wants to lend money
to the United States, and you're going to do so
by buying a thirty year Treasury bond, which is doesn't
matter what the interest rate is paying. If you are
(08:33):
concerned about central bank independence and therefore concerned that inflation
will be higher in the future, you're going to be
quite concerned about lending that money as to whether or not, Hey,
I lend this money in US dollars thirty years ago
and inflation ran four percent instead of the normal two percent,
And suddenly my money being returned to me thirty years
(08:53):
from now is worth a heck of a lot less
than what.
Speaker 3 (08:55):
I would So you need to be compensated for the
risk of that possibility.
Speaker 2 (08:59):
Which is why like hung Arian bonds go for twenty
percent over ten years. And you know, I don't know
why I picked on Hungry in this example.
Speaker 3 (09:07):
But we're now in the class of countries unfortunately that
constitute monetary basket cases.
Speaker 2 (09:14):
I'm not sure there, but we are threatening to be Mike,
it's happening.
Speaker 3 (09:18):
Yeah, we have to markets look ahead. As a market participant,
I'm looking ahead. Yes, I think inflation will be hire.
Therefore I demand a higher premium for lending money. It's already.
It's happening on the long end of the yeal curb
this morning. Not a lot, It's not dramatic. Markets aren't
sure whether he'll actually be able to whether the president
will actually be able to fire Lisa Cook, and we
(09:38):
can get into whether or not she actually.
Speaker 2 (09:41):
Should be Let's say, right, let's go, we have to
talk about that too. Right, Let's take a quick break.
I wanted to get the central bank independence piece out
of here because this is not the first threat to
central bank independence that we've been talking about this year, obviously,
but we do need to talk about Lisa Cook's specific
scenario here quick break that part of the independent story.
Speaker 4 (10:02):
Next on the Financial Exchange.
Speaker 1 (10:04):
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Speaker 4 (10:26):
So our top story of the day remains the removal of.
Speaker 2 (10:29):
Lisa Cook from the Federal Reserve, which is likely going
to end up in the courts here is announced last
night by the President, and I believe their announcements by
the Justice Department as well for finding the cause.
Speaker 4 (10:40):
But here's the story.
Speaker 2 (10:42):
Unlike other areas of the government, the Federal Reserve occupies
a unique space where presidents aren't traditionally allowed to remove
governors without cause. And unless I'm missing something, I don't
think it's ever been done for cause, not to my knowledge,
so this would be the first time ever Lisa Cook
is being accused of falsifying mortgage application documents.
Speaker 4 (11:09):
Basic story.
Speaker 2 (11:11):
You can get a lower interest rate on a mortgage
if it's your primary residence. She is alleged to have
claimed primary residence on two separate mortgage applications, you know,
at the not at the same time, but you know,
while while not actually trying to make both of them her, Well,
you can't make both of them your primary residence or
not making them both.
Speaker 4 (11:29):
Your primary residence. If true, it's a crime.
Speaker 2 (11:36):
And you are in charge of a government organization that
is in charge of bank regulation and a whole bunch
of other things other than just directing the economy. So
if these accusations are true and there is compelling evidence,
I gotta be honest. I don't think she should be
(11:56):
doing the job. I don't think you should be able
to run for Congress. I don't don't think you should
be able to be in charge of the SEC or
a whole.
Speaker 4 (12:04):
Bunch of organizations.
Speaker 2 (12:05):
Frankly, if an employee of mine at a financial services company,
forget about even being proven guilty, like I don't know
what the statute of limitations are on this sort of thing.
If there were compelling evidence that an employee of mine
had done something like this, I wouldn't trust them with
managing client money. So there's I think, if true, perfectly
(12:28):
just cause to remove Lisa Cook for this type of crime.
If it is true, the question is is there evidence
that it actually happened, because there's been none released. I
don't know that I would expect to. I'm no sort
of legal expert in terms of what happens when you
do all this, but it does come across as very rapid.
There were accusations made last week, a couple days later
(12:52):
removal of the Fed officials. So I do expect this
to end up in court. I do expect Lisa Cook
to fight it, and I'll be very interested to see
just where it lands and how hard it gets fought,
because it leads to a whole bunch of other questions,
like what is cause. So, for instance, in twenty twenty
(13:13):
two and twenty twenty three, we spent a lot of
time on this program arguing that Jay Powell and the
Federal Reserve are doing a bad job of handling interest
rate moves in regards to inflation. You called him a
monetary whimp and a failure is cause? Saying that is cause?
Saying that somebody did a bad job in the president's opinion,
(13:37):
how you just.
Speaker 3 (13:38):
Some sort of malfeasance or no, Well, look not a lawyer.
I'm a criminal lawyer. I can't say yeah, that'll all
be adjudicated.
Speaker 2 (13:45):
I guess rosst negligence Like these are just big questions
that I don't have answers to and why. Again, on
the surface, I look at this. If this is true,
she should be out. You should be fired for.
Speaker 3 (13:57):
Yeah, but if you were uncomfortable with the president being
secured after he left office, they hunted four things he
may have. Some of them were paperwork violations he did.
The president did the exact same thing he he allegedly well,
a jury said he did it falsified a loan application
to get a bigger, more favorable loan terms. I think
every developer in Manhattan did what the President did, but
(14:18):
they were out to get him. Everybody knows this. He
did it, but they were also out to get him.
It's no different than a cop following you around knowing
that you have a drinking problem and just waiting for
your moment of weakness to nail you while letting ten
other people, ten other stude prunes drive right past you.
It's unfair, but it happens every day in America. So
what's happening to her is maybe a little unfair. He
(14:41):
Trump told Poulty at Freddie mac go look at every
FED official, the ones I want off and find something
on them. And he's doing it. He's done it with
others too. You could say, well, well, therefore it's unfair. Well,
but at the same time they may have broken the law.
Speaker 4 (14:56):
This is why I'm I'm excluded. You want to have
that job expold you to a higher standard.
Speaker 3 (15:02):
No, you're exposed. You have to accept that your political
opponents might go after you. How stupid are you that
you do? If she did it, and if it was
a knowing i e. On purpose, then she's an idiot
and she shouldn't be there, or she's greedy, as you said, Mike,
she's morally compromised and she shouldn't be there. At the
same time, he's looking for any pretext for remaking the FED.
(15:23):
That's a somewhat different question.
Speaker 4 (15:24):
I do see them as two separate issues.
Speaker 3 (15:26):
Yeah, I do as well, And that's why I'm minds
on this.
Speaker 2 (15:29):
It's it's it's it's straight, and I don't feel the
media is doing that part justice, which is to say
the media is painting this purely as a attack on
FED independence, and it sort of is. It is, but
they are failing to acknowledge that this is pretty serious
if it did occur, And that's that's kind of where
I land on it. Is it a serious crime that
(15:51):
somebody would go to prison for?
Speaker 4 (15:52):
No, probably not.
Speaker 2 (15:53):
But is it a crime that you would be comfortable
with a member of the Federal Reserve, a governor of
the Federal Reserve having committed Absolutely not, and her underlings,
you know, all the people that work for her under
that Federal Reserve role, if they had been accused of
doing the same thing, there's no way they'd ever be hired.
Speaker 4 (16:11):
So that's where I land on. It is if true out,
but it is also attack on the independence of the
Federal Reserve, which is distressing to see and is likely
not something that breaks markets or screws things up immediately.
It is that slow erosion of that credibility that you
worry about and what that looks like five ten years
(16:33):
from now, because remember the precedent that all this sets right.
If you are I think there's a lot.
Speaker 2 (16:39):
Of people who are comfortable with, for instance, the White
House making an investment in intel.
Speaker 3 (16:44):
Or comfortable or uncomfortable.
Speaker 2 (16:46):
Comfortable support is of the president being comfortable with that
investment and being comfortable with other.
Speaker 4 (16:51):
Exact The problem with.
Speaker 2 (16:54):
That is he's not going to be the president three
years from now, and so I keep running back to like, okay,
am I comfortable with Alexandria or Cassio Cortes making these
same investments and decisions about interest rates because that is
where hypothetically we could land. And my answer is no,
I'm not comfortable with anybody doing it. But that is
(17:16):
the concern when you talk about independence of the FED
or expansion of executive powers, which is being done dramatically.
Speaker 4 (17:23):
Now, so let's move on from the Federal Reserve. That's
enough talk about that.
Speaker 2 (17:27):
We'll cover it more, I'm sure, because this is probably
going to play out in courts for quite some time
as it all gets figured out. Two stories that are
worth mentioning and not doing much else. With President Trump
threatening new tariffs on countries that tax tech companies. These
would be your digital services tax things about companies like Facebook,
Google and others doing business in Europe, as well as
(17:50):
a story about Chinese made magnets coming into the United
States and President Trump warning of a two hundred percent
tariff on China if those exports are curbed. I'm going
to mention these stories because it's interesting to me that
it's one of the first times we've heard of trade
escalation again with Europe and or China in the last
several weeks. I just don't know that it's worth giving
(18:13):
more time to than mentioning, because there have been so
many of these types of announcements that get thrown out
there as a starting negotiating point and don't result in
anything real when it actually comes to tariff policy. So
I think rightfully, the President is feeling empowered by his
(18:34):
successful negotiations on tariff. So far, he has I think
driven a harder bargain than most people were anticipating with
countries like Europe, not so much with China. I said,
countries like Europe, it's not a country.
Speaker 3 (18:49):
Is that how I succeed? Is that how his tariff
negotiations are perceived as being successful?
Speaker 4 (18:54):
I think you think, I think, so, what's this?
Speaker 3 (18:57):
What's the standard there? The trading system didn't blow?
Speaker 4 (19:00):
Yeah?
Speaker 2 (19:00):
Oh okay, yeah, Because I mean, look, if you look
at it, I think that a lot of experts were
calling for you know, big escalations and back and forth
tip for tat trade war, and that's not what we
got out of this. Instead, what we got was, especially
in the case of Europe, higher tariffs on European goods
with no real reaction.
Speaker 4 (19:18):
Quick Break Wall Street watches.
Speaker 1 (19:20):
Next, Like us on Facebook and follow us on Twitter
at TFFE show. Breaking business news is always first right
(19:40):
here on the Financial Exchange Radio Network. Time now for
Wall Street. Watch a complete look at what's moving markets
so far today right here on the Financial Exchange Radio Network.
Speaker 5 (19:53):
Markets are flat as investors are mostly shruggering off the
latest development between President Trump and the FED, where Trump
ordered the removal FED Governor Lisa Cook. However, Cook said
Trump has no authority to fire her and won't resign
ongoing developments there. Right now, the Dow is down by
only thirteen points, SMP five hundred is up merely three points,
(20:16):
Nasdaq is up by two tenths of one percent, or
thirty nine points higher. RUSSA two thousand is up three
quarters of one percent. Ten year treasureeled is flat at
four point two eight one percent, and crude oil down
one percent today, trading right around sixty four dollars a barrel.
Eli Lilly's up three percent after the pharmaceutical Giants weight
(20:38):
loss pill cleared another late stage trial. The higher dose
of the pill help patients lose ten point five percent
of their weight on average at seventy two weeks, compared
to just two point two percent weight loss in the
placebo group. Meanwhile, AT and T said it would buy
some wireless spectrum licenses from EchoStar for twenty three billion dollars,
(21:01):
sending shares an echo Star surging eighty one percent, while
AT and T stock is down only one percent. Elsewhere,
retailers including Canada Goose, VF Corp, and Rocky Brands are
seeing gains after Barrett upgraded the stocks to outperform. Canada
Goose up eight percent, VF is rising six percent, and
(21:22):
Rocky Brand stock is jumping eleven percent higher. Truest upgraded
chip maker AMD to buy from hold, where the analysts
noted that hyperscale customers have been increasingly partnering with the
company and expressing trust interest in deploying AMD at scale.
AMD is up over two percent higher. Interactive Brokers will
join the S and P five hundred, replacing Walgreens Robinhood
(21:45):
again failed to make the cut, and digital identity management
company Octa will report their earnings after today's closing bell.
I'm Tucker Silva, and that is Wall Street watch mark.
Speaker 4 (21:56):
We're talking a little bit over the breaks. I think
it flashed across the screen.
Speaker 2 (22:00):
The number of exchange traded funds, more than forty three
hundred of them across the financial industry, now eclipses the
total number of individual stocks that are available to trade
in US markets. We've been talking about kind of both
sides of this story for years now. One would be
the trend towards fewer companies listing publicly.
Speaker 4 (22:22):
For a line of reasons.
Speaker 2 (22:24):
Two would be the explosion of exchange traded funds into
the investment world over the course of I mean really
the last what thirty years since they started, but it
really started booming over the last several by by way
of background, the exchange traded fund has not been around
(22:47):
as long as the mutual fund, but is different in
a few key ways. One, it's exchange traded, so you
can trade it throughout the day. It's usually a bundle
of stocks and bonds like a mutual fund. Traditionally, when
they first started coming out from the likes of Vanguard.
They were also tied to an index, so rather than
an actively managed fund with higher expenses, they were typically
(23:07):
a little bit cheaper in terms of that overall expense ratio.
That line has now been blurred quite a bit because
there are now active and passive ETFs. There's active and
passive mutual funds. But generally speaking, the biggest difference is
a mutual fund trades once a day after hours.
Speaker 4 (23:24):
The index fund trades throughout the day.
Speaker 2 (23:26):
But they're both generally a basket of diversified things, although
these days all of those other.
Speaker 4 (23:32):
Lines are kind of blurred. Do you have any major
takeaways about this, because at first I was like.
Speaker 2 (23:37):
Oh, I can't really be good, right, We're having this
massive financialization. People are going to choose bad options if
there are this many choices to make.
Speaker 4 (23:48):
That may hold true, but I don't know that I
take it as bad news.
Speaker 3 (23:53):
No, not on the surface. There are probably too many
active managers in existence. And I say that because dous
most underperform. They are so called. Yeah, I was trying
to think of a more relatable way to say it.
There indices may not be a way to say, let's
just call the S and P five hundred your typical
(24:13):
active manager benchmark, and the S and P five hundred
is just a collection weighted by the value of stock outstanding,
the so called market capitalization or market cap of leading
which S and P defines US companies that you can
buy very, very inexpensively, just a couple of percents of
(24:35):
a percent expenses typical on an index fund these days.
So you could do that, or you could buy an
active strategy that attempts to outperform the S and P
five hundred, that attempts to beat that as an index fund.
I get the sense that there are way more actively
managed products, whether you're talking ETFs or mutual funds, than
there are than there are view 's on one company's
(25:02):
likelihood about performing over another. In other words, there are
way more ETFs and mutual funds than there are diverse
of views on stocks in the marketplace. YEA, that's I'm
gonna have to think about how I just phrased that,
But you know what I mean.
Speaker 2 (25:20):
I guess I am more if I had to choose
one of these, I'm more concerned about the dramatic, dramatically
lower number of stocks available for purchase on the public
markets and the tendency for companies to stay private longer,
mainly because that's a limited group who's able to access
(25:42):
those privately held companies than I am about the explosion
of exchange traded funds, and I don't.
Speaker 4 (25:48):
Really care about that quite as much.
Speaker 2 (25:50):
Yes, it makes choosing the right fund more difficult, but
I'm not sure that it represents a problem. The fact
that fewer companies are listing on public exchanges says something
to me about the dynamics of it, and I'm not
sure if it's I think it probably says a few things.
One regulatorily, it's just really difficult to be a publicly
traded company and expensive to be a publicly traded company
(26:11):
these days. And also that yeah, if you're not worth
you know, fifty one hundred million dollars, then you don't
get access to these companies in their infancy, when some
of them are growing rapidly and don't need access to
the public market funds anymore.
Speaker 3 (26:26):
Both, it's the flip side of the explosion and so
called private equity. People go public because they need to
raise capital if you can do that at lessense from
passive investors, which pension funds are they're limited partners, as
are we. If you buy private equity through a mutual
fund vehicle, you have no say in how the private
(26:48):
equity manager runs their portfolio, similar to the arrangement with
public publicly traded securities. There are other ways to raise
capital now that's less costly ways.
Speaker 2 (26:59):
The bactpone of the global auto supply chain at risk
from Trump's tariffs, And to me, the only surprising part
of all this is that the President and the White
House haven't done more to the benefit the big American
three automakers. I mean, that's the only piece of this
that has been a bit surprising to me. We're talking
about this at length. The auto industry across the globe
(27:23):
other than China faces a number of struggles as we
head into the second half of twenty twenty five and
twenty twenty six. Most of them I think are of
their own making. Honestly, like most of these things, I
don't think are because of the trade war and because
of this, that or the other. I think it's missteps
(27:43):
over and over by these automakers for decades now. They're
getting their lunch eaten by China.
Speaker 4 (27:50):
Why is that?
Speaker 2 (27:51):
Because they all went into the Chinese market and made
the same sacrifice that every company does, which is give
over your intellectual property for the promise of being able
to sell your vehicles into that growing market.
Speaker 4 (28:03):
And guess what.
Speaker 2 (28:04):
Now you have a bunch of really competitive Chinese automakers
who built themselves on the knowledge that they gained by
you doing business in your country. So that one's your fault. Two,
you way overestimated the demand for electric vehicles, at least
many automakers did. Toyota didn't, and a few others didn't,
But they spent all this money developing evs and battery
(28:27):
technology and manufacturing capability here domestically. Yes, some of that
was in reaction to Biden era policy, but again, you
weren't forced to do any of this, and you completely
misread the market. And so, yeah, the trade policy that's
ongoing right now could be the nail in the coffin
for some of these but it's only the latest piece
(28:50):
that has been a misstep on the part of these automakers.
And yeah, it's going to be a real challenge to
figure out what to do with these supply chains because
none of this is likely to be permanent in terms
of the tariffs that are in place.
Speaker 3 (29:04):
Yeah, these tariffs are not manufacturer friendly.
Speaker 2 (29:07):
Non manufacturer fund and they're also not congressionally approved, so
they have no likelihood of being in place.
Speaker 3 (29:12):
For Mike car national economic policy is just a mess
right now. You could say I agree with certain parts
of it. Honest, people can disagree about what industry should
be protected and whether government should be in the business
of scooping up shares in private companies. The extreme left
and the extreme right both seem to agree that nationalization
is a good thing. To me, that's bewildering. We know
(29:35):
what happens when a government becomes involved and when the state,
any state, not just US government, becomes involved in the
management of a private company. Look at the British experience
following World War Two. They nationalized like crazy. The industry's
got flaccid and lazy and stagnant, and so Thatcher had
to unwind it and British growth suffered and the adjustment
(29:56):
was tough. We apparently need to learn that lesson again,
just like we need to learn about the value of
central bank fed in our case independence again. Like nobody's
tried this before, Like nobody thought historically buying up shares
in a government owning part of a private company would
somehow better align their interest with the public good. Civilizations
(30:18):
not just civilizations. That's overly, overly fancy way of putting in.
Democracies like ours, advanced sophisticated democracies have tried these policies before,
and they've They've ended up hurting, not helping growth. So
why we have to learn that lesson again is frustrating.
Speaker 4 (30:39):
Let's take a quick break.
Speaker 2 (30:40):
When we come back, want to talk a little bit
about the local New England economy for a moment. Here
there's a report on the Massachusetts biotech industry. Cover that
next here in the Financial Exchange Business.
Speaker 1 (30:52):
And financial news affecting the markets and your wallet. We've
got it all straight from Wall Street right here on
the Financial extra Change Radio network.
Speaker 5 (31:06):
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Speaker 2 (31:37):
Well Mark, I'm covering the next story entirely to toot
our own horn. I don't remember exactly when we talked
about this, but I remember having a conversation on this
program about the Trump administrations looking at funding of different programs,
especially universities and scientific research, and.
Speaker 4 (31:57):
I wondered out loud if this could lead to in
especially a difficult time for the greater Boston region.
Speaker 2 (32:05):
I just, you know, looking at employment in the public
education sector, looking at employment and investment in.
Speaker 4 (32:13):
The biotech industry.
Speaker 2 (32:15):
A lot of that stems at least initially from public investment.
Right It's public research grants. It's all the money that
was spent during COVID on researching vaccines, and that stuff
has dried up. VC investment in Massachusetts based companies dropping
more than seventeen percent to two point seven billion dollars
for the first half of twenty twenty five. That compares
(32:36):
to the same that's compared to the same period in
twenty twenty four. It's also the lowest level since twenty seventeen.
Master's projected to receive around four hundred and sixty three
million dollars less in National Institutes of Health funding this
year compared to what it did in twenty twenty four.
And then firms invested eight billion dollars in Massachusetts biotech
(32:58):
companies in twenty twenty and more than thirteen billion in
twenty twenty one. So we are seeing this big drop
off here in the Massachusetts and I would say greater
Boston and greater New England economy. This is an industry
that's kind of reached its tentacles out throughout New England.
Big base obviously in Cambridge and in the Boston area
in general. But there's even an empty lot that's been
(33:21):
sitting empty and flattened for a few years now that
was supposed to be lab space for the biotech industry
and the old If you know this area and you've
ever driven down one twenty eight in Needa, Massachusetts, there
used to be a big old Muzzy Ford car dealership.
That sign was kind of well known in the area.
(33:41):
That thing has been empty now for what is it
low it's four years more than that four plus years
because they can't find a tenant and can't figure out
what to build, because that booming demand for all this
lab space has pretty much evaporated. On the other hand,
it's not as though we've seen a massive spike in
unemployments in Massachusetts or any of these other pieces.
Speaker 4 (34:04):
But should this.
Speaker 2 (34:06):
Continue, it's an area that could look a lot different
than it has for the last five years.
Speaker 3 (34:11):
Yeah, hard to say how much of this is attributable
to maybe a hangover effect from the frenzy of investment
that happened during the early twenty twenties for obvious reasons.
We were all scrambling for a COVID cure. The promise
of mRNA technology was apparent after the COVID vaccine success,
(34:33):
So I don't know. They don't provide here a longer
term look. VC a venture capital, which is a subcategory
of so called private equity, which we were talking about earlier.
The pace of vcs putting capital to work has slowed globally,
so this is partly that. I don't deny that the
(34:55):
uncertainty with respect to grants and other forms of federal
funny has something to do with it, But it's hard
to at least based on what we are looking at here,
which is very little. Hard to say how much of
what's happened lately is attributable to trumps, which are all
of funds from universities, which hits mass, especially art as
(35:15):
you said, versus larger trends.
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Speaker 2 (36:15):
New York Times reporting that as housing demand continues to fall,
builders getting creative by lowering prices and adding incentives. Can
we talk about what the word creativity means for a moment,
creative would be I don't know, like changing the type
of homes you build, or using new materials, or building
(36:36):
smaller homes or something to get at the overall situation.
Can we all agree that lowering the price on a
home is not being creative. I just think it's the
wrong word. This isn't surprising. There is a huge lack
of demand, in lack of demand for new homes from people,
(36:57):
especially in Florida, Texas, Colorado, Louisiana, some of these markets
that have been over supplied by housing over the course
of the last several years.
Speaker 4 (37:08):
And so it's a swing back in the other direction.
Speaker 3 (37:11):
There is a nod to some of that here doing
things like making do with what you've got. Unfortunately, we
don't have good data because the national market is so fragmented.
We should know what the average home size new construction
is as of say twelve thirty one, twenty twenty four,
but to my knowledge, we don't because again, because.
Speaker 4 (37:31):
It's very fragmented.
Speaker 2 (37:32):
Yeah yeah, yeah, we got to take a quick break here.
Markets opening in mixed territory at the moment. Dowd down,
SMP and Nasdaq both up. Will be covering that and
a heck of a lot more in the second hours.
To stay tuned, folks,
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a donation Today. Face is the Financial Exchange with Mike
(01:06):
Armstrong and Mark Vandetti.
Speaker 2 (01:10):
Good morning, Happy Tuesday, and welcome back to the Financial Exchange.
It's Mike Armstrong, Mark Fandetti and Tucker Silva with you
on a Tuesday where I wouldn't normally cover markets this early,
but I have to report that I think this is
the flattest stock market that I have ever seen at
the beginning of a radio show for me personally. We've
got the Dow off nine points, We've got the S
(01:34):
and P off less than half a point, and the
Nasdaq off less than two points, all of which are
basically exactly flat for the day, which again not anything
particularly notable, but I just have to know that this
is the literal flattest market that I have ever seen
at the beginning of one of our programs, so I
thought it was worth mentioning. We've got a fair bit
(01:54):
to cover today, including new escalations on the tariff side
of things, after that's been quiet for a few weeks now,
lots of talk about in terms of the housing market
car purchases as well, but the only thing that is
dominating financial news this morning is yesterday's firing of a
Federal Reserve governor, Lisa Cook and so we're going to
(02:16):
start things off right there. Markets, like I said, barely
moving on this news, but certainly financial reporting has been
all over it since last night, and futures at least
initially had a quick reaction to it. We on this
program have talked a lot about federal reserve independence and
the importance of it, and I think before we get
(02:38):
into the firing of Lisa Cook and all the questions
about legality that's surrounded, I wanted to spend a few
minutes just kind of recapping. I don't want to go
into the weeds on it, but recapping in I don't know,
mark three minutes or less. Why US central bank independence,
which is kind of the origination of central bank independence,
(02:59):
has become such a cornerstone of the US financial system
and perhaps even its dominance in the global financial system.
Why that independence is deemed so important by economists and
financial experts.
Speaker 3 (03:12):
It's important to remember that what the FED does is
controls the money supply. It's not interest rates they target them,
but they control the money supply. So the question is
when inflation and indirectly therefore they control inflation because in
the long run, though not the short run, it's the
money supply or it's growth. More accurately, that determines the
(03:35):
rate of inflation. So just keep that relationship in mind.
The Fed's responsible for controlling inflation. Inevitably inflation will be
hotter than the FED would prefer, then people would prefer.
We had a very recent example of this, YEP. So
the question is how much pain is going to be
involved in getting inflation down. In the most recent episode,
(03:55):
which is being referred to now by researchers as a
miraculous disinflation isn't a lot of pain. Although inflation is
not completely back to target either by many measures, it
remains elevated.
Speaker 2 (04:05):
There are some political turboil there was a lot of
people voted out of office, but right in terms of
pain on the general I'm.
Speaker 3 (04:11):
Getting so you asked, you want me to get to that. No, no, no,
and no, this is good. I don't want this to
be a freaking lecture. I'm not qualified to give one.
There should be a conversation. I'm just trying to draw
the connection between what the FED does and why independence
is important. And the reason independence is important in a nutshell,
is that for the FED to bring inflation down when
it inevitably has to. It makes it a lot easier
(04:33):
if people believe the FED can bring inflation down. They've
got to be And you see this word over and
over again in the literature credible and economist didn't make
that word up. Obviously, we all use it. Credible conjures
up images of someone with integrity, someone who can be believed.
It's a good it's a nice word as a it's
a it's a it has positive. Positive associations are easy
(04:56):
to make with that word.
Speaker 4 (04:57):
Basically, I think maybe maybe a mystery.
Speaker 2 (04:59):
But what what you're getting at with that credibility piece
is the Fed's job is a lot easier to control
inflation if people believe that they actually have ZA.
Speaker 3 (05:10):
I think I did a good job setting that up
because you just made the key point very.
Speaker 2 (05:12):
Well that they have both the willingness and the ability
to crush the economy into submission.
Speaker 4 (05:19):
If they need to control inflation, and.
Speaker 3 (05:20):
You so, then they won't have to. It's like as
a parent, you don't want to punish your kid. Just
the threat is enough to get them to behave because
punishment is hard, it's unpleasant for you. They don't like
it either, but just the threat of it is enough
to keep them in line, and once in a while
you get to lower the boom, but you'd rather not.
So you are a credible parent if you can get
(05:41):
your kid to behave the way you want without actually
disciplining them. And there are other analogies too. What we
learned in the nineteen seventies here and elsewhere is that
credibility makes disinflation a lot less painful. So it is
important as a consequence to have a credible federal reserve.
And the danger in where we are going where we've
(06:03):
already gone, I mean, we've already crossed the rubicon here.
The danger with a politicized FED, a FED that's beholden
to either party or a particular president, is that they're
perceived as not being credible. They're going to put the
president's goals. In this case, the administration prefers cheap deficit financing.
They're going to put that goal above controlling inflation.
Speaker 2 (06:25):
And I would I think it's pretty safe to say
that any president wants lower interest rates, cheaper deficit financing,
but lower interest rates, sure, yeah.
Speaker 4 (06:34):
Right, I mean, I mean maybe in June of twenty twenty.
Speaker 2 (06:38):
Two, Biden didn't want lower interest rates because he would
have looked like a complete moron had he called for them.
But other than those specific examples, where you are navigating
a very high inflation environment, you generally want lower interest
rates as president, or at least you don't. Yeah, it
boosts the economy, it and it you know, helps you
(06:59):
out generally digging with reelection.
Speaker 3 (07:01):
Yeah, it's not so much that I don't think is
every president wants the FED to take it easy close
to re election time. They don't want the Reagan's treasury.
I think it was a Jim Baker, Jim Baker who
was a chief Staff treasure Secretary effort. I always get
screwed up in my head about the timing of this
because they all traded jobs after the first term. But anyway,
(07:23):
he cornered Vulkar and this, Yah, this is Jim Baker.
This is something he would do, tough Texan like LBJ
cornered Vulgar, putting his finger in his chest. You're not
going to raise it. There was nineteen eighty four. I'm
not going to this is I wasn't there. Obviously, this
isn't a book by Alan Blinder. You're not going to
raise interest rates this year and Vulgar's like, well, I
wasn't going to anyway, but okay, last time I know
of something like that happening was then, and this was
(07:44):
not public of course.
Speaker 4 (07:45):
Sure.
Speaker 3 (07:46):
The larger point, Mike, is that politicians have stayed out
of the Fed's business, and Clinton really established this as
a practice.
Speaker 2 (07:55):
And important because obviously, if well maybe not obviously, if
the central bank isn't in dependent and it's instead controlled
by politicians who want to artificially keep interest rates lower,
what inevitably will happen is inflation will spike at some point.
Speaker 3 (08:09):
Yes, it's a lot harder once the horse is out
of the barn.
Speaker 2 (08:12):
Yeah, And again that leads to all sorts of problems.
But let's just think about the most basic one. You
are a large foreign institution that wants to lend money
to the United States, and you're going to do so
by buying a thirty year Treasury bond, which is doesn't
matter what the interest rate is paying. If you are
(08:33):
concerned about central bank independence and therefore concerned that inflation
will be higher in the future, you're going to be
quite concerned about lending that money as to whether or not, Hey,
I lend this money in US dollars thirty years ago
and inflation ran four percent instead of the normal two percent,
And suddenly my money being returned to me thirty years
(08:53):
from now is worth a heck of a lot less
than what.
Speaker 3 (08:55):
I would So you need to be compensated for the
risk of that possibility.
Speaker 2 (08:59):
Which is why like hung Arian bonds go for twenty
percent over ten years. And you know, I don't know
why I picked on Hungry in this example.
Speaker 3 (09:07):
But we're now in the class of countries unfortunately that
constitute monetary basket cases.
Speaker 2 (09:14):
I'm not sure there, but we are threatening to be Mike,
it's happening.
Speaker 3 (09:18):
Yeah, we have to markets look ahead. As a market participant,
I'm looking ahead. Yes, I think inflation will be hire.
Therefore I demand a higher premium for lending money. It's already.
It's happening on the long end of the yeal curb
this morning. Not a lot, It's not dramatic. Markets aren't
sure whether he'll actually be able to whether the president
will actually be able to fire Lisa Cook, and we
(09:38):
can get into whether or not she actually.
Speaker 2 (09:41):
Should be Let's say, right, let's go, we have to
talk about that too. Right, Let's take a quick break.
I wanted to get the central bank independence piece out
of here because this is not the first threat to
central bank independence that we've been talking about this year, obviously,
but we do need to talk about Lisa Cook's specific
scenario here quick break that part of the independent story.
Speaker 4 (10:02):
Next on the Financial Exchange.
Speaker 1 (10:04):
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on our YouTube page. Subscribe to our page and get
caught up on anything and everything you might have missed.
This is the Financial Exchange Radio Network.
Speaker 4 (10:26):
So our top story of the day remains the removal of.
Speaker 2 (10:29):
Lisa Cook from the Federal Reserve, which is likely going
to end up in the courts here is announced last
night by the President, and I believe their announcements by
the Justice Department as well for finding the cause.
Speaker 4 (10:40):
But here's the story.
Speaker 2 (10:42):
Unlike other areas of the government, the Federal Reserve occupies
a unique space where presidents aren't traditionally allowed to remove
governors without cause. And unless I'm missing something, I don't
think it's ever been done for cause, not to my knowledge,
so this would be the first time ever Lisa Cook
is being accused of falsifying mortgage application documents.
Speaker 4 (11:09):
Basic story.
Speaker 2 (11:11):
You can get a lower interest rate on a mortgage
if it's your primary residence. She is alleged to have
claimed primary residence on two separate mortgage applications, you know,
at the not at the same time, but you know,
while while not actually trying to make both of them her, Well,
you can't make both of them your primary residence or
not making them both.
Speaker 4 (11:29):
Your primary residence. If true, it's a crime.
Speaker 2 (11:36):
And you are in charge of a government organization that
is in charge of bank regulation and a whole bunch
of other things other than just directing the economy. So
if these accusations are true and there is compelling evidence,
I gotta be honest. I don't think she should be
(11:56):
doing the job. I don't think you should be able
to run for Congress. I don't don't think you should
be able to be in charge of the SEC or
a whole.
Speaker 4 (12:04):
Bunch of organizations.
Speaker 2 (12:05):
Frankly, if an employee of mine at a financial services company,
forget about even being proven guilty, like I don't know
what the statute of limitations are on this sort of thing.
If there were compelling evidence that an employee of mine
had done something like this, I wouldn't trust them with
managing client money. So there's I think, if true, perfectly
(12:28):
just cause to remove Lisa Cook for this type of crime.
If it is true, the question is is there evidence
that it actually happened, because there's been none released. I
don't know that I would expect to. I'm no sort
of legal expert in terms of what happens when you
do all this, but it does come across as very rapid.
There were accusations made last week, a couple days later
(12:52):
removal of the Fed officials. So I do expect this
to end up in court. I do expect Lisa Cook
to fight it, and I'll be very interested to see
just where it lands and how hard it gets fought,
because it leads to a whole bunch of other questions,
like what is cause. So, for instance, in twenty twenty
(13:13):
two and twenty twenty three, we spent a lot of
time on this program arguing that Jay Powell and the
Federal Reserve are doing a bad job of handling interest
rate moves in regards to inflation. You called him a
monetary whimp and a failure is cause? Saying that is cause?
Saying that somebody did a bad job in the president's opinion,
(13:37):
how you just.
Speaker 3 (13:38):
Some sort of malfeasance or no, Well, look not a lawyer.
I'm a criminal lawyer. I can't say yeah, that'll all
be adjudicated.
Speaker 2 (13:45):
I guess rosst negligence Like these are just big questions
that I don't have answers to and why. Again, on
the surface, I look at this. If this is true,
she should be out. You should be fired for.
Speaker 3 (13:57):
Yeah, but if you were uncomfortable with the president being
secured after he left office, they hunted four things he
may have. Some of them were paperwork violations he did.
The president did the exact same thing he he allegedly well,
a jury said he did it falsified a loan application
to get a bigger, more favorable loan terms. I think
every developer in Manhattan did what the President did, but
(14:18):
they were out to get him. Everybody knows this. He
did it, but they were also out to get him.
It's no different than a cop following you around knowing
that you have a drinking problem and just waiting for
your moment of weakness to nail you while letting ten
other people, ten other stude prunes drive right past you.
It's unfair, but it happens every day in America. So
what's happening to her is maybe a little unfair. He
(14:41):
Trump told Poulty at Freddie mac go look at every
FED official, the ones I want off and find something
on them. And he's doing it. He's done it with
others too. You could say, well, well, therefore it's unfair. Well,
but at the same time they may have broken the law.
Speaker 4 (14:56):
This is why I'm I'm excluded. You want to have
that job expold you to a higher standard.
Speaker 3 (15:02):
No, you're exposed. You have to accept that your political
opponents might go after you. How stupid are you that
you do? If she did it, and if it was
a knowing i e. On purpose, then she's an idiot
and she shouldn't be there, or she's greedy, as you said, Mike,
she's morally compromised and she shouldn't be there. At the
same time, he's looking for any pretext for remaking the FED.
(15:23):
That's a somewhat different question.
Speaker 4 (15:24):
I do see them as two separate issues.
Speaker 3 (15:26):
Yeah, I do as well, And that's why I'm minds
on this.
Speaker 2 (15:29):
It's it's it's it's straight, and I don't feel the
media is doing that part justice, which is to say
the media is painting this purely as a attack on
FED independence, and it sort of is. It is, but
they are failing to acknowledge that this is pretty serious
if it did occur, And that's that's kind of where
I land on it. Is it a serious crime that
(15:51):
somebody would go to prison for?
Speaker 4 (15:52):
No, probably not.
Speaker 2 (15:53):
But is it a crime that you would be comfortable
with a member of the Federal Reserve, a governor of
the Federal Reserve having committed Absolutely not, and her underlings,
you know, all the people that work for her under
that Federal Reserve role, if they had been accused of
doing the same thing, there's no way they'd ever be hired.
Speaker 4 (16:11):
So that's where I land on. It is if true out,
but it is also attack on the independence of the
Federal Reserve, which is distressing to see and is likely
not something that breaks markets or screws things up immediately.
It is that slow erosion of that credibility that you
worry about and what that looks like five ten years
(16:33):
from now, because remember the precedent that all this sets right.
If you are I think there's a lot.
Speaker 2 (16:39):
Of people who are comfortable with, for instance, the White
House making an investment in intel.
Speaker 3 (16:44):
Or comfortable or uncomfortable.
Speaker 2 (16:46):
Comfortable support is of the president being comfortable with that
investment and being comfortable with other.
Speaker 4 (16:51):
Exact The problem with.
Speaker 2 (16:54):
That is he's not going to be the president three
years from now, and so I keep running back to like, okay,
am I comfortable with Alexandria or Cassio Cortes making these
same investments and decisions about interest rates because that is
where hypothetically we could land. And my answer is no,
I'm not comfortable with anybody doing it. But that is
(17:16):
the concern when you talk about independence of the FED
or expansion of executive powers, which is being done dramatically.
Speaker 4 (17:23):
Now, so let's move on from the Federal Reserve. That's
enough talk about that.
Speaker 2 (17:27):
We'll cover it more, I'm sure, because this is probably
going to play out in courts for quite some time
as it all gets figured out. Two stories that are
worth mentioning and not doing much else. With President Trump
threatening new tariffs on countries that tax tech companies. These
would be your digital services tax things about companies like Facebook,
Google and others doing business in Europe, as well as
(17:50):
a story about Chinese made magnets coming into the United
States and President Trump warning of a two hundred percent
tariff on China if those exports are curbed. I'm going
to mention these stories because it's interesting to me that
it's one of the first times we've heard of trade
escalation again with Europe and or China in the last
several weeks. I just don't know that it's worth giving
(18:13):
more time to than mentioning, because there have been so
many of these types of announcements that get thrown out
there as a starting negotiating point and don't result in
anything real when it actually comes to tariff policy. So
I think rightfully, the President is feeling empowered by his
(18:34):
successful negotiations on tariff. So far, he has I think
driven a harder bargain than most people were anticipating with
countries like Europe, not so much with China. I said,
countries like Europe, it's not a country.
Speaker 3 (18:49):
Is that how I succeed? Is that how his tariff
negotiations are perceived as being successful?
Speaker 4 (18:54):
I think you think, I think, so, what's this?
Speaker 3 (18:57):
What's the standard there? The trading system didn't blow?
Speaker 4 (19:00):
Yeah?
Speaker 2 (19:00):
Oh okay, yeah, Because I mean, look, if you look
at it, I think that a lot of experts were
calling for you know, big escalations and back and forth
tip for tat trade war, and that's not what we
got out of this. Instead, what we got was, especially
in the case of Europe, higher tariffs on European goods
with no real reaction.
Speaker 4 (19:18):
Quick Break Wall Street watches.
Speaker 1 (19:20):
Next, Like us on Facebook and follow us on Twitter
at TFFE show. Breaking business news is always first right
(19:40):
here on the Financial Exchange Radio Network. Time now for
Wall Street. Watch a complete look at what's moving markets
so far today right here on the Financial Exchange Radio Network.
Speaker 5 (19:53):
Markets are flat as investors are mostly shruggering off the
latest development between President Trump and the FED, where Trump
ordered the removal FED Governor Lisa Cook. However, Cook said
Trump has no authority to fire her and won't resign
ongoing developments there. Right now, the Dow is down by
only thirteen points, SMP five hundred is up merely three points,
(20:16):
Nasdaq is up by two tenths of one percent, or
thirty nine points higher. RUSSA two thousand is up three
quarters of one percent. Ten year treasureeled is flat at
four point two eight one percent, and crude oil down
one percent today, trading right around sixty four dollars a barrel.
Eli Lilly's up three percent after the pharmaceutical Giants weight
(20:38):
loss pill cleared another late stage trial. The higher dose
of the pill help patients lose ten point five percent
of their weight on average at seventy two weeks, compared
to just two point two percent weight loss in the
placebo group. Meanwhile, AT and T said it would buy
some wireless spectrum licenses from EchoStar for twenty three billion dollars,
(21:01):
sending shares an echo Star surging eighty one percent, while
AT and T stock is down only one percent. Elsewhere,
retailers including Canada Goose, VF Corp, and Rocky Brands are
seeing gains after Barrett upgraded the stocks to outperform. Canada
Goose up eight percent, VF is rising six percent, and
(21:22):
Rocky Brand stock is jumping eleven percent higher. Truest upgraded
chip maker AMD to buy from hold, where the analysts
noted that hyperscale customers have been increasingly partnering with the
company and expressing trust interest in deploying AMD at scale.
AMD is up over two percent higher. Interactive Brokers will
join the S and P five hundred, replacing Walgreens Robinhood
(21:45):
again failed to make the cut, and digital identity management
company Octa will report their earnings after today's closing bell.
I'm Tucker Silva, and that is Wall Street watch mark.
Speaker 4 (21:56):
We're talking a little bit over the breaks. I think
it flashed across the screen.
Speaker 2 (22:00):
The number of exchange traded funds, more than forty three
hundred of them across the financial industry, now eclipses the
total number of individual stocks that are available to trade
in US markets. We've been talking about kind of both
sides of this story for years now. One would be
the trend towards fewer companies listing publicly.
Speaker 4 (22:22):
For a line of reasons.
Speaker 2 (22:24):
Two would be the explosion of exchange traded funds into
the investment world over the course of I mean really
the last what thirty years since they started, but it
really started booming over the last several by by way
of background, the exchange traded fund has not been around
(22:47):
as long as the mutual fund, but is different in
a few key ways. One, it's exchange traded, so you
can trade it throughout the day. It's usually a bundle
of stocks and bonds like a mutual fund. Traditionally, when
they first started coming out from the likes of Vanguard.
They were also tied to an index, so rather than
an actively managed fund with higher expenses, they were typically
(23:07):
a little bit cheaper in terms of that overall expense ratio.
That line has now been blurred quite a bit because
there are now active and passive ETFs. There's active and
passive mutual funds. But generally speaking, the biggest difference is
a mutual fund trades once a day after hours.
Speaker 4 (23:24):
The index fund trades throughout the day.
Speaker 2 (23:26):
But they're both generally a basket of diversified things, although
these days all of those other.
Speaker 4 (23:32):
Lines are kind of blurred. Do you have any major
takeaways about this, because at first I was like.
Speaker 2 (23:37):
Oh, I can't really be good, right, We're having this
massive financialization. People are going to choose bad options if
there are this many choices to make.
Speaker 4 (23:48):
That may hold true, but I don't know that I
take it as bad news.
Speaker 3 (23:53):
No, not on the surface. There are probably too many
active managers in existence. And I say that because dous
most underperform. They are so called. Yeah, I was trying
to think of a more relatable way to say it.
There indices may not be a way to say, let's
just call the S and P five hundred your typical
(24:13):
active manager benchmark, and the S and P five hundred
is just a collection weighted by the value of stock outstanding,
the so called market capitalization or market cap of leading
which S and P defines US companies that you can
buy very, very inexpensively, just a couple of percents of
(24:35):
a percent expenses typical on an index fund these days.
So you could do that, or you could buy an
active strategy that attempts to outperform the S and P
five hundred, that attempts to beat that as an index fund.
I get the sense that there are way more actively
managed products, whether you're talking ETFs or mutual funds, than
there are than there are view 's on one company's
(25:02):
likelihood about performing over another. In other words, there are
way more ETFs and mutual funds than there are diverse
of views on stocks in the marketplace. YEA, that's I'm
gonna have to think about how I just phrased that,
But you know what I mean.
Speaker 2 (25:20):
I guess I am more if I had to choose
one of these, I'm more concerned about the dramatic, dramatically
lower number of stocks available for purchase on the public
markets and the tendency for companies to stay private longer,
mainly because that's a limited group who's able to access
(25:42):
those privately held companies than I am about the explosion
of exchange traded funds, and I don't.
Speaker 4 (25:48):
Really care about that quite as much.
Speaker 2 (25:50):
Yes, it makes choosing the right fund more difficult, but
I'm not sure that it represents a problem. The fact
that fewer companies are listing on public exchanges says something
to me about the dynamics of it, and I'm not
sure if it's I think it probably says a few things.
One regulatorily, it's just really difficult to be a publicly
traded company and expensive to be a publicly traded company
(26:11):
these days. And also that yeah, if you're not worth
you know, fifty one hundred million dollars, then you don't
get access to these companies in their infancy, when some
of them are growing rapidly and don't need access to
the public market funds anymore.
Speaker 3 (26:26):
Both, it's the flip side of the explosion and so
called private equity. People go public because they need to
raise capital if you can do that at lessense from
passive investors, which pension funds are they're limited partners, as
are we. If you buy private equity through a mutual
fund vehicle, you have no say in how the private
(26:48):
equity manager runs their portfolio, similar to the arrangement with
public publicly traded securities. There are other ways to raise
capital now that's less costly ways.
Speaker 2 (26:59):
The bactpone of the global auto supply chain at risk
from Trump's tariffs, And to me, the only surprising part
of all this is that the President and the White
House haven't done more to the benefit the big American
three automakers. I mean, that's the only piece of this
that has been a bit surprising to me. We're talking
about this at length. The auto industry across the globe
(27:23):
other than China faces a number of struggles as we
head into the second half of twenty twenty five and
twenty twenty six. Most of them I think are of
their own making. Honestly, like most of these things, I
don't think are because of the trade war and because
of this, that or the other. I think it's missteps
(27:43):
over and over by these automakers for decades now. They're
getting their lunch eaten by China.
Speaker 4 (27:50):
Why is that?
Speaker 2 (27:51):
Because they all went into the Chinese market and made
the same sacrifice that every company does, which is give
over your intellectual property for the promise of being able
to sell your vehicles into that growing market.
Speaker 4 (28:03):
And guess what.
Speaker 2 (28:04):
Now you have a bunch of really competitive Chinese automakers
who built themselves on the knowledge that they gained by
you doing business in your country. So that one's your fault. Two,
you way overestimated the demand for electric vehicles, at least
many automakers did. Toyota didn't, and a few others didn't,
But they spent all this money developing evs and battery
(28:27):
technology and manufacturing capability here domestically. Yes, some of that
was in reaction to Biden era policy, but again, you
weren't forced to do any of this, and you completely
misread the market. And so, yeah, the trade policy that's
ongoing right now could be the nail in the coffin
for some of these but it's only the latest piece
(28:50):
that has been a misstep on the part of these automakers.
And yeah, it's going to be a real challenge to
figure out what to do with these supply chains because
none of this is likely to be permanent in terms
of the tariffs that are in place.
Speaker 3 (29:04):
Yeah, these tariffs are not manufacturer friendly.
Speaker 2 (29:07):
Non manufacturer fund and they're also not congressionally approved, so
they have no likelihood of being in place.
Speaker 3 (29:12):
For Mike car national economic policy is just a mess
right now. You could say I agree with certain parts
of it. Honest, people can disagree about what industry should
be protected and whether government should be in the business
of scooping up shares in private companies. The extreme left
and the extreme right both seem to agree that nationalization
is a good thing. To me, that's bewildering. We know
(29:35):
what happens when a government becomes involved and when the state,
any state, not just US government, becomes involved in the
management of a private company. Look at the British experience
following World War Two. They nationalized like crazy. The industry's
got flaccid and lazy and stagnant, and so Thatcher had
to unwind it and British growth suffered and the adjustment
(29:56):
was tough. We apparently need to learn that lesson again,
just like we need to learn about the value of
central bank fed in our case independence again. Like nobody's
tried this before, Like nobody thought historically buying up shares
in a government owning part of a private company would
somehow better align their interest with the public good. Civilizations
(30:18):
not just civilizations. That's overly, overly fancy way of putting in.
Democracies like ours, advanced sophisticated democracies have tried these policies before,
and they've They've ended up hurting, not helping growth. So
why we have to learn that lesson again is frustrating.
Speaker 4 (30:39):
Let's take a quick break.
Speaker 2 (30:40):
When we come back, want to talk a little bit
about the local New England economy for a moment. Here
there's a report on the Massachusetts biotech industry. Cover that
next here in the Financial Exchange Business.
Speaker 1 (30:52):
And financial news affecting the markets and your wallet. We've
got it all straight from Wall Street right here on
the Financial extra Change Radio network.
Speaker 5 (31:06):
The Financial Exchange is a proud partner of the Disabled
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Speaker 2 (31:37):
Well Mark, I'm covering the next story entirely to toot
our own horn. I don't remember exactly when we talked
about this, but I remember having a conversation on this
program about the Trump administrations looking at funding of different programs,
especially universities and scientific research, and.
Speaker 4 (31:57):
I wondered out loud if this could lead to in
especially a difficult time for the greater Boston region.
Speaker 2 (32:05):
I just, you know, looking at employment in the public
education sector, looking at employment and investment in.
Speaker 4 (32:13):
The biotech industry.
Speaker 2 (32:15):
A lot of that stems at least initially from public investment.
Right It's public research grants. It's all the money that
was spent during COVID on researching vaccines, and that stuff
has dried up. VC investment in Massachusetts based companies dropping
more than seventeen percent to two point seven billion dollars
for the first half of twenty twenty five. That compares
(32:36):
to the same that's compared to the same period in
twenty twenty four. It's also the lowest level since twenty seventeen.
Master's projected to receive around four hundred and sixty three
million dollars less in National Institutes of Health funding this
year compared to what it did in twenty twenty four.
And then firms invested eight billion dollars in Massachusetts biotech
(32:58):
companies in twenty twenty and more than thirteen billion in
twenty twenty one. So we are seeing this big drop
off here in the Massachusetts and I would say greater
Boston and greater New England economy. This is an industry
that's kind of reached its tentacles out throughout New England.
Big base obviously in Cambridge and in the Boston area
in general. But there's even an empty lot that's been
(33:21):
sitting empty and flattened for a few years now that
was supposed to be lab space for the biotech industry
and the old If you know this area and you've
ever driven down one twenty eight in Needa, Massachusetts, there
used to be a big old Muzzy Ford car dealership.
That sign was kind of well known in the area.
(33:41):
That thing has been empty now for what is it
low it's four years more than that four plus years
because they can't find a tenant and can't figure out
what to build, because that booming demand for all this
lab space has pretty much evaporated. On the other hand,
it's not as though we've seen a massive spike in
unemployments in Massachusetts or any of these other pieces.
Speaker 4 (34:04):
But should this.
Speaker 2 (34:06):
Continue, it's an area that could look a lot different
than it has for the last five years.
Speaker 3 (34:11):
Yeah, hard to say how much of this is attributable
to maybe a hangover effect from the frenzy of investment
that happened during the early twenty twenties for obvious reasons.
We were all scrambling for a COVID cure. The promise
of mRNA technology was apparent after the COVID vaccine success,
(34:33):
So I don't know. They don't provide here a longer
term look. VC a venture capital, which is a subcategory
of so called private equity, which we were talking about earlier.
The pace of vcs putting capital to work has slowed globally,
so this is partly that. I don't deny that the
(34:55):
uncertainty with respect to grants and other forms of federal
funny has something to do with it, But it's hard
to at least based on what we are looking at here,
which is very little. Hard to say how much of
what's happened lately is attributable to trumps, which are all
of funds from universities, which hits mass, especially art as
(35:15):
you said, versus larger trends.
Speaker 5 (35:18):
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Speaker 2 (36:15):
New York Times reporting that as housing demand continues to fall,
builders getting creative by lowering prices and adding incentives. Can
we talk about what the word creativity means for a moment,
creative would be I don't know, like changing the type
of homes you build, or using new materials, or building
(36:36):
smaller homes or something to get at the overall situation.
Can we all agree that lowering the price on a
home is not being creative. I just think it's the
wrong word. This isn't surprising. There is a huge lack
of demand, in lack of demand for new homes from people,
(36:57):
especially in Florida, Texas, Colorado, Louisiana, some of these markets
that have been over supplied by housing over the course
of the last several years.
Speaker 4 (37:08):
And so it's a swing back in the other direction.
Speaker 3 (37:11):
There is a nod to some of that here doing
things like making do with what you've got. Unfortunately, we
don't have good data because the national market is so fragmented.
We should know what the average home size new construction
is as of say twelve thirty one, twenty twenty four,
but to my knowledge, we don't because again, because.
Speaker 4 (37:31):
It's very fragmented.
Speaker 2 (37:32):
Yeah yeah, yeah, we got to take a quick break here.
Markets opening in mixed territory at the moment. Dowd down,
SMP and Nasdaq both up. Will be covering that and
a heck of a lot more in the second hours.
To stay tuned, folks,
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