September 2, 2025 • 38 mins
Mike Armstrong and Paul Lane discuss the historic trends that show September being a horrible month for investors. What should we expect from this Friday's jobs report? What happens now that a court struck down some of Trump's tariffs? Companies re having major issues pricing items. How the Fed losing its independence could affect Americans’ everyday lives.
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Episode Transcript
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Speaker 1 (00:00):
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(00:43):
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(01:06):
and Paul Lane.
Speaker 2 (01:13):
Good morning, Welcome to the Financial Exchange. It's the Tuesday
after a long weekend. Tucker looks especially sleepy this Tuesday.
He had a rough wake up at four thirty am
or whatever time he has to get here. I'm not
entirely sure, Tucker, what time you actually wake up and
get here, but no one can suffice to say hours
and hours before. I do. Hope everyone had a nice
(01:33):
long weekend doing whatever they do with their families. I
was celebrating my girl's birthday this weekend, so we had
a nice, big party with a bunch of screaming eight
year old girls. It was lovely. Uh. We are kicking
off September here with a busy schedule. Congress is going
back into session after being out for how long five
(01:54):
weeks something along those lines. We've got a looming government
shut down that from most experts that I listen to,
they're they're pricing in like a one in four chance
of a shutdown. They need to get a bill passed
by September thirtieth in order to keep the government open.
We have a jobs report coming up this Friday. We
have a FED meeting midway through the month, and then
(02:16):
all of that surrounds the late breaking news that we
got on Friday afternoon from a federal appeals court, this
being the second court to now rule against the Trump
administration when it comes to their powers on tariff. So
a lot to cover today, but I figured we'd start
with You know, this is a business and market show,
(02:37):
just start with the topic of dreaded September, right because
it is everyone that looks at it knows that it
is the worst month historically for stock market performance. Any
way you look at it, it is significantly worse than
every other month. I have data here that was put
together going back to nineteen twenty seven, so it's not
the S and P five hundred, it's more of a
(02:58):
large cap stock index that pretty closely mirrors the S
and P five hundred, and the average monthly return for
September going back to that time period this is through
twenty twenty four, was negative point nine percent. Every other
month of the year is positive, and the lowest positive
month that you get from any other month is February
(03:18):
at positive four tenths of a percent. So it is
it is pretty staggering just how bad September has historically been.
But you know, with statistics, there's all sorts of ways
to manipulate, and it's definitely true that this is very
much defined by a few very bad Septembers that have
been out there. Right, we had a negative nine percent,
(03:39):
I think, during the Great Recession and many other periods
of time where September proved to be pretty bad. But
so what I did here is, Okay, yes, average it's
pretty bad, but would you bet on something like that?
Speaker 3 (03:52):
Right?
Speaker 2 (03:53):
Is this worth betting on? And so I also took
a look at just how frequently September's bad and just
looked at, okay, give me a ratio, how often is
it actually negative? And September is a coin toss. In fact,
while the average is pretty bad, it's only a coin
toss as to whether or not it'll be positive or negative.
And so I think most people would take that bet
(04:15):
all day. Right, You're still better off than going to
the casino with odds like that. But it is just
staggering because once again you go take a look at
any other month out there. February again is the second
second worst out there, but even there, it's pretty statistically
significant to the upside. And so we do head into September.
(04:36):
There is a lot on the table. We've got these
tariffs being challenged in cord, We've got a looming government shutdown.
We're also looking at a stock market today that, by
at least one measure, is the most expensive we have
ever had. And yet we will see what happens here
because only historically half the time do markets actually go
(04:56):
down in September. And I don't feel that piece of
the piegast.
Speaker 3 (04:59):
Not compared to months. Do you have?
Speaker 2 (05:01):
You want me to go one by one here? How
do you want to tackle? I mean, the best month
historically for performance is December, up more than three quarters
of the.
Speaker 1 (05:10):
Time, got it?
Speaker 2 (05:11):
Okay, February is up like fifty six percent of the time, So.
Speaker 3 (05:17):
Anywhere from sixty to seventy five on some of those other.
Speaker 2 (05:20):
Months, correct? I mean, you know, as bad as September is,
December is by far the best, up seventy six and
a half percent of the time historically, and very infrequently
do markets actually moved down. But again, this this measure
doesn't tell you anything about the size of the move.
It could be up by barely one tenth of one
percent and accounts towards the positive. But that piece. You
(05:42):
know that that piece of September being bad is just
just like selling May and go away. I've never found
it to be terribly helpful information because what this points
out to you is, Okay, yeah, if you sold every
September going back to one hundred years, which no one's
been investing for one hundred years, then you would have
missed out on some pretty ugly moments. But if I'm
sitting here now on the first trading day of September
(06:04):
and trying to decide what do I do with my money,
let's a coin toss as to whether I'm not I'm
going to earn money this month based on the historical averages.
So what do I do with that information? I guess.
I guess the overall bed is don't try and fight
the market, because the market usually, just like the house market,
usually usually returns positive for you over the long term. Sure,
(06:25):
So where do you want to start, Paul, Because there
is a fair bit to get to. I guess the
most significant would be, we do have that job's report
coming in on Friday of this week, and so let's
start there before we go on to the craziness in
the courts and what's going to happen next on trade.
We have a jobs report expected for Friday of this week.
(06:47):
What I find remarkable is just how stable the labor
market has been over the course of the last year.
You have basically not moved more than a tenth of
a percentage point on the unemployment rate. It's been sitting
there right around four point two percent. The biggest news
that we have right now when it comes to jobs
were the revisions that were made resulting in the firing
(07:09):
of the head of the Bureau of Labor Statistics, where
you know, it basically was shown during the spring months
here that we created very few jobs. The unemployment rate
didn't really tick up for a number of other factors
that we can talk about, but we created very few
jobs over the course of I think it was April,
May and June. And so the question becomes, hey, you know,
(07:29):
we saw some decent numbers in July, but our company
is now feeling stable enough after the you know, admitted
craziness of the spring, with tariff uncertainty and all sorts
of question marks about rates and where things were going.
Are we settling into an equilibrium now where companies do
feel comfortable hiring They understand what the new tax package
(07:52):
looks like and how quickly they can deduct some expenses
when it comes to hiring and research and development, and
just saying let's power through with whatever hiring plans we
put on you know, put on hold earlier this spring.
Speaker 3 (08:03):
Yeah, Ja Powell and his recent speech in Jackson Hole.
The reason why markets had jumped so enthusiastically, what was
that last yeah week and a half ago was mentioning
that he they may cut interest rates in the month
of September. And the reason that he mentioned that was
a weakness in the labor market, a potential weakness in
(08:25):
the labor market. And really that's why this report will
be so critical is because, like you mentioned, we'd had
significant revisions to May, June, and July's numbers were pretty
light too in terms of jobs that were created. But
really the focus here coming up for Friday is last summer,
we were heading into a fall where the unemployment rate
was sitting around three and a half percent. We saw
(08:47):
it ticking up by more than a half percent, and
there was this concern that typically with labor markets that
they don't just move in plateau somewhere, they just it
kind of becomes a snowball effect and continues to sort
of bleed over what happened. Just like we were talking
about before on coin tosses, it did plateau the unemployment.
It has plateaued at four point two percent or in
(09:07):
and around that level for really the last year or so,
minimizing the concerns that we had in the fall last year.
Where we sit today a similar position in this idea
that you hear a lot of sentiment conversation about this
idea that new graduates had a lot of difficulty in
May and still continue to have a lot of trouble
(09:28):
finding new work. You also have the labor supply piece
that's being disputed a lot that perhaps some of these
crackdowns on immigration is leading to just a lesser population
of workers available, and perhaps that is really hiding what
is going on under the surface in terms of employment numbers.
So any data that we can get here that points
(09:49):
to one direction or another weakness or strength coming up
on Friday is something that the market's going to be
really focused on, because it's really this report, the labor
report that we'll get on Friday the fifth, as well
as the inflation report that I believe is the tenth
or eleventh. That are going to be the two most
critical economic pieces of data that we'll get before the
Federal Reserve meeting on the sixteenth and seventeen.
Speaker 2 (10:11):
It's the eleventh, by the way, the inflation report. I
guess you know. For expectations here, consensus estimates seventy five
thousand jobs created for the month of August, unemployment rate
to tick up slightly to four point three percent. If
you get anything between I would say zero and one
hundred and fifty thousand jobs created, then the Fed is
(10:32):
going to continue right on its current trajectory. I don't
think any of that stuff would move it from its
current path. The interesting question to me is always, okay,
how could this surprise? Well, if you get a couple
hundred thousand jobs created and that unemployment rate sync to
four percent, those could be I mean, obviously, if that happens,
that's a great news story about the economy. It means
(10:52):
the companies are feeling confidence enough to hire again. It
also means that you would have some fierce debate within
the FED as to whether or not they should be
cutting it's into an environment like that. Let's take a
quick break when we come back the breaking news from
Friday afternoon surrounding President Trump's attempted tariffs. So that's next
here on the Financial Exchange.
Speaker 1 (11:11):
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Speaker 2 (12:18):
All right, so big news of the day is in
fact the breaking news from Friday when it came to tariffs,
and I do feel as though a step back in
some context is important with this because it's confusing. There's
been a number of court cases surrounding it, and we're
talking about a bunch of different tariffs under different rules.
So first things first, the tariffs that were ruled to
(12:38):
go on here specifically are what's referred to as IEPA
I EEPA. That stands for the International Emergency Economic Powers Act.
It was of nineteen seventy seven and effectively allows the
president to regulate international economic transactions, imports, sanctions, restrictions, etc.
(13:01):
Following the declaration of a national emergency in the United States.
So that is the act under which the President has
been has been imposing. Most tariffs that we've talked about
on this program, whether it's Canada, Mexico, China, all of Europe,
the big sweeping tariffs country by country were announced and
(13:24):
moved on based on this power based on this act
from nineteen seventy and the.
Speaker 3 (13:28):
Two emergencies that have largely been cited are trade imbalance
and the fedenyl crisis.
Speaker 2 (13:32):
Correct, those are the two, and that's been a lot
of the tariffs that we've been discussing Separately. The president
has been using pretty well established powers that many presidents
have used around national defense and other sections in order
to Sorry, the watch just started yelling at me problems
(13:54):
that we didn't have ten years ago.
Speaker 3 (13:55):
Thought Tucker was piping some music.
Speaker 2 (13:58):
Separately, the tariffs on things like steel, aluminum, autos, and
auto parts are more national security. Those are pretty well
established and a process that the president has used that
many other presidents have used in the past and East
in twenty eighteen and President Biden did. Many others have
used that process. So what has been ruled on on
(14:21):
Friday is the second court panel to rule against the administration.
The first time they did so was May twenty eighth
of this year. The US Court of International Trade. In
that case ruled that the tariffs were illegal because the
declared emergency lacked a rational connection to the imposed trade measures. Basically,
(14:43):
you're saying it's a fenanl crisis, but there's no attachment
from that to the tariff rate that you used country
by country. This time, a full Federal Court of Appeals
heard the case, and they've been hearing it now for
the last month or more, and this eleven eleven judge
panel ruled seven to four that these tariffs are illegal.
(15:05):
They put a deadline here for October fourteenth, which who
knows that could be extended to give the White House
time to appeal to the US Supreme Court, because that
is ultimately where this was always going to land in
all likelihood, and where the President and his advisors wanted
it to land initially.
Speaker 3 (15:23):
So the tariffs are going to stay in place least
until October fourteenth, worth mentioning.
Speaker 2 (15:29):
So a lot of context here. First thing quote from
President Trump. If a radical left court is allowed to
terminate these tariffs, almost all of this investment and much
more will be immediately canceled. So let's briefly talk about that.
I mean, the makeup of this court is definitely different
than the US Supreme Court, and this is not trying
(15:52):
to get political at all. You talk about appointments from
Republicans versus Democrats on the US Supreme Court, different leaning here,
presumably the eleven court panel. The eleven judge panel consisted
of five Obama appointees, two Biden appointees, one Clinton appointee,
two Bush appointees, and one Reagan appointee. So zero Trump
appointees on this eleven judge panel. In addition, I guess
(16:15):
what would contradict the political piece of this, though, is
that in terms of the seven to four vote breakdown,
the four who voted in favor were comprised of two
Obama appointees and two Bush appointees. So again, I'm not
sure what that really reads in terms of how the
US Supreme Court goes on this, but I guess I
would say there's been a lot of deference to executive
(16:38):
power by the US Supreme Court over the course of
the last few years, and so in spite of where
this went, I guess I wouldn't be shocked if the
Supreme Court upheld the President's goals here or largely upheld
them when it comes to tariffs. But let's play there.
We kind of know what that looks like, right if
they uphold it, Yeah, it's status quo. We know what
(16:59):
the the tariffs have been generating in revenue, We know
how countries and companies have been reacting. I suppose if
the US Supreme Court upholds it, there is probably more
likelihood of companies finally raising prices because I will cover
it later, but I get the sense that a lot
of companies have been hesitant to do so with the
looming threat of these lawsuits ongoing. But let's say the
(17:21):
US Supreme Court actually goes in the other direction and
overturns this. We don't have time to get into all
of it, but a lot of things change immediately, and
the bond market's kind of reacting to one of those
significant changes this morning. I think.
Speaker 3 (17:33):
Yeah, one of the big issues that you'd have is
this idea that you'd have to refund all of the
tariffs that were collected over the last what's it been
five months or so, over one hundred billion dollars, and
that number just keeps rising as the months tick along.
So that is extremely headache to even try and figure
out how that would unfold. And then you do have
(17:56):
from a geopolitical standpoint, it is a bit of egg
of egg on face for the United States. I mean,
it's it's it's diplomatic foreign embarrassment is mentioned. I think
that was luttin ITX quote on it, and there's no
question about it. This is it would just be incredibly
confusing and a circuitous roundabout to get nowhere if that
(18:18):
were the case. From an economic policy perspective.
Speaker 2 (18:21):
So on the yield side of things, again on the
idea that a whole bunch of cash would need to
go from the US Treasury back to corporations who have
paid tariffs. You do have yields moving up a little
bit in early trading. You did have the thirty year treasury,
for example, touch four point nine to seven percent. It's
come down a little bit, but even the more oftenly
quoted ten year treasuries moving up about point zero four
(18:45):
percent right now after it's been kind of falling over
the course of the last month. You've seen mortgage rates,
et cetera come down. That's been one immediate effect of
this court ruling is some investors saying, Hey, what exactly
is going to happen next when it comes to these tariffs,
and what would it mean for companies to suddenly get
a huge refund of tariff tariff fees that they have
(19:07):
tariff taxes whatever you want to call them, tariffs that
they have been paying to the US Treasury over the
course of the last five months. So a lot to be
worked out here. Will be continuing to cover this story
kind of throughout the show because it permeates into just
about every corporate decision that's being made right now. But
we got to take a quick break. Wall Street Watch's
coming up next to.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFFE 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):
Well Septembers upon us in markets today are selling off
amid more tariff confusion after appeals court struck down the
Trump Administration's reciprocal tariff's leet last week. Investors are also
awaiting a court ruling on whether Trump's bid to fire
FED Governor Lisa Cook is legitimate. On top of all that,
we have a jobs report later this week. Right now,
(20:23):
the Dow is off by six tenths of one percent,
or two hundred and seventy seven points lower, SMP five
hundred down over eight tenths of one percent or fifty
three points lower, and the Nasdaq down by about nine
tenths of one percent or one hundred and ninety one
points lower. Russell two thousands down by six tenths of
one percent. Tenure Treas reeled up three basis points today
(20:45):
at four point two six five percent and crude oil
up about one and a half percent higher, trading right
at sixty five dollars a barrel. According to The Wall
Street Journal, activist investor Elliott Investment Management has built a
roughly four billion dollar steak in Pepsi and plans to
push the beverage in snacks company to make changes to
(21:05):
boost its sagging share price. Pepsi's market value was shrunk
to about two hundred billion dollars, more than twenty five
percent drop from a peak of two hundred and seventy
billion dollars back in May of twenty twenty three. Pepsi
shares are up by two percent today. Meanwhile, craft Hins
confirmed earlier reports that it would split into two publicly
(21:26):
traded companies through tax free spinoff, Berkshire Hathways. Warren Buffett
told CNBC this morning that he is disappointed in the
craft Hiinds split, as Berkshire was behind the merger back
in twenty fifteen. Craft shares are down by five percent. Elsewhere,
shares and Signat Jewelers are up nearly one percent after
its report. After it reported better than expected second quarter
(21:49):
results and also upped its full year earnings guidance Constellation brands,
retreating six percent after the Modello and Corona beer Brewer
cut its full year guidance, and shares in gold miner
Numont climbing one percent after the precious metal hit a
fresh record high. I'm Tucker Silvan. That is Wall Street Watch.
Speaker 2 (22:11):
By the way, Paul, one more thing on the court
that ruled against the Trump administration when it came to
the teriffs. It's usually a twelve judge panel. Do you
know why it was only eleven who ruled on it.
Speaker 3 (22:23):
Yes, there's a ninety eight year old who's still fighting
to be able to be in the mix and has
to go over a cognitive assessment before she can get back.
Speaker 2 (22:31):
On and refuse to participate in the cognitive assessment in
her neurological tests. I do. I'm laughing a little bit.
It's not funny. There shouldn't probably be a ninety eight
year old sitting on a federal corps. The Court of
Appeals panel would be personal opinion. You know, I'm sure
others have different opinions, but I do like to see
when things are actually working properly, Like, okay, yeah, you're
(22:53):
refusing to step down, you're refusing to be assessed by this,
We're at least not going to allow you to rule
on big k like whether or not tariffs can exist.
I like that. I like that approach of Okay, you know,
we won't make you resign, but you can't do your
job either until you actually get your neurological assessment. As
a ninety eight year old, that seems very reason.
Speaker 3 (23:14):
Even Buffett is stepping down at the end of year
at ninety five.
Speaker 2 (23:17):
Right, So you know, I get that there are no
terms for these types of judges, but you know, maybe
some maybe some important things here, like neurological tests, are
proving to play out properly. So I want to stay
on the topic of trade for a moment here, because
this is not earth shattering. Earth shattering would be the
Supreme Court overruling the Trump administration on this. But it
(23:39):
does change the name of the game once again a
little bit when it comes to tariffs. So I want
to think of this both in part of our trade partners,
so foreign countries and their negotiations with the Trump administration,
as well as from a US corporate perspective. Where do
you want to start, Paul.
Speaker 3 (23:55):
Let's start on the corporate side of things.
Speaker 2 (23:57):
Yeah, so these companies who are subject to importing, and
you know, some are, some aren't. Like Meta is not
really affected by this one way or another. And in fact,
you could make a pretty good argument that most of
the Magnificent seven is not really affected by this at all.
Amazon to some degree, but you know, they're really just
(24:18):
passing through any of those costs to sellers on their
page rather than them being subject to it themselves.
Speaker 3 (24:24):
Potentially, you can make the argument on Meta and Google
they drive most of their revenue from advertising, that perhaps
as a result of this cut back on ad budgets.
But yeah, that's a you know, it's not direct impact.
It's not direct impact.
Speaker 2 (24:36):
And so but let's take the perspective of you know,
grocers and any big company out there, how do they
approach all of this? And I think it really divides
out between a large company and a small company because
if I'm a big company like Walmart right now, I
am probably doing everything I can to just manage the
(24:58):
cost of these terrorifts, even if it means losing money
on certain products for a short period of time. I
want to probably hold the line, gain market share, and
stand out even more compared to the big lots and
those other smaller retailers that can't afford to do that,
because you know what, I'm paying all these tariffs, and
(25:19):
if I'm Walmart, I at least have to be saying, Okay,
maybe a twenty five percent chance all of these get
reimbursed to me at some point, and I've got the
cash to be able.
Speaker 1 (25:27):
To do this.
Speaker 2 (25:27):
Why not?
Speaker 3 (25:28):
Right right?
Speaker 2 (25:29):
Like one in four, one in five? What are the
odds that happens. I don't know how to price that,
but certainly somebody in the executive team there is saying, Okay,
we're gonna pay these tariffs, We're not gonna raise prices,
and we're gonna cross our fingers and maybe we get
them all reimbursed to us later this year.
Speaker 3 (25:42):
And I think it's a little bit of a balancing
act that, yeah, we'll pick up and eat some of
the costs on some of these tariffs. But I was
talking with someone over the weekend who had worked on
the board at Decker's, the shoe brand company, and I
was asking, no longer as active, but I was just
asking what are they doing from a business perspective, And
he was saying that twenty million of their shoes get
imported from Vietnam, and I said, well, who's paying for
(26:06):
import He's like, we're They're sticking it a lot on
the supplier. Right now, the supplier is eating a lot
of that tariff costs because of the negotiating power that
they have. Hey, it's twenty million shoes of volume, you know,
we'll find elsewhere. And I think that to a degree,
Walmut and others are doing the same thing. Yeah, maybe
they're eating some, but they're also telling the supplier that, hey,
we give you so much volume on a yearly basis
(26:28):
a way to find a way to make it work.
But the point that he made to me, he said,
the longer this goes on, though, that's not going to
happen the suppliers or Walmart to the same degree. And
this is a point that's been made by many people
out there. You get six months past this, you can't
do that balancing act anymore.
Speaker 2 (26:45):
So.
Speaker 3 (26:45):
For the bigger companies, to your point, their leverage and scale,
you can lean on that, or you can lean hard
on suppliers. The problem is when you're a small to
mid sized business. And that's what I worry about with
these tariffs in general, is that does just too much
of the value accrete to these laws. Large players that
the Walmart and Targets of the world have an easier
ability to not increase their prices as much because they
(27:07):
have bigger muscles to flex in terms of supply chain diversification.
Speaker 2 (27:11):
And I'm not even talking about tiny companies right Like
I think about five below, I think about there was
just a really discount off brand retailer right around here
that declared bankruptcy a few months ago. I think I
got rejected by the judge. I don't remember the name
of it at home. Like these other retailers that import
everything they sell and do not have the deep pockets
(27:32):
of Walmart, probably have little choice but to say, I
mean the choices that they do have. Try and go
raise money. You borrow a bunch of money and hope
that you get your terrorists reimbursed and you can pay
back that loan. You can raise prices, you can try
and disrupt your supply chain in some meaningful way, but
good luck. I mean, so is everybody else right now.
(27:55):
And so I think about these other companies, and the
net result that I can view is I don't see
bankruptcies across the board. But I can see a case
where the giant guys Costco Walmart just target to a
lesser degree, get stronger, get more market share, and are
left in a better operating position, whereas you know, forget
(28:15):
about your mom and pop. Like, those guys are no choice.
They have to raise prices, and hopefully they have more
pricing power than Walmart would to be able to you know,
stay in their communities and be those small businesses. I
just think of all the like you know, go drive
down through downtown need And where we broadcast our show
for there's you know, eight or nine of these Nickknack
type stores with clothing and collectibles and all sorts of stuff.
(28:39):
Maybe not collectibles, but you know what I'm talking about,
like gift stores of some sort or another that probably
import most of their stuff. You have no choice. You
raise prices right away because you're not carrying fifteen billion
dollars worth of cash on your balance sheet to go
pay the terraffs and then hope that they get reimbursed
down the road. Yeah.
Speaker 3 (28:56):
But like this Wall Street journal piece highlights, you know
a company that may copper tubs out of North Carolina.
It's just another example of a smaller midside business where
they're selling into Home Deep Ow and Lows and they
don't have the ability to really there's this tug of
war that Home DEEPO and Lows don't really want to
increase prices that much. So you leave the smaller company
(29:18):
in a very precarious position where their biggest buyers probably
Home Deep Ow and Lows, and all of a sudden
they're in a very tough margin spot with that.
Speaker 2 (29:26):
When it comes to other countries and their negotiations with
the United States, I think all you hear for the
next several months is delayed, delayed, delay.
Speaker 1 (29:35):
Yeah.
Speaker 2 (29:35):
They won't say that publicly, obviously, because then you're going
to get a whole bunch of backlash from the Trump administration.
But if you are the Canadian negotiators or the European
negotiators right now, you're not gonna sign some sort of
tariff deal that you then have to put through your
own Congress to get signed and approved. Remember that most
(29:56):
of these other countries are not negotiating these things with
the same emergency powers that the Trump administration is, so
anything they sign has to go back through their legislature.
And so I think we see more of what we
saw from India, we see what we've seen from many
other countries here where there's not a lot being said.
There's occasional outbursts here and there, there's occasional announcements here
(30:20):
and there, but generally speaking, a lot of them I
think are going to be looking at this and saying, Okay,
pay whatever we have to pay for now, deal with
whatever backlash we have to deal with, but do not
execute an agreement until we know that the administration actually
has the power to impose these terrorists over the next
few years. Because it's very much in question this morning
in a way that it was not so much on
(30:41):
Friday morning.
Speaker 3 (30:43):
Yeah, and I don't think we really know what the
timeline is for that. Right, we have to decide whether
the Supreme Court will hear the case.
Speaker 2 (30:50):
Well, whether they hear it as an emergency yep, or
could this be on the twenty twenty six docket, right,
big unanswered questions, and then what happens with the you know,
the imposition and collection of the tariffs in the meantime
If they do say no, we're not hearing this until
twenty twenty six, huge unanswered questions here, We've got to
take a quick break. When we come back, I want
to talk more about that upcoming FED meeting. We've got
(31:13):
the continued stories being written about the Fed's independence and
what it means. That's that's next here on the Financial Exchange.
Speaker 1 (31:20):
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eighty five with your comments and questions about today's show,
and let us know what you think about the stories
we are covering. This is the Financial Exchange Radio Network,
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Speaker 2 (31:48):
So taking a back seat to all of the tariff
uncertainty is the uncertainty at the Federal Reserve right now.
But a few things have happened over the course of
the last few days. One, just to update folks, the
President has moved to fire sitting FED Governor Lisa Cook.
This is over allegations of mortgage fraud that was allegedly
committed in the twenty twenty one twenty twenty two time frame.
(32:10):
Cook has now sued to block her removal. There's been
an open letter from I think two hundred and fifty
professional economists basically writing in favor of Lisa Cook and
discouraging the President from taking this action. I've made my
opinion on this pretty clear, like, if she actually did this,
I do think she should resign. I also think it's
(32:32):
a pretty open question as to whether or not the
president has the right to remove her over something like this.
I think those are two different things. Like, you commit
mortgage fraud and your job, at least in part is
to oversee banks, you shouldn't be there, and you probably
wouldn't have passed through Senate confirmation had they known about
this stuff at the time. But a separate question is
(32:52):
can the president remove somebody for something like this if
it ends up being if the allegations end up even
being true. I think that piece is all open question
to me.
Speaker 3 (33:02):
And the crux of it is her declaring she had
two primary residences.
Speaker 2 (33:07):
To get cheaper mortgage rates, which is so dumb for
anybody to do. Don't do that, and definitely don't do
that if you are on the cusp of a Senate
confirmation hearing. I don't know if she was appointed at
the time, et cetera, et cetera. The bigger question to me, though, is,
let's assume that the president's successful and he can remove
her for this cause it would seem to me to
(33:29):
be a pretty easy line then to say, well, why
can't I fire Powell for his misconduct when it comes
to overseeing this building project or his failure to prevent
nine percent inflation in twenty twenty two. I know that
this is a crime that she's being accused of and
the other stuff is not. But that's the concern by
(33:50):
legal experts is okay, Well, where is that line and
will it be definitively drawn by the courts if President
Trump is successful in removing Cook, will they really fine, like, yeah,
this is cause and this is not cause, And my
guess would be no generalick quartz, don't do that. They
generally say, yeah, this time it was, and we'll let
you know next time. And that would leave a fair
(34:10):
bit of uncertainty out there when it comes to what's
next for the Federal Reserve and it's voting members.
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Speaker 2 (35:26):
Paul, we were just talking about the FED, It's independence,
the president's ability to remove sitting governors of the FED.
I want to talk about why we think it matters.
Right for most people listening, I have to imagine you're
listening right now and saying, so what, Yeah, I wasn't
affected when he removed the Commerce secretary. Why do I
(35:46):
care if he's able to remove a sitting FED governor.
So let's spend a couple minutes on that, because it
is important. The FED is different, And what I will
just briefly say is that every president, Republican or Democrat,
if they actually are pinned down and asked, would want
(36:07):
lower rates. Yes, just plain and simple. You want lower
interest rates if you are the sitting president, because it
makes it more likely that stocks could rally, It makes
it easier for business to take place, It makes it
easier for people to purchase homes with cheaper mortgage rates.
You want lower interest rates even if inflation is, you know,
(36:29):
getting out of control, because you just don't know where
it's going to go next. And the one thing you
know is that if interst rates come down, historically, a
lot of things have done pretty well in terms of
asset price.
Speaker 3 (36:39):
Lower barring costs, more equals more consumption. More consumption equals
more economic growth, all positives for anyone in office.
Speaker 2 (36:45):
So we've pretty much established that any president would want
lower interest rates. The problem is that's not always appropriate.
And the reason that the FED is successful, or at
least has been in modern history at combating inflation with
some pretty big you know, caveats twenty twenty two being
one of them, the nineteen seventies being another. Is that
they have this threat of we don't care who the
(37:08):
president is, we don't care when the elections are going
to be. We are independent from all of that, and
if we need to, we will send this economy into
such a disastrous recession that we won't have to worry
about inflation anymore. Right, That's the threat, that's the underpinning
threat of the FED is if inflation gets out of control,
then we're gonna basically make a bunch of people unemployed,
(37:30):
put a bunch of businesses out of business in order
to control that inflation environment. And the mere threat of
them being able to do so is usually enough to
control inflation.
Speaker 3 (37:42):
Right. Important to note, like you said, two main responsibilities
the FED controlling and dictating monetary policy keep inflation low
and keeping unemploymental though. That's what their job is, and
to your point, sometimes they have to be the one
that takes away the punch bowl party and be the
bearer of bad news or take steps to really squeak in.
Speaker 2 (38:05):
Without that independence, you remove some of that safety net
of somebody willing to take away the punch bowl, and
the concern would be run away inflation and all sorts
of other big issues for the economy. Quick break, but
a lot more to cover in the second hour. Will
be right back
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(01:06):
and Paul Lane.
Speaker 2 (01:13):
Good morning, Welcome to the Financial Exchange. It's the Tuesday
after a long weekend. Tucker looks especially sleepy this Tuesday.
He had a rough wake up at four thirty am
or whatever time he has to get here. I'm not
entirely sure, Tucker, what time you actually wake up and
get here, but no one can suffice to say hours
and hours before. I do. Hope everyone had a nice
(01:33):
long weekend doing whatever they do with their families. I
was celebrating my girl's birthday this weekend, so we had
a nice, big party with a bunch of screaming eight
year old girls. It was lovely. Uh. We are kicking
off September here with a busy schedule. Congress is going
back into session after being out for how long five
(01:54):
weeks something along those lines. We've got a looming government
shut down that from most experts that I listen to,
they're they're pricing in like a one in four chance
of a shutdown. They need to get a bill passed
by September thirtieth in order to keep the government open.
We have a jobs report coming up this Friday. We
have a FED meeting midway through the month, and then
(02:16):
all of that surrounds the late breaking news that we
got on Friday afternoon from a federal appeals court, this
being the second court to now rule against the Trump
administration when it comes to their powers on tariff. So
a lot to cover today, but I figured we'd start
with You know, this is a business and market show,
(02:37):
just start with the topic of dreaded September, right because
it is everyone that looks at it knows that it
is the worst month historically for stock market performance. Any
way you look at it, it is significantly worse than
every other month. I have data here that was put
together going back to nineteen twenty seven, so it's not
the S and P five hundred, it's more of a
(02:58):
large cap stock index that pretty closely mirrors the S
and P five hundred, and the average monthly return for
September going back to that time period this is through
twenty twenty four, was negative point nine percent. Every other
month of the year is positive, and the lowest positive
month that you get from any other month is February
(03:18):
at positive four tenths of a percent. So it is
it is pretty staggering just how bad September has historically been.
But you know, with statistics, there's all sorts of ways
to manipulate, and it's definitely true that this is very
much defined by a few very bad Septembers that have
been out there. Right, we had a negative nine percent,
(03:39):
I think, during the Great Recession and many other periods
of time where September proved to be pretty bad. But
so what I did here is, Okay, yes, average it's
pretty bad, but would you bet on something like that?
Speaker 3 (03:52):
Right?
Speaker 2 (03:53):
Is this worth betting on? And so I also took
a look at just how frequently September's bad and just
looked at, okay, give me a ratio, how often is
it actually negative? And September is a coin toss. In fact,
while the average is pretty bad, it's only a coin
toss as to whether or not it'll be positive or negative.
And so I think most people would take that bet
(04:15):
all day. Right, You're still better off than going to
the casino with odds like that. But it is just
staggering because once again you go take a look at
any other month out there. February again is the second
second worst out there, but even there, it's pretty statistically
significant to the upside. And so we do head into September.
(04:36):
There is a lot on the table. We've got these
tariffs being challenged in cord, We've got a looming government shutdown.
We're also looking at a stock market today that, by
at least one measure, is the most expensive we have
ever had. And yet we will see what happens here
because only historically half the time do markets actually go
(04:56):
down in September. And I don't feel that piece of
the piegast.
Speaker 3 (04:59):
Not compared to months. Do you have?
Speaker 2 (05:01):
You want me to go one by one here? How
do you want to tackle? I mean, the best month
historically for performance is December, up more than three quarters
of the.
Speaker 1 (05:10):
Time, got it?
Speaker 2 (05:11):
Okay, February is up like fifty six percent of the time, So.
Speaker 3 (05:17):
Anywhere from sixty to seventy five on some of those other.
Speaker 2 (05:20):
Months, correct? I mean, you know, as bad as September is,
December is by far the best, up seventy six and
a half percent of the time historically, and very infrequently
do markets actually moved down. But again, this this measure
doesn't tell you anything about the size of the move.
It could be up by barely one tenth of one
percent and accounts towards the positive. But that piece. You
(05:42):
know that that piece of September being bad is just
just like selling May and go away. I've never found
it to be terribly helpful information because what this points
out to you is, Okay, yeah, if you sold every
September going back to one hundred years, which no one's
been investing for one hundred years, then you would have
missed out on some pretty ugly moments. But if I'm
sitting here now on the first trading day of September
(06:04):
and trying to decide what do I do with my money,
let's a coin toss as to whether I'm not I'm
going to earn money this month based on the historical averages.
So what do I do with that information? I guess.
I guess the overall bed is don't try and fight
the market, because the market usually, just like the house market,
usually usually returns positive for you over the long term. Sure,
(06:25):
So where do you want to start, Paul, Because there
is a fair bit to get to. I guess the
most significant would be, we do have that job's report
coming in on Friday of this week, and so let's
start there before we go on to the craziness in
the courts and what's going to happen next on trade.
We have a jobs report expected for Friday of this week.
(06:47):
What I find remarkable is just how stable the labor
market has been over the course of the last year.
You have basically not moved more than a tenth of
a percentage point on the unemployment rate. It's been sitting
there right around four point two percent. The biggest news
that we have right now when it comes to jobs
were the revisions that were made resulting in the firing
(07:09):
of the head of the Bureau of Labor Statistics, where
you know, it basically was shown during the spring months
here that we created very few jobs. The unemployment rate
didn't really tick up for a number of other factors
that we can talk about, but we created very few
jobs over the course of I think it was April,
May and June. And so the question becomes, hey, you know,
(07:29):
we saw some decent numbers in July, but our company
is now feeling stable enough after the you know, admitted
craziness of the spring, with tariff uncertainty and all sorts
of question marks about rates and where things were going.
Are we settling into an equilibrium now where companies do
feel comfortable hiring They understand what the new tax package
(07:52):
looks like and how quickly they can deduct some expenses
when it comes to hiring and research and development, and
just saying let's power through with whatever hiring plans we
put on you know, put on hold earlier this spring.
Speaker 3 (08:03):
Yeah, Ja Powell and his recent speech in Jackson Hole.
The reason why markets had jumped so enthusiastically, what was
that last yeah week and a half ago was mentioning
that he they may cut interest rates in the month
of September. And the reason that he mentioned that was
a weakness in the labor market, a potential weakness in
(08:25):
the labor market. And really that's why this report will
be so critical is because, like you mentioned, we'd had
significant revisions to May, June, and July's numbers were pretty
light too in terms of jobs that were created. But
really the focus here coming up for Friday is last summer,
we were heading into a fall where the unemployment rate
was sitting around three and a half percent. We saw
(08:47):
it ticking up by more than a half percent, and
there was this concern that typically with labor markets that
they don't just move in plateau somewhere, they just it
kind of becomes a snowball effect and continues to sort
of bleed over what happened. Just like we were talking
about before on coin tosses, it did plateau the unemployment.
It has plateaued at four point two percent or in
(09:07):
and around that level for really the last year or so,
minimizing the concerns that we had in the fall last year.
Where we sit today a similar position in this idea
that you hear a lot of sentiment conversation about this
idea that new graduates had a lot of difficulty in
May and still continue to have a lot of trouble
(09:28):
finding new work. You also have the labor supply piece
that's being disputed a lot that perhaps some of these
crackdowns on immigration is leading to just a lesser population
of workers available, and perhaps that is really hiding what
is going on under the surface in terms of employment numbers.
So any data that we can get here that points
(09:49):
to one direction or another weakness or strength coming up
on Friday is something that the market's going to be
really focused on, because it's really this report, the labor
report that we'll get on Friday the fifth, as well
as the inflation report that I believe is the tenth
or eleventh. That are going to be the two most
critical economic pieces of data that we'll get before the
Federal Reserve meeting on the sixteenth and seventeen.
Speaker 2 (10:11):
It's the eleventh, by the way, the inflation report. I
guess you know. For expectations here, consensus estimates seventy five
thousand jobs created for the month of August, unemployment rate
to tick up slightly to four point three percent. If
you get anything between I would say zero and one
hundred and fifty thousand jobs created, then the Fed is
(10:32):
going to continue right on its current trajectory. I don't
think any of that stuff would move it from its
current path. The interesting question to me is always, okay,
how could this surprise? Well, if you get a couple
hundred thousand jobs created and that unemployment rate sync to
four percent, those could be I mean, obviously, if that happens,
that's a great news story about the economy. It means
(10:52):
the companies are feeling confidence enough to hire again. It
also means that you would have some fierce debate within
the FED as to whether or not they should be
cutting it's into an environment like that. Let's take a
quick break when we come back the breaking news from
Friday afternoon surrounding President Trump's attempted tariffs. So that's next
here on the Financial Exchange.
Speaker 1 (11:11):
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Speaker 2 (12:18):
All right, so big news of the day is in
fact the breaking news from Friday when it came to tariffs,
and I do feel as though a step back in
some context is important with this because it's confusing. There's
been a number of court cases surrounding it, and we're
talking about a bunch of different tariffs under different rules.
So first things first, the tariffs that were ruled to
(12:38):
go on here specifically are what's referred to as IEPA
I EEPA. That stands for the International Emergency Economic Powers Act.
It was of nineteen seventy seven and effectively allows the
president to regulate international economic transactions, imports, sanctions, restrictions, etc.
(13:01):
Following the declaration of a national emergency in the United States.
So that is the act under which the President has
been has been imposing. Most tariffs that we've talked about
on this program, whether it's Canada, Mexico, China, all of Europe,
the big sweeping tariffs country by country were announced and
(13:24):
moved on based on this power based on this act
from nineteen seventy and the.
Speaker 3 (13:28):
Two emergencies that have largely been cited are trade imbalance
and the fedenyl crisis.
Speaker 2 (13:32):
Correct, those are the two, and that's been a lot
of the tariffs that we've been discussing Separately. The president
has been using pretty well established powers that many presidents
have used around national defense and other sections in order
to Sorry, the watch just started yelling at me problems
(13:54):
that we didn't have ten years ago.
Speaker 3 (13:55):
Thought Tucker was piping some music.
Speaker 2 (13:58):
Separately, the tariffs on things like steel, aluminum, autos, and
auto parts are more national security. Those are pretty well
established and a process that the president has used that
many other presidents have used in the past and East
in twenty eighteen and President Biden did. Many others have
used that process. So what has been ruled on on
(14:21):
Friday is the second court panel to rule against the administration.
The first time they did so was May twenty eighth
of this year. The US Court of International Trade. In
that case ruled that the tariffs were illegal because the
declared emergency lacked a rational connection to the imposed trade measures. Basically,
(14:43):
you're saying it's a fenanl crisis, but there's no attachment
from that to the tariff rate that you used country
by country. This time, a full Federal Court of Appeals
heard the case, and they've been hearing it now for
the last month or more, and this eleven eleven judge
panel ruled seven to four that these tariffs are illegal.
(15:05):
They put a deadline here for October fourteenth, which who
knows that could be extended to give the White House
time to appeal to the US Supreme Court, because that
is ultimately where this was always going to land in
all likelihood, and where the President and his advisors wanted
it to land initially.
Speaker 3 (15:23):
So the tariffs are going to stay in place least
until October fourteenth, worth mentioning.
Speaker 2 (15:29):
So a lot of context here. First thing quote from
President Trump. If a radical left court is allowed to
terminate these tariffs, almost all of this investment and much
more will be immediately canceled. So let's briefly talk about that.
I mean, the makeup of this court is definitely different
than the US Supreme Court, and this is not trying
(15:52):
to get political at all. You talk about appointments from
Republicans versus Democrats on the US Supreme Court, different leaning here,
presumably the eleven court panel. The eleven judge panel consisted
of five Obama appointees, two Biden appointees, one Clinton appointee,
two Bush appointees, and one Reagan appointee. So zero Trump
appointees on this eleven judge panel. In addition, I guess
(16:15):
what would contradict the political piece of this, though, is
that in terms of the seven to four vote breakdown,
the four who voted in favor were comprised of two
Obama appointees and two Bush appointees. So again, I'm not
sure what that really reads in terms of how the
US Supreme Court goes on this, but I guess I
would say there's been a lot of deference to executive
(16:38):
power by the US Supreme Court over the course of
the last few years, and so in spite of where
this went, I guess I wouldn't be shocked if the
Supreme Court upheld the President's goals here or largely upheld
them when it comes to tariffs. But let's play there.
We kind of know what that looks like, right if
they uphold it, Yeah, it's status quo. We know what
(16:59):
the the tariffs have been generating in revenue, We know
how countries and companies have been reacting. I suppose if
the US Supreme Court upholds it, there is probably more
likelihood of companies finally raising prices because I will cover
it later, but I get the sense that a lot
of companies have been hesitant to do so with the
looming threat of these lawsuits ongoing. But let's say the
(17:21):
US Supreme Court actually goes in the other direction and
overturns this. We don't have time to get into all
of it, but a lot of things change immediately, and
the bond market's kind of reacting to one of those
significant changes this morning. I think.
Speaker 3 (17:33):
Yeah, one of the big issues that you'd have is
this idea that you'd have to refund all of the
tariffs that were collected over the last what's it been
five months or so, over one hundred billion dollars, and
that number just keeps rising as the months tick along.
So that is extremely headache to even try and figure
out how that would unfold. And then you do have
(17:56):
from a geopolitical standpoint, it is a bit of egg
of egg on face for the United States. I mean,
it's it's it's diplomatic foreign embarrassment is mentioned. I think
that was luttin ITX quote on it, and there's no
question about it. This is it would just be incredibly
confusing and a circuitous roundabout to get nowhere if that
(18:18):
were the case. From an economic policy perspective.
Speaker 2 (18:21):
So on the yield side of things, again on the
idea that a whole bunch of cash would need to
go from the US Treasury back to corporations who have
paid tariffs. You do have yields moving up a little
bit in early trading. You did have the thirty year treasury,
for example, touch four point nine to seven percent. It's
come down a little bit, but even the more oftenly
quoted ten year treasuries moving up about point zero four
(18:45):
percent right now after it's been kind of falling over
the course of the last month. You've seen mortgage rates,
et cetera come down. That's been one immediate effect of
this court ruling is some investors saying, Hey, what exactly
is going to happen next when it comes to these tariffs,
and what would it mean for companies to suddenly get
a huge refund of tariff tariff fees that they have
(19:07):
tariff taxes whatever you want to call them, tariffs that
they have been paying to the US Treasury over the
course of the last five months. So a lot to be
worked out here. Will be continuing to cover this story
kind of throughout the show because it permeates into just
about every corporate decision that's being made right now. But
we got to take a quick break. Wall Street Watch's
coming up next to.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFFE 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):
Well Septembers upon us in markets today are selling off
amid more tariff confusion after appeals court struck down the
Trump Administration's reciprocal tariff's leet last week. Investors are also
awaiting a court ruling on whether Trump's bid to fire
FED Governor Lisa Cook is legitimate. On top of all that,
we have a jobs report later this week. Right now,
(20:23):
the Dow is off by six tenths of one percent,
or two hundred and seventy seven points lower, SMP five
hundred down over eight tenths of one percent or fifty
three points lower, and the Nasdaq down by about nine
tenths of one percent or one hundred and ninety one
points lower. Russell two thousands down by six tenths of
one percent. Tenure Treas reeled up three basis points today
(20:45):
at four point two six five percent and crude oil
up about one and a half percent higher, trading right
at sixty five dollars a barrel. According to The Wall
Street Journal, activist investor Elliott Investment Management has built a
roughly four billion dollar steak in Pepsi and plans to
push the beverage in snacks company to make changes to
(21:05):
boost its sagging share price. Pepsi's market value was shrunk
to about two hundred billion dollars, more than twenty five
percent drop from a peak of two hundred and seventy
billion dollars back in May of twenty twenty three. Pepsi
shares are up by two percent today. Meanwhile, craft Hins
confirmed earlier reports that it would split into two publicly
(21:26):
traded companies through tax free spinoff, Berkshire Hathways. Warren Buffett
told CNBC this morning that he is disappointed in the
craft Hiinds split, as Berkshire was behind the merger back
in twenty fifteen. Craft shares are down by five percent. Elsewhere,
shares and Signat Jewelers are up nearly one percent after
its report. After it reported better than expected second quarter
(21:49):
results and also upped its full year earnings guidance Constellation brands,
retreating six percent after the Modello and Corona beer Brewer
cut its full year guidance, and shares in gold miner
Numont climbing one percent after the precious metal hit a
fresh record high. I'm Tucker Silvan. That is Wall Street Watch.
Speaker 2 (22:11):
By the way, Paul, one more thing on the court
that ruled against the Trump administration when it came to
the teriffs. It's usually a twelve judge panel. Do you
know why it was only eleven who ruled on it.
Speaker 3 (22:23):
Yes, there's a ninety eight year old who's still fighting
to be able to be in the mix and has
to go over a cognitive assessment before she can get back.
Speaker 2 (22:31):
On and refuse to participate in the cognitive assessment in
her neurological tests. I do. I'm laughing a little bit.
It's not funny. There shouldn't probably be a ninety eight
year old sitting on a federal corps. The Court of
Appeals panel would be personal opinion. You know, I'm sure
others have different opinions, but I do like to see
when things are actually working properly, Like, okay, yeah, you're
(22:53):
refusing to step down, you're refusing to be assessed by this,
We're at least not going to allow you to rule
on big k like whether or not tariffs can exist.
I like that. I like that approach of Okay, you know,
we won't make you resign, but you can't do your
job either until you actually get your neurological assessment. As
a ninety eight year old, that seems very reason.
Speaker 3 (23:14):
Even Buffett is stepping down at the end of year
at ninety five.
Speaker 2 (23:17):
Right, So you know, I get that there are no
terms for these types of judges, but you know, maybe
some maybe some important things here, like neurological tests, are
proving to play out properly. So I want to stay
on the topic of trade for a moment here, because
this is not earth shattering. Earth shattering would be the
Supreme Court overruling the Trump administration on this. But it
(23:39):
does change the name of the game once again a
little bit when it comes to tariffs. So I want
to think of this both in part of our trade partners,
so foreign countries and their negotiations with the Trump administration,
as well as from a US corporate perspective. Where do
you want to start, Paul.
Speaker 3 (23:55):
Let's start on the corporate side of things.
Speaker 2 (23:57):
Yeah, so these companies who are subject to importing, and
you know, some are, some aren't. Like Meta is not
really affected by this one way or another. And in fact,
you could make a pretty good argument that most of
the Magnificent seven is not really affected by this at all.
Amazon to some degree, but you know, they're really just
(24:18):
passing through any of those costs to sellers on their
page rather than them being subject to it themselves.
Speaker 3 (24:24):
Potentially, you can make the argument on Meta and Google
they drive most of their revenue from advertising, that perhaps
as a result of this cut back on ad budgets.
But yeah, that's a you know, it's not direct impact.
It's not direct impact.
Speaker 2 (24:36):
And so but let's take the perspective of you know,
grocers and any big company out there, how do they
approach all of this? And I think it really divides
out between a large company and a small company because
if I'm a big company like Walmart right now, I
am probably doing everything I can to just manage the
(24:58):
cost of these terrorifts, even if it means losing money
on certain products for a short period of time. I
want to probably hold the line, gain market share, and
stand out even more compared to the big lots and
those other smaller retailers that can't afford to do that,
because you know what, I'm paying all these tariffs, and
(25:19):
if I'm Walmart, I at least have to be saying, Okay,
maybe a twenty five percent chance all of these get
reimbursed to me at some point, and I've got the
cash to be able.
Speaker 1 (25:27):
To do this.
Speaker 2 (25:27):
Why not?
Speaker 3 (25:28):
Right right?
Speaker 2 (25:29):
Like one in four, one in five? What are the
odds that happens. I don't know how to price that,
but certainly somebody in the executive team there is saying, Okay,
we're gonna pay these tariffs, We're not gonna raise prices,
and we're gonna cross our fingers and maybe we get
them all reimbursed to us later this year.
Speaker 3 (25:42):
And I think it's a little bit of a balancing
act that, yeah, we'll pick up and eat some of
the costs on some of these tariffs. But I was
talking with someone over the weekend who had worked on
the board at Decker's, the shoe brand company, and I
was asking, no longer as active, but I was just
asking what are they doing from a business perspective, And
he was saying that twenty million of their shoes get
imported from Vietnam, and I said, well, who's paying for
(26:06):
import He's like, we're They're sticking it a lot on
the supplier. Right now, the supplier is eating a lot
of that tariff costs because of the negotiating power that
they have. Hey, it's twenty million shoes of volume, you know,
we'll find elsewhere. And I think that to a degree,
Walmut and others are doing the same thing. Yeah, maybe
they're eating some, but they're also telling the supplier that, hey,
we give you so much volume on a yearly basis
(26:28):
a way to find a way to make it work.
But the point that he made to me, he said,
the longer this goes on, though, that's not going to
happen the suppliers or Walmart to the same degree. And
this is a point that's been made by many people
out there. You get six months past this, you can't
do that balancing act anymore.
Speaker 2 (26:45):
So.
Speaker 3 (26:45):
For the bigger companies, to your point, their leverage and scale,
you can lean on that, or you can lean hard
on suppliers. The problem is when you're a small to
mid sized business. And that's what I worry about with
these tariffs in general, is that does just too much
of the value accrete to these laws. Large players that
the Walmart and Targets of the world have an easier
ability to not increase their prices as much because they
(27:07):
have bigger muscles to flex in terms of supply chain diversification.
Speaker 2 (27:11):
And I'm not even talking about tiny companies right Like
I think about five below, I think about there was
just a really discount off brand retailer right around here
that declared bankruptcy a few months ago. I think I
got rejected by the judge. I don't remember the name
of it at home. Like these other retailers that import
everything they sell and do not have the deep pockets
(27:32):
of Walmart, probably have little choice but to say, I
mean the choices that they do have. Try and go
raise money. You borrow a bunch of money and hope
that you get your terrorists reimbursed and you can pay
back that loan. You can raise prices, you can try
and disrupt your supply chain in some meaningful way, but
good luck. I mean, so is everybody else right now.
(27:55):
And so I think about these other companies, and the
net result that I can view is I don't see
bankruptcies across the board. But I can see a case
where the giant guys Costco Walmart just target to a
lesser degree, get stronger, get more market share, and are
left in a better operating position, whereas you know, forget
(28:15):
about your mom and pop. Like, those guys are no choice.
They have to raise prices, and hopefully they have more
pricing power than Walmart would to be able to you know,
stay in their communities and be those small businesses. I
just think of all the like you know, go drive
down through downtown need And where we broadcast our show
for there's you know, eight or nine of these Nickknack
type stores with clothing and collectibles and all sorts of stuff.
(28:39):
Maybe not collectibles, but you know what I'm talking about,
like gift stores of some sort or another that probably
import most of their stuff. You have no choice. You
raise prices right away because you're not carrying fifteen billion
dollars worth of cash on your balance sheet to go
pay the terraffs and then hope that they get reimbursed
down the road. Yeah.
Speaker 3 (28:56):
But like this Wall Street journal piece highlights, you know
a company that may copper tubs out of North Carolina.
It's just another example of a smaller midside business where
they're selling into Home Deep Ow and Lows and they
don't have the ability to really there's this tug of
war that Home DEEPO and Lows don't really want to
increase prices that much. So you leave the smaller company
(29:18):
in a very precarious position where their biggest buyers probably
Home Deep Ow and Lows, and all of a sudden
they're in a very tough margin spot with that.
Speaker 2 (29:26):
When it comes to other countries and their negotiations with
the United States, I think all you hear for the
next several months is delayed, delayed, delay.
Speaker 1 (29:35):
Yeah.
Speaker 2 (29:35):
They won't say that publicly, obviously, because then you're going
to get a whole bunch of backlash from the Trump administration.
But if you are the Canadian negotiators or the European
negotiators right now, you're not gonna sign some sort of
tariff deal that you then have to put through your
own Congress to get signed and approved. Remember that most
(29:56):
of these other countries are not negotiating these things with
the same emergency powers that the Trump administration is, so
anything they sign has to go back through their legislature.
And so I think we see more of what we
saw from India, we see what we've seen from many
other countries here where there's not a lot being said.
There's occasional outbursts here and there, there's occasional announcements here
(30:20):
and there, but generally speaking, a lot of them I
think are going to be looking at this and saying, Okay,
pay whatever we have to pay for now, deal with
whatever backlash we have to deal with, but do not
execute an agreement until we know that the administration actually
has the power to impose these terrorists over the next
few years. Because it's very much in question this morning
in a way that it was not so much on
(30:41):
Friday morning.
Speaker 3 (30:43):
Yeah, and I don't think we really know what the
timeline is for that. Right, we have to decide whether
the Supreme Court will hear the case.
Speaker 2 (30:50):
Well, whether they hear it as an emergency yep, or
could this be on the twenty twenty six docket, right,
big unanswered questions, and then what happens with the you know,
the imposition and collection of the tariffs in the meantime
If they do say no, we're not hearing this until
twenty twenty six, huge unanswered questions here, We've got to
take a quick break. When we come back, I want
to talk more about that upcoming FED meeting. We've got
(31:13):
the continued stories being written about the Fed's independence and
what it means. That's that's next here on the Financial Exchange.
Speaker 1 (31:20):
Thanks to us six one, seven, three, six, two thirteen
eighty five with your comments and questions about today's show,
and let us know what you think about the stories
we are covering. This is the Financial Exchange Radio Network,
breaking business and financial news first throughout the day, only
here on the Financial Exchange Radio Network.
Speaker 2 (31:48):
So taking a back seat to all of the tariff
uncertainty is the uncertainty at the Federal Reserve right now.
But a few things have happened over the course of
the last few days. One, just to update folks, the
President has moved to fire sitting FED Governor Lisa Cook.
This is over allegations of mortgage fraud that was allegedly
committed in the twenty twenty one twenty twenty two time frame.
(32:10):
Cook has now sued to block her removal. There's been
an open letter from I think two hundred and fifty
professional economists basically writing in favor of Lisa Cook and
discouraging the President from taking this action. I've made my
opinion on this pretty clear, like, if she actually did this,
I do think she should resign. I also think it's
(32:32):
a pretty open question as to whether or not the
president has the right to remove her over something like this.
I think those are two different things. Like, you commit
mortgage fraud and your job, at least in part is
to oversee banks, you shouldn't be there, and you probably
wouldn't have passed through Senate confirmation had they known about
this stuff at the time. But a separate question is
(32:52):
can the president remove somebody for something like this if
it ends up being if the allegations end up even
being true. I think that piece is all open question
to me.
Speaker 3 (33:02):
And the crux of it is her declaring she had
two primary residences.
Speaker 2 (33:07):
To get cheaper mortgage rates, which is so dumb for
anybody to do. Don't do that, and definitely don't do
that if you are on the cusp of a Senate
confirmation hearing. I don't know if she was appointed at
the time, et cetera, et cetera. The bigger question to me, though, is,
let's assume that the president's successful and he can remove
her for this cause it would seem to me to
(33:29):
be a pretty easy line then to say, well, why
can't I fire Powell for his misconduct when it comes
to overseeing this building project or his failure to prevent
nine percent inflation in twenty twenty two. I know that
this is a crime that she's being accused of and
the other stuff is not. But that's the concern by
(33:50):
legal experts is okay, Well, where is that line and
will it be definitively drawn by the courts if President
Trump is successful in removing Cook, will they really fine, like, yeah,
this is cause and this is not cause, And my
guess would be no generalick quartz, don't do that. They
generally say, yeah, this time it was, and we'll let
you know next time. And that would leave a fair
(34:10):
bit of uncertainty out there when it comes to what's
next for the Federal Reserve and it's voting members.
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Speaker 2 (35:26):
Paul, we were just talking about the FED, It's independence,
the president's ability to remove sitting governors of the FED.
I want to talk about why we think it matters.
Right for most people listening, I have to imagine you're
listening right now and saying, so what, Yeah, I wasn't
affected when he removed the Commerce secretary. Why do I
(35:46):
care if he's able to remove a sitting FED governor.
So let's spend a couple minutes on that, because it
is important. The FED is different, And what I will
just briefly say is that every president, Republican or Democrat,
if they actually are pinned down and asked, would want
(36:07):
lower rates. Yes, just plain and simple. You want lower
interest rates if you are the sitting president, because it
makes it more likely that stocks could rally, It makes
it easier for business to take place, It makes it
easier for people to purchase homes with cheaper mortgage rates.
You want lower interest rates even if inflation is, you know,
(36:29):
getting out of control, because you just don't know where
it's going to go next. And the one thing you
know is that if interst rates come down, historically, a
lot of things have done pretty well in terms of
asset price.
Speaker 3 (36:39):
Lower barring costs, more equals more consumption. More consumption equals
more economic growth, all positives for anyone in office.
Speaker 2 (36:45):
So we've pretty much established that any president would want
lower interest rates. The problem is that's not always appropriate.
And the reason that the FED is successful, or at
least has been in modern history at combating inflation with
some pretty big you know, caveats twenty twenty two being
one of them, the nineteen seventies being another. Is that
they have this threat of we don't care who the
(37:08):
president is, we don't care when the elections are going
to be. We are independent from all of that, and
if we need to, we will send this economy into
such a disastrous recession that we won't have to worry
about inflation anymore. Right, That's the threat, that's the underpinning
threat of the FED is if inflation gets out of control,
then we're gonna basically make a bunch of people unemployed,
(37:30):
put a bunch of businesses out of business in order
to control that inflation environment. And the mere threat of
them being able to do so is usually enough to
control inflation.
Speaker 3 (37:42):
Right. Important to note, like you said, two main responsibilities
the FED controlling and dictating monetary policy keep inflation low
and keeping unemploymental though. That's what their job is, and
to your point, sometimes they have to be the one
that takes away the punch bowl party and be the
bearer of bad news or take steps to really squeak in.
Speaker 2 (38:05):
Without that independence, you remove some of that safety net
of somebody willing to take away the punch bowl, and
the concern would be run away inflation and all sorts
of other big issues for the economy. Quick break, but
a lot more to cover in the second hour. Will
be right back
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