December 2, 2025 • 39 mins
Mike Armstrong and Marc Fandetti discuss the divided Fed can't agree the future of rate cuts. Why Kevin Hassett is winning the Fed Chair race before it has ended. Here’s why everyone’s talking about a ‘K-shaped’ economy. Bitcoin rout picks up steam as investors fret over a new ‘Crypto Winter’. World economy surprisingly resilient to tariffs, OECD says. Costco files suit against Trump admin over tariffs.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(00:20):
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(00:43):
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Welcome back to the Financial Exchange. Happy Tuesday.
Hope everyone is if you're getting snow, staying safe, not
riding the tail of any plows out there, or trying
to pass them while they're while they're doing their jobs.
Here closer to the Boston area, we are getting precisely
zero snow, so quite the disappointment here in need them Massachusetts,
(01:32):
where we broadcast our show for disappointment.
Speaker 3 (01:34):
Is that the word you chose?
Speaker 4 (01:36):
Yeah? Interesting choice.
Speaker 2 (01:38):
I will I've said this over and over again, Tucker.
I will gladly take a foot of snow over top
thirty six degree rain any day of the week.
Speaker 4 (01:49):
Any day of the week, that's crazy, Yeah, any day
of the week.
Speaker 2 (01:52):
Driveway I snowway, all right, so you.
Speaker 4 (01:57):
Know, I you walk the walk. I can deal with
these things.
Speaker 2 (02:01):
I have also occasionally been away and not done and
have that nice frozen slop on another driveway. But nonetheless,
I hope everyone is being safe out there. For those
who are getting some snow. We are officially disappointment disappointed
here on the Financial Exchange, although Tucker seems to be
doing all right with it.
Speaker 4 (02:18):
A Sam Altman has issued a code you.
Speaker 5 (02:21):
Don't have a sorry, too much info. Maybe your commute
is shorter than some people.
Speaker 2 (02:25):
Yeah, my commute is considerably shorter than the average America.
Speaker 5 (02:30):
That would color your view.
Speaker 2 (02:31):
Of it, would of snow, Yeah, it definitely would. I
am very spoiled on that front. The the let's say,
founder CEO both of open Ai, the maker of chat gpt,
is issued a code red across the board, so we'll
be discussing what that might mean for chat GPT, the
AI sector.
Speaker 4 (02:51):
Generally. We have got.
Speaker 2 (02:54):
Outlets once again calling it crypto winter, and Tucker, I'd
love for you to be able to pull some stuf
on that, but I feel like it's probably been described
as crypto winter at least five times in the last
seven years, would be my guest, So new crypto winter
might be upon us here according to media. And before
all that, though, we're going to start off with a
Federal Reserve because in eight days we have a FED
(03:16):
meeting with a bunch of seemingly divided and confused Federal
Reserve members on where to go next. So that's our
top story of the day mark and we will start
right there with the Bloomberg piece that the FED has
rarely been so divided over its long term plan for
interest rates, and I suppose you could describe that as true.
But the division is pretty clear. There are a number
(03:38):
of either Donald Trump appointees or those who are going
for the role of a Donald Trump appointee, who are
pretty strongly in favor of dramatically lower long term interest rates,
and then you have pretty much everybody else.
Speaker 4 (03:53):
And I think what it will be interesting is does
this division.
Speaker 2 (03:57):
Remain after there has been a pick for the excuse me,
chairman of the Federal Reserve going forward, because right now
I think there's a fair bit of posturing about what
people are saying publicly versus actually believing.
Speaker 5 (04:11):
Everything's with respect to monetary policy, it's in complete disarray.
I've never seen or read about anything like it in
the modern era. And it's in disarray because the president
wants to control the Federal Reserve, so he's upset the
traditional calculus that goes into the FED trying to strike
a balance between inflation and unemployment. If you keep in mind,
(04:32):
the Fed's job is to act like the economy's thermostat,
to cool it down when it's running too hot and
there's too much pressure on prices, i e. Inflation is accelerating.
The Fed's job is to cool down the economy under
those circumstances or to stimulate the economy, which it does
through its main policy to lowering its federal funds rate,
(04:53):
it's short term interest rate target when labor market conditions
appear to be weakening, which they do, by the way,
So there's an argument for low wearing rates, but not
as aggressively as the President wants them lowered, and as
his appointee to the Federal Open Market Committee, the body
that makes the interest rate decision, wants to see them lowered.
(05:14):
So it's it's it's a really weird combination of factors. Mike,
you've got the labor market is you and Chuck talk
about a lot? It is weakening. So there's an argument
for cutting rates, But there are people who want to
cut rates by frankly absurd amounts that are not called
for by any type of clearheaded thinking about the economy.
Speaker 4 (05:34):
So what do we consider it to be longer run?
Speaker 2 (05:35):
Because we obviously have the dot plot and the dot
plot for those who are unfamiliar at.
Speaker 4 (05:42):
Is it four meetings a year they do the dot plot.
Speaker 2 (05:44):
The summary of comers every other meeting, every other meeting,
so roughly, yeah, roughly for a year they put together
these projections for longer term rates, and so I'm looking
at it right now. You can look at it to
on the CME group website among other places, and they
plot out every Federal Reserve member's viewpoint on rates going
(06:04):
from twenty five through twenty twenty eight and then what
they describe as longer term. And to be fair there
there does seem like a fair bit of division. When
you look at this. You have one Federal Reserve member
by twenty twenty seven thinking that interest rates should be
below two and a half percent. You've got two Federal
Reserve members that believe they should be nearly four percent.
That's a pretty wide divergence. But I guess my question
(06:25):
is are we is this getting to publicized because when
I look at this dop plot, yeah, it's you know.
Speaker 4 (06:34):
Between four and two and a half percent. That's pretty
extreme number.
Speaker 2 (06:37):
But is that truly so outside the norm for the
Federal Reserve to have FED members saying that you know,
one member thinks that they should be rates should be.
Speaker 5 (06:47):
It is it is unusual historically spaking?
Speaker 4 (06:49):
Yeah, yeah, and it's much more narve.
Speaker 5 (06:51):
But we know that the we know the reason for
the president's putting prey. You could say you think this
is great. You could say you think it's sure a
tragedy for independent monetary policy and for stable inflation. I
fall in the ladder, can't. But again, honest people can
sort of disagree. There are some people who think politicians
should directly control the money supply and therefore interest rates everywhere.
That's been tried, though it's led to very high inflation
(07:13):
and economic instability, because you can't if you're a politician.
You have to succumb to the temptation to stimulate the economy.
Speaker 4 (07:21):
Which means lower interest rates, which you know.
Speaker 5 (07:23):
No politician is going to pound the table for higher
interest rates.
Speaker 4 (07:26):
You don't get.
Speaker 5 (07:29):
What sane politician would call for recession to squelch inflation.
Speaker 4 (07:33):
Nobody would.
Speaker 5 (07:34):
They've they've tolerated it historically in the modern era. But
even then there's there's been a lot of buying the
scheme behind the scenes, brawling and pressure put on the FED.
So I understand those who think rates should be relatively high,
I mean relative to the average f o MC measure,
because inflation remains elevated, and everybody listening knows that prices
(07:55):
have not come down. That's not the president's fault, by
the way, that's not necessarily the feds fault. Prices have
not come down in the modern era. And when I
say I keep using the phrase modern era, I just
mean mostly since World War Two, with a couple of
very brief exceptions that were characterized by dramatic and nauseating
economic contractions. Prices don't fall anymore. They used to under
(08:17):
the old gold standard because there were other considerations there
that that that that dictated the inflation rate. So prices
price growth inflation is somewhere in the mid two s
to mid threes based on three based on trend may
that's fine because that's actually where the last reading was
year over the year, And if you're going to call
(08:38):
it three, you have to say that's elevated because the
Fed's goal is two, which it has not met in
like ages for the for nearly a decade. So it's
odd that anybody would argue for aggressively lowering interest rates
unless you think the economy is about to fall off
a cliff.
Speaker 2 (08:52):
Right, And that is not the opinion that those who
are seeking the leadership role are voicing. They are not
opining that the economy is about to fall apart. They
are merely saying that rates need to be lower in
order to continue the economics.
Speaker 4 (09:05):
And this makes sense, right.
Speaker 5 (09:06):
I think you don't have to be like a monetary
policy officionado to recognize that. If normally when you're calling
for much for aggressive monetary stimulus, it's because you're really
worried about the economy. There are in the area of
floating exchange rates when you don't have to worry about
the value of the doll FED doesn't worry about the
value of the dollar anymore like it used to pre
(09:27):
nineteen early nineteen seventies. The only reason you'd call for
dramatically lower exchange rates abruptly is that you think the
economy is in big trouble.
Speaker 2 (09:37):
Moving on from the longer term disagreements, can we focus
in on the meeting in eight days, because I thought
that this was a little bit silly, but I'm kind
of coming around to the argument that they should just
delay this meeting. I don't really see the Yeah, just
genuinely here, you do not have any economic data on
the state of the economies since September.
Speaker 5 (09:56):
Oh, and so the action you meet, Yeah, delay the action,
not the meeting, but just say, look, we're gonna You.
Speaker 2 (10:01):
Could just say, hey, we're having our meeting and we're
not going to do anything until a week later when
we determine what the hiring pace was for October and November,
until we determine what the inflation rates were for October
and November. Not that that should be the end all
be all of what's driving you your monetary policy, but
it just seems to me that there's really a no
(10:21):
win situation for the Fed here as they are trying
to assure the general public that they know what they
are doing. Any decision you make at this next meeting
is going to be made in a blanket of uncertainty,
and so why make a decision?
Speaker 4 (10:40):
There's always that Unusually.
Speaker 2 (10:42):
Yeah, this all comes from the government shut down. By
the way, they did not get any data releases. The
data releases that we're getting right now reflect collections from September,
which are, in my opinion, irrelevant to what we are
seeing right now, and so you will get a whole
slog of data in the week after the Federal Reserve meeting,
and so I'm just envisioning this scenario where the Fed
(11:03):
decides to continue on their current path, which would be
for another quarter of a percent cut, and subsequently you
get an inflation reading that's three point two percent and
hiring rates that are in the two hundred thousand range.
Speaker 4 (11:16):
It would just seem to me that there's no good.
Speaker 2 (11:19):
Reason that you have to go forward with this interest
rate decision in December. So maybe they won't. Maybe they
will just say, hey, we're not doing anything. We're not
cutting rates, we're not increasing rates. But I don't know,
sticking to this schedule just doesn't make a whole lot
of sense to me. Let's take a quick break. When
we come back. We were talking about the K shaped
economy yesterday. The Associated Press is going to answer for
(11:43):
us why everyone and their mother seems to be talking
about the K shaped economy. Now that's next on the
financial exchange, keep talking, go ahead, No, we are not
going to do that next week.
Speaker 4 (11:56):
We talk about going to do it, now, go ahead,
silly computer.
Speaker 5 (12:00):
We didn't talk about Hassett, who's seemingly going to be
the President's.
Speaker 2 (12:05):
Yeah a point the president was asked about his appointment.
Somebody asked him specifically if it was Heavin Hassid. He
did not answer, Yeah, probably has.
Speaker 5 (12:13):
Asset's done a good job carrying water. And I don't
mean that negatively. He's done it. He's been a good,
dutiful head of the National Economic Council, and he's a
respected was a respected acon. He's become more of a
hack lately. But there was a time, by coincidence, I
found his name in the footnote of a paper over
the weekend, written like thirty years ago. So there was
a time when he was a respected, nearly prominent economists.
(12:37):
So at least my point is, at least he can
read a modern paper in economics, unlike the other potential.
Speaker 2 (12:42):
And again I will just point out that he is
a member of an administration now in his job at
least in part is to be the voice of the
president right now, and when he's appointed to the Federal Reserve,
we've seen that change.
Speaker 4 (12:54):
And he could say the.
Speaker 5 (12:55):
Same thing become Thomas Beckett.
Speaker 2 (12:57):
You could say the same thing about Oh gosh, I'm
forgetting her name now. Tucker wants to who is the
previous Federal Reserve chair Jenny Yellen? Jenny Yellen, right, she
joined the Biden administration, and then you started hearing some
things that I was like, Wow, I don't think I
would have heard that from her mouth as Federal Reserve Chair.
Quick break when we come back. K shaped Economies next.
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Speaker 2 (14:20):
So, Mark, I don't know if you have taken as
much notice as Tucker and I have, but major news
publications like.
Speaker 4 (14:26):
The Journal, New York Times.
Speaker 2 (14:29):
Maybe less so in the Financial Times, but CNBC have
been taking up the term K shaped economy with increasing frequency.
Speaker 4 (14:37):
It seems to me it's getting more and more mentions.
Speaker 2 (14:40):
And the AP attempted here to put together some reasoning
for it. They describe what is, in their opinion, unusually
muddy convoluted period for the US economy. They blame consumer
spending still rising, Americans being less confident, growth appearing solid
yet hiring being sluggish, unemployment rates starting to tick up,
(15:04):
AI related data center construction staring, while factories laying off workers,
home sales being weak, And I guess I ask you,
it honestly doesn't seem all that much muddier and more
convoluted than other periods. I would say that twenty twenty
through twenty twenty two were extremely convoluted and muddy.
Speaker 4 (15:24):
Yeah, I think that was.
Speaker 2 (15:24):
A once hopefully once in a lifetime type event, and
the solutions to it proposed by the government were you know,
largely untested and it really really new, and that was
muddy unclear how it would proceed, and you know, we
saw a spike in inflation. When I'm looking at twenty
twenty three through twenty twenty five, I'm looking at an
(15:47):
economy that to me is behaving pretty logically. For one
where all, yeah, yeah, you're seeing government deficit spending at
six percent annualized. You are seeing, right, like we say
it so catchy, right like, it's crazy, an emergency level
deficit we've just become.
Speaker 5 (16:04):
I'm talking about the trade deficit, which is not an emergency.
I'm talking about the budget deficits.
Speaker 2 (16:07):
The budget deficit, yah, the collections of tax revenue versus
government spending.
Speaker 4 (16:13):
We're running at deficit levels of six.
Speaker 2 (16:16):
And at the same time, you have an economy that
is cooling off from the previous record levels of deficit
spending spend during that muddy Water's time.
Speaker 5 (16:25):
I like the K shaped figure of speech. Maybe we
should just like tofine that because people are going to
continue to hear it. If you think of the capital
letter K, it's got one. Uh, what would you call
those things that go off the vertical they kind of
point diagonally. The horns a has one line going up,
(16:48):
one line going down. Okay, well, I'm just but think.
Speaker 4 (16:51):
Of everyone here was thinking of a cursive K, So
I get it.
Speaker 5 (16:54):
It may be, so why do we call the economy
K shape? Well, because, for one coal, let's call it
the top one percent. Even though it's a little bit
broader than that, wages are going up and other measures
of well being are going up. So you would you
would if you were gonna describe the economy and you
tried to do it with one line, you could, but
(17:16):
it would be something with a slightly positive slope. It
would not capture the experience of a big part of
the population. So if you were kind of modeling this phenomenon,
you'd instead model it with two trend lines, if you will,
one pointing up like the upper part of the K,
and one pointing down like the lower part. Because for
the non say top ten percent, death sile of earners,
(17:38):
or whatever measure you're using, things aren't getting better. In fact,
in real terms and inflation adjusted terms, they're getting worse.
So that line points down.
Speaker 4 (17:45):
So I sort of like the visual that that conveys too.
Speaker 2 (17:47):
I'm just I keep going back to how how am
I to make use of VE because I don't think
it's gonna help me predict earnings or spending patterns.
Speaker 4 (17:56):
I've come to.
Speaker 2 (17:57):
The only real conclus llusion I've been able to make
is that some individual businesses might be able to use
it to better understand the spending of their customer base. Right,
if you can accurately describe.
Speaker 5 (18:10):
They're doing this, We're you're seeing businesses pivot to luxury stuff.
Speaker 2 (18:13):
Right, and others try and you know, companies that don't
focus on the luxury spaces for.
Speaker 5 (18:19):
Pete's sake, they only build mansions, right, because on the
margin it makes sense economically.
Speaker 2 (18:23):
I think the other area that it's probably helpful for
is trying to better understand things like sentiment and you know,
voter blocks and things like that. Right, if you looked
at just that median number like you described, and looked
at the economy in twenty twenty three and twenty twenty four,
you'd look at it and say, wages are up, inflations down,
(18:46):
This economy looks pretty good other than the deficit spending.
And yet the sentimentally was case the worst you've seen,
and you had a really compelling election that voted the
existing administry out of office. And I think that and
help in part, helps describe why the K shaped economy
(19:07):
is important. And importantly, I don't think you've seen any
reversal of the case.
Speaker 5 (19:11):
That's not really the shape of the I know the
expression is too widely used now we're not gonna be
able to shake it. But it's not a K shaped economy.
It more describes trends for different groups of people.
Speaker 2 (19:21):
Let's take a quick break. When we come back, market's
rebounding a bit from yesterday's action.
Speaker 4 (19:26):
Will have a full recap for you next with Wall
Street Watch.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 3 (20:00):
After a negative start to the month, markets today are
in the green, led by a rally in tech, where
traders are also monitoring Bitcoin after its recent tumble, Bitcoin
rebounding today and trading right around ninety thousand dollars right now.
The Dow is up by over a tenth of a percent,
or seventy two points higher. SMP five hundreds up two
(20:21):
tenths of one percent or thirteen points. Hired Nasdaq up
six tenths of one percent or one hundred and forty points.
Rusted two thousand also up by six tenths of one percent.
Tenure treasure Field is flat currently a four point one
zero percent crewed oiled down about a third of a percent,
trating right around fifty nine dollars a barrel. According to
(20:43):
several reports, Comcast, Netflix, and Paramount all submitted second offers
for Warner Brothers Discovery assets, while Paramount and Comcast made
improved offers. Netflix reportedly submitted a primarily cash based offer. However,
a Netflix acquisition of HBO Mac could raise concerns among
Justice Department officials. Netflix shares are down nearly one percent,
(21:06):
while Warner Brothers stock is climbing about one percent. Meanwhile,
Apple is shaking up its artificial intelligence leadership, where the
iPhone maker landed a Microsoft executive after announcing the retirement
of its top AI leader. Apple shares are up modestly. Elsewhere,
Developer data platform Mango dB is seeing its stock searched
(21:28):
twenty five percent after posting solid third quarter results. The
company also hiked its full year guidance as booming AI
demand lifted its revenue. Shares Insignette Jewelers falling three percent
after the parent company two K and Zale's posted disappointing
fourth quarter guidance, and Boeing stock is soaring eight percent
(21:48):
after its CFO set at a UBS conference this morning
that the company expects deliveries for both its seven thirty
seven jets and seven eighty seven jets to be up
next year. I'm Tucker Silva and that is Wall Street Watch,
and remember you can watch the show live every day
here on our YouTube page. We'll have breaking business news
(22:10):
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Speaker 2 (22:24):
We're gonna talk a bit about the recent bitcoin route
and Tucker just mentioned it. It's bouncing back today, but
yesterday was off. Big journalists calling it crypto winter again,
which I swear that terms come up.
Speaker 3 (22:37):
I've seen it going back to twenty twenty one.
Speaker 6 (22:39):
That term.
Speaker 2 (22:40):
Yeah, so nothing new for crypto investors in this space.
But for some context here priced in dollars. Bitcoin hit
over one hundred and twenty six thousand dollars per coin
back on October sixth as recently as what's that last week?
Two weeks ago it was at eighty four thousands. Now
(23:00):
it's sitting at ninety thousand. This thing is extraordinarily volatile.
It's down seven percent yesterday, up five and a half
percent today. But I want to start with some basics, Mark,
because we were talking offline about correlations, and specifically correlations
between the S and P five hundred and bitcoin, and
when you look back a decade ago, it was pretty
(23:23):
close to zero. They didn't have much to do with
each other. Today the correlation isn't one. It's not you know,
you don't see it going up in the exact same way,
but they are. The two are much more highly correlated,
And I guess I want to start with what does
that mean for investors?
Speaker 4 (23:39):
And how why?
Speaker 2 (23:40):
And how do asset classes become correlated in the first place?
Is they're a financial theory for this?
Speaker 4 (23:46):
This effect very hard to answer.
Speaker 5 (23:48):
I think both of those questions is easier to point
out that correlations, which just refer to the degree to
which two things move together. It's actually a little more
involved in that, it's the degree to which they depart
from their averages together. So when we say that bitcoin's
correlation with the broad market, using as a proxy for
(24:10):
broad markets, say the S and P five hundred, when
we say that it's gone up, and I use daily
returns in my little internal example, you could use monthly
or whatever period floats your boat. We mean that when
Bitcoin is above its average, the S and P tends
to be above its average, or vice versa. That's just
an empirical, so to speak. Statement. It's just what.
Speaker 4 (24:31):
Happened, and we really last two days are good examples
of that.
Speaker 2 (24:34):
Yesterday you had Bitcoin down percent, S and P five hundred,
nasdak all down around half percent in early training or average.
You've got Bitcoin up five percent. You've got major indites.
Speaker 5 (24:43):
Up early on in its history, and it wasn't publicly
traded early on. Now you've got a lot of vehicles
that allow us to jump in and out, and it's
it's more liquid than it used to be, but early
on it was less tightly related to movements in the
broad stock market. It follows from that if you are
constructing a portfolio, the holy grail is imperfectly correlated asset
(25:07):
classes because it makes for a smoother ride. This is
why your financial advisor says, well, you don't just want
to own big US companies. You want to own a
little international. You want to own some small US companies, you
want own some emerging market companies, you want to own
some bonds. Is insurance that type of thing. So to
the extent that Bitcoin becomes more correlated with major asset classes,
specifically riskier asset classes like equities, like stocks, it's less
(25:31):
useful as a diversifier. That may not matter to you.
You may own it for different reasons, it may not
be part of a diversified portfolio, or you just may
not care. But for institutional investors it does become a problem.
Speaker 4 (25:43):
To me, the correlation is somewhat natural here.
Speaker 2 (25:46):
It has become much more normalized in terms of an
asset class that's investable. To your point, you can pretty
easily invest in mimics of it or public traded companies
that invest heavily in it through public markets vehicles. Yeah,
not really possible at all prior to twenty twenty, and
became even more mainstream in the Trump administration, So I
(26:07):
think the correlation makes some sense. I think leverage plays
a role too, would be. My guess is, hey, when
you borrow to invest in an asset class like stocks
or like cryptocurrency, and if.
Speaker 4 (26:17):
You're borrowing.
Speaker 2 (26:19):
To invest in the two of them, when they move
in the other direction, then your leverage can buy necessity
call you out of positions, and that could be stocks
that could be crypto. So I think that's part of
it as well. But I'll tell you I am once
again getting a lot of questions about it. I was
meeting with somebody yesterday and she felt a little bit
(26:42):
embarrassed to ask, it seemed like. But she was like,
you know, we've got this friend. They just paid thirteen
thousand dollars to attend a crypto investing course, which, boy,
does that seem like a scam to me? And they're
telling me that I had better get used to crypto
and learn a lot about it because by this time
next year, your entire bank account is going to be crypto.
(27:03):
And my jaw kind of fell to the floor, like
that seems incredibly unlikely to me, unless you choose to
go this is do so it's a problem, but there
seems to be just a lot of amous information b
lack of understanding and see get rich quick schemes.
Speaker 4 (27:21):
That's when it comes to crypto.
Speaker 5 (27:23):
And that's different than past booms which had something I
don't know, substantive concrete underlying them. For the with the
exception of you, depending on how far back you want
to go in history, you might cite like the Tula
bubble and say, well, that wasn't exactly concrete.
Speaker 1 (27:37):
Well it was.
Speaker 5 (27:38):
They were trading tulips, they were real physical entities. The
problem with crypto is that it's been around nearly twenty years.
It is yet to find a mainstream use. It's used
mainly by people who want to under money or get
it to Russia or get it to LKA. These are facts.
Speaker 4 (27:54):
Well yeah, in terms of like real uses, but it's
I see two of them.
Speaker 2 (27:57):
It's auspicious uses like you just described, or it's for
speculation purposes.
Speaker 5 (28:03):
Yeah, but in terms of medium of exchange, it's used
mostly by people who are doing illegal things and it
draws in, it draws in schemers. People who have no
background in crypto, like the Trump children, and decide to
get into it. And make three billion dollars in a year.
Forgive me, but it draws in people who want to
get rich quick that gear I would not give that
(28:26):
to me. Is not an attractive way to invest capital
for the long term. But maybe my perspective, maybe you
see that and think, oh, if the Trump kids are
in on it, it's got to be hot.
Speaker 1 (28:35):
I should too.
Speaker 5 (28:37):
I'm not judging that, I'm saying quickly. It's got all
the hallmarks of past things that have ended very badly
for people who didn't get in very early and for
people who are easily duped. Is an unkind word because
it implies you don't know what you're talking about. But
I could be easily duped when it comes to crypto
or AI because I don't fully understand what's going on.
Speaker 4 (28:57):
Therefore I avoid it.
Speaker 2 (28:58):
There's also a lot of financialsay of these things that
have been going on right there.
Speaker 4 (29:02):
There's been these single.
Speaker 2 (29:03):
Stock ETFs that are used to track companies that are
involved in crypto, and many of those have tanked this year.
And then you've got the differences between you know, if
I had to nail down the average American and ask
them to explain to me the difference between blockchain, bitcoin,
and stable coin. I think I would maybe be able
to come up with a reasonable definition of the three,
(29:25):
but I think the average American was drug.
Speaker 5 (29:27):
The fact that we can and I certainly can't, is
a testament to the lack of any practical use for it.
Speaker 4 (29:34):
To this.
Speaker 5 (29:34):
Well, maybe the average American myself included, can't can't differentiate
AC from DC and sure, okay.
Speaker 2 (29:41):
The best use cases that I've heard for it come
from the stable coin piece, right, But that's different, though
very different than cryptocurrency. But a stable coin, you know, effectively,
as far as I can tell, looks to me a
lot like a gift card that you would hold at
one vendor or a series of vendors and make it
make it allowable to make payments very seamless between somebody,
(30:04):
let's call it Amazon. Right, If I am a vendor
and a purchaser on Amazon, I may be able to
store my dollars in a stable coin sponsored by Amazon
and conduct all my transactions via that stable coin, and
therefore avoid the fees charged by Visa. But that has
nothing to do whatsoever with bitcoin, and I think people fail.
Speaker 5 (30:24):
To rerect But as long as the dollar remains a
trusted medium of exchange. There are other functions that a
currency performs. All this focus on that one that.
Speaker 2 (30:35):
Would be the other means of speculating is Hey, if
you think the dollar is doomed, then there are a
whole bunch of ASI classes that look maybe more.
Speaker 5 (30:41):
And there's an argument we talked about correlations earlier. Bitcoin
does when you control for other factors that influence both
Bitcoin does exhibit a negative core. It moves in the
opposite direction on average, and the magnitude is not big,
you might not even detect it. But there is some
evidence in the data, so to speak, that people are
using bitcoin as a dollar at you and that's consistent
(31:03):
with what you hear ATS promoters talk about.
Speaker 4 (31:06):
Let's take a quick break.
Speaker 2 (31:07):
When we come back, world economy seeming pretty resilient to
tariffs and being acknowledged by the OECD. We'll talk about
why next on The Financial Exchange miss.
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Speaker 2 (32:24):
Bloomberg's writing this morning about the world economy being resilient
to terriffs, and I'll acknowledge for a moment that compared
to my expectations on April second, I do think that
the world economy has proven.
Speaker 4 (32:35):
Quite resilient to terriffs.
Speaker 2 (32:37):
But a few things have changed since April second that
you have to acknowledge when trying to evaluate the effects
of all this.
Speaker 4 (32:42):
One.
Speaker 2 (32:43):
On April second, the average effective tariff rate that was
announced was somewhere around forty percent on goods being important
into the United States. We're now sitting between like twelve
and fifteen percent. So let's you know, start off with Yeah,
that's a big increase in the previous effective tariff rate,
but it's a far cry from where we were back
in April two. There's some question as to whether or
(33:07):
not those tariffs are going to be long term, and
so trying to measure the effects of all of these
after you know, barely six months of collections of tariffs,
I think they're seeing a question.
Speaker 5 (33:20):
It's impossible to measure the effects of terroriffs, virtually impossible.
It's very tricky statistically speaking, because you can't hold all
the other stuff. Constant economists are very good at looking
at individual markets. Like the Trump steel tariffs of twenty nineteen.
They cost eighty jobs for every steel job that they saved.
It's very it's straightforward to do that analysis.
Speaker 4 (33:38):
Because five years later, Yeah, it takes.
Speaker 5 (33:41):
Time the study was actually published. Yeah, a couple of
years to get the data. Yeah, but no, you're right,
it takes years.
Speaker 4 (33:47):
It's the point.
Speaker 5 (33:48):
So we're very good at isolating effects when the policy
is sort of limited and targeted this type of stuff,
tariff's on everybody, changing almost day to day, varied amounts.
Very hard to estimate that in the long term it
will reduce growth. There's absolutely no doubt about that. That's
that's pretty well known about tariffs. But don't expect a
(34:09):
big recession or something like that right away.
Speaker 2 (34:11):
Right and the other points too, like that all else
held equal thing is really important. What would the effect
of teriffs be if we weren't spending deficits of six
percent of GDP, if the government weren't pouring money out
there still.
Speaker 5 (34:23):
Well half of that is interest, but yeah.
Speaker 4 (34:25):
Yeah, agreed.
Speaker 2 (34:26):
But you know, if we weren't running those types of deficits,
what would that look like? If the main portions of
the US tech industry were not spending all of their
free cash flow or a large portion of their free
cash flow on AI development and build out and borrowing
a whole bunch of money to do.
Speaker 4 (34:44):
So, what would It's just very hard to do.
Speaker 5 (34:46):
Economy look because the model is so immense. Of course,
it has to be general, it has to take into
account many many economy wide variables. It's easier to keep
in mind that when you raise prices on and import.
It does a couple of things. It could increase inflation
in the short term. Indeed it does, so I'm very
(35:08):
comfortable with saying inflation is a little bit higher than
without the tariffs. We're at three percent, which is a problem.
Maybe we would have been at two seven, so a
little bit higher. Some have pointed out that tariffs reduce employment,
which reduces demands. So tariffs can actually be disinflationary under
certain circumstances. But on average they raise prices, and they
also cause capital to flow to industries at which we are,
(35:33):
in a relative sense, less productive than than than foreign countries,
so over time it reduces They reduce productivity and thus growth.
These are the lessons of history, and any economists would
have told you that. But again, dire predictions might imminent recession,
(35:53):
imminent jump and inflation. I don't have any serious economist
that was making predictions like that. Proponents of tariffs say, oh,
the economists were wrong. Show me a respected one who
was making those types of predictions. You won't find it.
That was kind of media hype.
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Speaker 2 (37:21):
Staying on the tariff subject for a moment. Here, Costco
has filed suit against the Trump administration in regard to
their tariffs. Bit of legal wrangling that I'm not sure
I fully understand here, But there's some concern apparently from
legal experts that if they don't participate in a lawsuit
prior to the Supreme Court ruling on the legality of
the tariffs, they may be ineligible for reimbursements. I don't
(37:45):
really understand the legal argument of that, but I'll trust
Costco's legal counsel over my own expertise. They join companies
like Revlon Consumer Products, Bumblebeefoods, Kawasaki Motors in those lawsuits
against the Trump administration. What's notable here, it's just the
size of Costco, right, the third largest retailer by revenue
(38:08):
in the country filing suit is, you know, pretty different
than Bumblebee Foods filing suit against the Trump administration. I think,
so take that for what you will. Taking a look
around at markets, we have a strengthening market as we
head towards the eleven o'clock hour. Here, all three major
indices in the green, with the Nasdaq leading the way,
(38:29):
up a full percentage point SNP up thirty five points,
about half a percent. Dow Jones Industrial Average also up
about half percent. We've got to take a quick break,
but we've got a lot more to cover, including the
code red warning from Sam Altman over at open AI.
That's next here at the Financial Exchange
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Welcome back to the Financial Exchange. Happy Tuesday.
Hope everyone is if you're getting snow, staying safe, not
riding the tail of any plows out there, or trying
to pass them while they're while they're doing their jobs.
Here closer to the Boston area, we are getting precisely
zero snow, so quite the disappointment here in need them Massachusetts,
(01:32):
where we broadcast our show for disappointment.
Speaker 3 (01:34):
Is that the word you chose?
Speaker 4 (01:36):
Yeah? Interesting choice.
Speaker 2 (01:38):
I will I've said this over and over again, Tucker.
I will gladly take a foot of snow over top
thirty six degree rain any day of the week.
Speaker 4 (01:49):
Any day of the week, that's crazy, Yeah, any day
of the week.
Speaker 2 (01:52):
Driveway I snowway, all right, so you.
Speaker 4 (01:57):
Know, I you walk the walk. I can deal with
these things.
Speaker 2 (02:01):
I have also occasionally been away and not done and
have that nice frozen slop on another driveway. But nonetheless,
I hope everyone is being safe out there. For those
who are getting some snow. We are officially disappointment disappointed
here on the Financial Exchange, although Tucker seems to be
doing all right with it.
Speaker 4 (02:18):
A Sam Altman has issued a code you.
Speaker 5 (02:21):
Don't have a sorry, too much info. Maybe your commute
is shorter than some people.
Speaker 2 (02:25):
Yeah, my commute is considerably shorter than the average America.
Speaker 5 (02:30):
That would color your view.
Speaker 2 (02:31):
Of it, would of snow, Yeah, it definitely would. I
am very spoiled on that front. The the let's say,
founder CEO both of open Ai, the maker of chat gpt,
is issued a code red across the board, so we'll
be discussing what that might mean for chat GPT, the
AI sector.
Speaker 4 (02:51):
Generally. We have got.
Speaker 2 (02:54):
Outlets once again calling it crypto winter, and Tucker, I'd
love for you to be able to pull some stuf
on that, but I feel like it's probably been described
as crypto winter at least five times in the last
seven years, would be my guest, So new crypto winter
might be upon us here according to media. And before
all that, though, we're going to start off with a
Federal Reserve because in eight days we have a FED
(03:16):
meeting with a bunch of seemingly divided and confused Federal
Reserve members on where to go next. So that's our
top story of the day mark and we will start
right there with the Bloomberg piece that the FED has
rarely been so divided over its long term plan for
interest rates, and I suppose you could describe that as true.
But the division is pretty clear. There are a number
(03:38):
of either Donald Trump appointees or those who are going
for the role of a Donald Trump appointee, who are
pretty strongly in favor of dramatically lower long term interest rates,
and then you have pretty much everybody else.
Speaker 4 (03:53):
And I think what it will be interesting is does
this division.
Speaker 2 (03:57):
Remain after there has been a pick for the excuse me,
chairman of the Federal Reserve going forward, because right now
I think there's a fair bit of posturing about what
people are saying publicly versus actually believing.
Speaker 5 (04:11):
Everything's with respect to monetary policy, it's in complete disarray.
I've never seen or read about anything like it in
the modern era. And it's in disarray because the president
wants to control the Federal Reserve, so he's upset the
traditional calculus that goes into the FED trying to strike
a balance between inflation and unemployment. If you keep in mind,
(04:32):
the Fed's job is to act like the economy's thermostat,
to cool it down when it's running too hot and
there's too much pressure on prices, i e. Inflation is accelerating.
The Fed's job is to cool down the economy under
those circumstances or to stimulate the economy, which it does
through its main policy to lowering its federal funds rate,
(04:53):
it's short term interest rate target when labor market conditions
appear to be weakening, which they do, by the way,
So there's an argument for low wearing rates, but not
as aggressively as the President wants them lowered, and as
his appointee to the Federal Open Market Committee, the body
that makes the interest rate decision, wants to see them lowered.
(05:14):
So it's it's it's a really weird combination of factors. Mike,
you've got the labor market is you and Chuck talk
about a lot? It is weakening. So there's an argument
for cutting rates, But there are people who want to
cut rates by frankly absurd amounts that are not called
for by any type of clearheaded thinking about the economy.
Speaker 4 (05:34):
So what do we consider it to be longer run?
Speaker 2 (05:35):
Because we obviously have the dot plot and the dot
plot for those who are unfamiliar at.
Speaker 4 (05:42):
Is it four meetings a year they do the dot plot.
Speaker 2 (05:44):
The summary of comers every other meeting, every other meeting,
so roughly, yeah, roughly for a year they put together
these projections for longer term rates, and so I'm looking
at it right now. You can look at it to
on the CME group website among other places, and they
plot out every Federal Reserve member's viewpoint on rates going
(06:04):
from twenty five through twenty twenty eight and then what
they describe as longer term. And to be fair there
there does seem like a fair bit of division. When
you look at this. You have one Federal Reserve member
by twenty twenty seven thinking that interest rates should be
below two and a half percent. You've got two Federal
Reserve members that believe they should be nearly four percent.
That's a pretty wide divergence. But I guess my question
(06:25):
is are we is this getting to publicized because when
I look at this dop plot, yeah, it's you know.
Speaker 4 (06:34):
Between four and two and a half percent. That's pretty
extreme number.
Speaker 2 (06:37):
But is that truly so outside the norm for the
Federal Reserve to have FED members saying that you know,
one member thinks that they should be rates should be.
Speaker 5 (06:47):
It is it is unusual historically spaking?
Speaker 4 (06:49):
Yeah, yeah, and it's much more narve.
Speaker 5 (06:51):
But we know that the we know the reason for
the president's putting prey. You could say you think this
is great. You could say you think it's sure a
tragedy for independent monetary policy and for stable inflation. I
fall in the ladder, can't. But again, honest people can
sort of disagree. There are some people who think politicians
should directly control the money supply and therefore interest rates everywhere.
That's been tried, though it's led to very high inflation
(07:13):
and economic instability, because you can't if you're a politician.
You have to succumb to the temptation to stimulate the economy.
Speaker 4 (07:21):
Which means lower interest rates, which you know.
Speaker 5 (07:23):
No politician is going to pound the table for higher
interest rates.
Speaker 4 (07:26):
You don't get.
Speaker 5 (07:29):
What sane politician would call for recession to squelch inflation.
Speaker 4 (07:33):
Nobody would.
Speaker 5 (07:34):
They've they've tolerated it historically in the modern era. But
even then there's there's been a lot of buying the
scheme behind the scenes, brawling and pressure put on the FED.
So I understand those who think rates should be relatively high,
I mean relative to the average f o MC measure,
because inflation remains elevated, and everybody listening knows that prices
(07:55):
have not come down. That's not the president's fault, by
the way, that's not necessarily the feds fault. Prices have
not come down in the modern era. And when I
say I keep using the phrase modern era, I just
mean mostly since World War Two, with a couple of
very brief exceptions that were characterized by dramatic and nauseating
economic contractions. Prices don't fall anymore. They used to under
(08:17):
the old gold standard because there were other considerations there
that that that that dictated the inflation rate. So prices
price growth inflation is somewhere in the mid two s
to mid threes based on three based on trend may
that's fine because that's actually where the last reading was
year over the year, And if you're going to call
(08:38):
it three, you have to say that's elevated because the
Fed's goal is two, which it has not met in
like ages for the for nearly a decade. So it's
odd that anybody would argue for aggressively lowering interest rates
unless you think the economy is about to fall off
a cliff.
Speaker 2 (08:52):
Right, And that is not the opinion that those who
are seeking the leadership role are voicing. They are not
opining that the economy is about to fall apart. They
are merely saying that rates need to be lower in
order to continue the economics.
Speaker 4 (09:05):
And this makes sense, right.
Speaker 5 (09:06):
I think you don't have to be like a monetary
policy officionado to recognize that. If normally when you're calling
for much for aggressive monetary stimulus, it's because you're really
worried about the economy. There are in the area of
floating exchange rates when you don't have to worry about
the value of the doll FED doesn't worry about the
value of the dollar anymore like it used to pre
(09:27):
nineteen early nineteen seventies. The only reason you'd call for
dramatically lower exchange rates abruptly is that you think the
economy is in big trouble.
Speaker 2 (09:37):
Moving on from the longer term disagreements, can we focus
in on the meeting in eight days, because I thought
that this was a little bit silly, but I'm kind
of coming around to the argument that they should just
delay this meeting. I don't really see the Yeah, just
genuinely here, you do not have any economic data on
the state of the economies since September.
Speaker 5 (09:56):
Oh, and so the action you meet, Yeah, delay the action,
not the meeting, but just say, look, we're gonna You.
Speaker 2 (10:01):
Could just say, hey, we're having our meeting and we're
not going to do anything until a week later when
we determine what the hiring pace was for October and November,
until we determine what the inflation rates were for October
and November. Not that that should be the end all
be all of what's driving you your monetary policy, but
it just seems to me that there's really a no
(10:21):
win situation for the Fed here as they are trying
to assure the general public that they know what they
are doing. Any decision you make at this next meeting
is going to be made in a blanket of uncertainty,
and so why make a decision?
Speaker 4 (10:40):
There's always that Unusually.
Speaker 2 (10:42):
Yeah, this all comes from the government shut down. By
the way, they did not get any data releases. The
data releases that we're getting right now reflect collections from September,
which are, in my opinion, irrelevant to what we are
seeing right now, and so you will get a whole
slog of data in the week after the Federal Reserve meeting,
and so I'm just envisioning this scenario where the Fed
(11:03):
decides to continue on their current path, which would be
for another quarter of a percent cut, and subsequently you
get an inflation reading that's three point two percent and
hiring rates that are in the two hundred thousand range.
Speaker 4 (11:16):
It would just seem to me that there's no good.
Speaker 2 (11:19):
Reason that you have to go forward with this interest
rate decision in December. So maybe they won't. Maybe they
will just say, hey, we're not doing anything. We're not
cutting rates, we're not increasing rates. But I don't know,
sticking to this schedule just doesn't make a whole lot
of sense to me. Let's take a quick break. When
we come back. We were talking about the K shaped
economy yesterday. The Associated Press is going to answer for
(11:43):
us why everyone and their mother seems to be talking
about the K shaped economy. Now that's next on the
financial exchange, keep talking, go ahead, No, we are not
going to do that next week.
Speaker 4 (11:56):
We talk about going to do it, now, go ahead,
silly computer.
Speaker 5 (12:00):
We didn't talk about Hassett, who's seemingly going to be
the President's.
Speaker 2 (12:05):
Yeah a point the president was asked about his appointment.
Somebody asked him specifically if it was Heavin Hassid. He
did not answer, Yeah, probably has.
Speaker 5 (12:13):
Asset's done a good job carrying water. And I don't
mean that negatively. He's done it. He's been a good,
dutiful head of the National Economic Council, and he's a
respected was a respected acon. He's become more of a
hack lately. But there was a time, by coincidence, I
found his name in the footnote of a paper over
the weekend, written like thirty years ago. So there was
a time when he was a respected, nearly prominent economists.
(12:37):
So at least my point is, at least he can
read a modern paper in economics, unlike the other potential.
Speaker 2 (12:42):
And again I will just point out that he is
a member of an administration now in his job at
least in part is to be the voice of the
president right now, and when he's appointed to the Federal Reserve,
we've seen that change.
Speaker 4 (12:54):
And he could say the.
Speaker 5 (12:55):
Same thing become Thomas Beckett.
Speaker 2 (12:57):
You could say the same thing about Oh gosh, I'm
forgetting her name now. Tucker wants to who is the
previous Federal Reserve chair Jenny Yellen? Jenny Yellen, right, she
joined the Biden administration, and then you started hearing some
things that I was like, Wow, I don't think I
would have heard that from her mouth as Federal Reserve Chair.
Quick break when we come back. K shaped Economies next.
Speaker 1 (13:17):
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Speaker 2 (14:20):
So, Mark, I don't know if you have taken as
much notice as Tucker and I have, but major news
publications like.
Speaker 4 (14:26):
The Journal, New York Times.
Speaker 2 (14:29):
Maybe less so in the Financial Times, but CNBC have
been taking up the term K shaped economy with increasing frequency.
Speaker 4 (14:37):
It seems to me it's getting more and more mentions.
Speaker 2 (14:40):
And the AP attempted here to put together some reasoning
for it. They describe what is, in their opinion, unusually
muddy convoluted period for the US economy. They blame consumer
spending still rising, Americans being less confident, growth appearing solid
yet hiring being sluggish, unemployment rates starting to tick up,
(15:04):
AI related data center construction staring, while factories laying off workers,
home sales being weak, And I guess I ask you,
it honestly doesn't seem all that much muddier and more
convoluted than other periods. I would say that twenty twenty
through twenty twenty two were extremely convoluted and muddy.
Speaker 4 (15:24):
Yeah, I think that was.
Speaker 2 (15:24):
A once hopefully once in a lifetime type event, and
the solutions to it proposed by the government were you know,
largely untested and it really really new, and that was
muddy unclear how it would proceed, and you know, we
saw a spike in inflation. When I'm looking at twenty
twenty three through twenty twenty five, I'm looking at an
(15:47):
economy that to me is behaving pretty logically. For one
where all, yeah, yeah, you're seeing government deficit spending at
six percent annualized. You are seeing, right, like we say
it so catchy, right like, it's crazy, an emergency level
deficit we've just become.
Speaker 5 (16:04):
I'm talking about the trade deficit, which is not an emergency.
I'm talking about the budget deficits.
Speaker 2 (16:07):
The budget deficit, yah, the collections of tax revenue versus
government spending.
Speaker 4 (16:13):
We're running at deficit levels of six.
Speaker 2 (16:16):
And at the same time, you have an economy that
is cooling off from the previous record levels of deficit
spending spend during that muddy Water's time.
Speaker 5 (16:25):
I like the K shaped figure of speech. Maybe we
should just like tofine that because people are going to
continue to hear it. If you think of the capital
letter K, it's got one. Uh, what would you call
those things that go off the vertical they kind of
point diagonally. The horns a has one line going up,
(16:48):
one line going down. Okay, well, I'm just but think.
Speaker 4 (16:51):
Of everyone here was thinking of a cursive K, So
I get it.
Speaker 5 (16:54):
It may be, so why do we call the economy
K shape? Well, because, for one coal, let's call it
the top one percent. Even though it's a little bit
broader than that, wages are going up and other measures
of well being are going up. So you would you
would if you were gonna describe the economy and you
tried to do it with one line, you could, but
(17:16):
it would be something with a slightly positive slope. It
would not capture the experience of a big part of
the population. So if you were kind of modeling this phenomenon,
you'd instead model it with two trend lines, if you will,
one pointing up like the upper part of the K,
and one pointing down like the lower part. Because for
the non say top ten percent, death sile of earners,
(17:38):
or whatever measure you're using, things aren't getting better. In fact,
in real terms and inflation adjusted terms, they're getting worse.
So that line points down.
Speaker 4 (17:45):
So I sort of like the visual that that conveys too.
Speaker 2 (17:47):
I'm just I keep going back to how how am
I to make use of VE because I don't think
it's gonna help me predict earnings or spending patterns.
Speaker 4 (17:56):
I've come to.
Speaker 2 (17:57):
The only real conclus llusion I've been able to make
is that some individual businesses might be able to use
it to better understand the spending of their customer base. Right,
if you can accurately describe.
Speaker 5 (18:10):
They're doing this, We're you're seeing businesses pivot to luxury stuff.
Speaker 2 (18:13):
Right, and others try and you know, companies that don't
focus on the luxury spaces for.
Speaker 5 (18:19):
Pete's sake, they only build mansions, right, because on the
margin it makes sense economically.
Speaker 2 (18:23):
I think the other area that it's probably helpful for
is trying to better understand things like sentiment and you know,
voter blocks and things like that. Right, if you looked
at just that median number like you described, and looked
at the economy in twenty twenty three and twenty twenty four,
you'd look at it and say, wages are up, inflations down,
(18:46):
This economy looks pretty good other than the deficit spending.
And yet the sentimentally was case the worst you've seen,
and you had a really compelling election that voted the
existing administry out of office. And I think that and
help in part, helps describe why the K shaped economy
(19:07):
is important. And importantly, I don't think you've seen any
reversal of the case.
Speaker 5 (19:11):
That's not really the shape of the I know the
expression is too widely used now we're not gonna be
able to shake it. But it's not a K shaped economy.
It more describes trends for different groups of people.
Speaker 2 (19:21):
Let's take a quick break. When we come back, market's
rebounding a bit from yesterday's action.
Speaker 4 (19:26):
Will have a full recap for you next with Wall
Street Watch.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 3 (20:00):
After a negative start to the month, markets today are
in the green, led by a rally in tech, where
traders are also monitoring Bitcoin after its recent tumble, Bitcoin
rebounding today and trading right around ninety thousand dollars right now.
The Dow is up by over a tenth of a percent,
or seventy two points higher. SMP five hundreds up two
(20:21):
tenths of one percent or thirteen points. Hired Nasdaq up
six tenths of one percent or one hundred and forty points.
Rusted two thousand also up by six tenths of one percent.
Tenure treasure Field is flat currently a four point one
zero percent crewed oiled down about a third of a percent,
trating right around fifty nine dollars a barrel. According to
(20:43):
several reports, Comcast, Netflix, and Paramount all submitted second offers
for Warner Brothers Discovery assets, while Paramount and Comcast made
improved offers. Netflix reportedly submitted a primarily cash based offer. However,
a Netflix acquisition of HBO Mac could raise concerns among
Justice Department officials. Netflix shares are down nearly one percent,
(21:06):
while Warner Brothers stock is climbing about one percent. Meanwhile,
Apple is shaking up its artificial intelligence leadership, where the
iPhone maker landed a Microsoft executive after announcing the retirement
of its top AI leader. Apple shares are up modestly. Elsewhere,
Developer data platform Mango dB is seeing its stock searched
(21:28):
twenty five percent after posting solid third quarter results. The
company also hiked its full year guidance as booming AI
demand lifted its revenue. Shares Insignette Jewelers falling three percent
after the parent company two K and Zale's posted disappointing
fourth quarter guidance, and Boeing stock is soaring eight percent
(21:48):
after its CFO set at a UBS conference this morning
that the company expects deliveries for both its seven thirty
seven jets and seven eighty seven jets to be up
next year. I'm Tucker Silva and that is Wall Street Watch,
and remember you can watch the show live every day
here on our YouTube page. We'll have breaking business news
(22:10):
and all of our content is also archive, so if
you want to see in an interview or discussion about
a specific topic, it's all there with the click of
a button. Just search the Financial Exchange on YouTube and
hit that subscribe button.
Speaker 2 (22:24):
We're gonna talk a bit about the recent bitcoin route
and Tucker just mentioned it. It's bouncing back today, but
yesterday was off. Big journalists calling it crypto winter again,
which I swear that terms come up.
Speaker 3 (22:37):
I've seen it going back to twenty twenty one.
Speaker 6 (22:39):
That term.
Speaker 2 (22:40):
Yeah, so nothing new for crypto investors in this space.
But for some context here priced in dollars. Bitcoin hit
over one hundred and twenty six thousand dollars per coin
back on October sixth as recently as what's that last week?
Two weeks ago it was at eighty four thousands. Now
(23:00):
it's sitting at ninety thousand. This thing is extraordinarily volatile.
It's down seven percent yesterday, up five and a half
percent today. But I want to start with some basics, Mark,
because we were talking offline about correlations, and specifically correlations
between the S and P five hundred and bitcoin, and
when you look back a decade ago, it was pretty
(23:23):
close to zero. They didn't have much to do with
each other. Today the correlation isn't one. It's not you know,
you don't see it going up in the exact same way,
but they are. The two are much more highly correlated,
And I guess I want to start with what does
that mean for investors?
Speaker 4 (23:39):
And how why?
Speaker 2 (23:40):
And how do asset classes become correlated in the first place?
Is they're a financial theory for this?
Speaker 4 (23:46):
This effect very hard to answer.
Speaker 5 (23:48):
I think both of those questions is easier to point
out that correlations, which just refer to the degree to
which two things move together. It's actually a little more
involved in that, it's the degree to which they depart
from their averages together. So when we say that bitcoin's
correlation with the broad market, using as a proxy for
(24:10):
broad markets, say the S and P five hundred, when
we say that it's gone up, and I use daily
returns in my little internal example, you could use monthly
or whatever period floats your boat. We mean that when
Bitcoin is above its average, the S and P tends
to be above its average, or vice versa. That's just
an empirical, so to speak. Statement. It's just what.
Speaker 4 (24:31):
Happened, and we really last two days are good examples
of that.
Speaker 2 (24:34):
Yesterday you had Bitcoin down percent, S and P five hundred,
nasdak all down around half percent in early training or average.
You've got Bitcoin up five percent. You've got major indites.
Speaker 5 (24:43):
Up early on in its history, and it wasn't publicly
traded early on. Now you've got a lot of vehicles
that allow us to jump in and out, and it's
it's more liquid than it used to be, but early
on it was less tightly related to movements in the
broad stock market. It follows from that if you are
constructing a portfolio, the holy grail is imperfectly correlated asset
(25:07):
classes because it makes for a smoother ride. This is
why your financial advisor says, well, you don't just want
to own big US companies. You want to own a
little international. You want to own some small US companies, you
want own some emerging market companies, you want to own
some bonds. Is insurance that type of thing. So to
the extent that Bitcoin becomes more correlated with major asset classes,
specifically riskier asset classes like equities, like stocks, it's less
(25:31):
useful as a diversifier. That may not matter to you.
You may own it for different reasons, it may not
be part of a diversified portfolio, or you just may
not care. But for institutional investors it does become a problem.
Speaker 4 (25:43):
To me, the correlation is somewhat natural here.
Speaker 2 (25:46):
It has become much more normalized in terms of an
asset class that's investable. To your point, you can pretty
easily invest in mimics of it or public traded companies
that invest heavily in it through public markets vehicles. Yeah,
not really possible at all prior to twenty twenty, and
became even more mainstream in the Trump administration, So I
(26:07):
think the correlation makes some sense. I think leverage plays
a role too, would be. My guess is, hey, when
you borrow to invest in an asset class like stocks
or like cryptocurrency, and if.
Speaker 4 (26:17):
You're borrowing.
Speaker 2 (26:19):
To invest in the two of them, when they move
in the other direction, then your leverage can buy necessity
call you out of positions, and that could be stocks
that could be crypto. So I think that's part of
it as well. But I'll tell you I am once
again getting a lot of questions about it. I was
meeting with somebody yesterday and she felt a little bit
(26:42):
embarrassed to ask, it seemed like. But she was like,
you know, we've got this friend. They just paid thirteen
thousand dollars to attend a crypto investing course, which, boy,
does that seem like a scam to me? And they're
telling me that I had better get used to crypto
and learn a lot about it because by this time
next year, your entire bank account is going to be crypto.
(27:03):
And my jaw kind of fell to the floor, like
that seems incredibly unlikely to me, unless you choose to
go this is do so it's a problem, but there
seems to be just a lot of amous information b
lack of understanding and see get rich quick schemes.
Speaker 4 (27:21):
That's when it comes to crypto.
Speaker 5 (27:23):
And that's different than past booms which had something I
don't know, substantive concrete underlying them. For the with the
exception of you, depending on how far back you want
to go in history, you might cite like the Tula
bubble and say, well, that wasn't exactly concrete.
Speaker 1 (27:37):
Well it was.
Speaker 5 (27:38):
They were trading tulips, they were real physical entities. The
problem with crypto is that it's been around nearly twenty years.
It is yet to find a mainstream use. It's used
mainly by people who want to under money or get
it to Russia or get it to LKA. These are facts.
Speaker 4 (27:54):
Well yeah, in terms of like real uses, but it's
I see two of them.
Speaker 2 (27:57):
It's auspicious uses like you just described, or it's for
speculation purposes.
Speaker 5 (28:03):
Yeah, but in terms of medium of exchange, it's used
mostly by people who are doing illegal things and it
draws in, it draws in schemers. People who have no
background in crypto, like the Trump children, and decide to
get into it. And make three billion dollars in a year.
Forgive me, but it draws in people who want to
get rich quick that gear I would not give that
(28:26):
to me. Is not an attractive way to invest capital
for the long term. But maybe my perspective, maybe you
see that and think, oh, if the Trump kids are
in on it, it's got to be hot.
Speaker 1 (28:35):
I should too.
Speaker 5 (28:37):
I'm not judging that, I'm saying quickly. It's got all
the hallmarks of past things that have ended very badly
for people who didn't get in very early and for
people who are easily duped. Is an unkind word because
it implies you don't know what you're talking about. But
I could be easily duped when it comes to crypto
or AI because I don't fully understand what's going on.
Speaker 4 (28:57):
Therefore I avoid it.
Speaker 2 (28:58):
There's also a lot of financialsay of these things that
have been going on right there.
Speaker 4 (29:02):
There's been these single.
Speaker 2 (29:03):
Stock ETFs that are used to track companies that are
involved in crypto, and many of those have tanked this year.
And then you've got the differences between you know, if
I had to nail down the average American and ask
them to explain to me the difference between blockchain, bitcoin,
and stable coin. I think I would maybe be able
to come up with a reasonable definition of the three,
(29:25):
but I think the average American was drug.
Speaker 5 (29:27):
The fact that we can and I certainly can't, is
a testament to the lack of any practical use for it.
Speaker 4 (29:34):
To this.
Speaker 5 (29:34):
Well, maybe the average American myself included, can't can't differentiate
AC from DC and sure, okay.
Speaker 2 (29:41):
The best use cases that I've heard for it come
from the stable coin piece, right, But that's different, though
very different than cryptocurrency. But a stable coin, you know, effectively,
as far as I can tell, looks to me a
lot like a gift card that you would hold at
one vendor or a series of vendors and make it
make it allowable to make payments very seamless between somebody,
(30:04):
let's call it Amazon. Right, If I am a vendor
and a purchaser on Amazon, I may be able to
store my dollars in a stable coin sponsored by Amazon
and conduct all my transactions via that stable coin, and
therefore avoid the fees charged by Visa. But that has
nothing to do whatsoever with bitcoin, and I think people fail.
Speaker 5 (30:24):
To rerect But as long as the dollar remains a
trusted medium of exchange. There are other functions that a
currency performs. All this focus on that one that.
Speaker 2 (30:35):
Would be the other means of speculating is Hey, if
you think the dollar is doomed, then there are a
whole bunch of ASI classes that look maybe more.
Speaker 5 (30:41):
And there's an argument we talked about correlations earlier. Bitcoin
does when you control for other factors that influence both
Bitcoin does exhibit a negative core. It moves in the
opposite direction on average, and the magnitude is not big,
you might not even detect it. But there is some
evidence in the data, so to speak, that people are
using bitcoin as a dollar at you and that's consistent
(31:03):
with what you hear ATS promoters talk about.
Speaker 4 (31:06):
Let's take a quick break.
Speaker 2 (31:07):
When we come back, world economy seeming pretty resilient to
tariffs and being acknowledged by the OECD. We'll talk about
why next on The Financial Exchange miss.
Speaker 1 (31:17):
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and leave us a five star review. This is the
Financial Exchange Radio Network.
Speaker 6 (31:30):
We're proud to announce that circle k is now the
official convenience store of the dav Department of Massachusetts at
circle K. Supporting those who bravely served our country isn't
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If you'd like to do your part, please visit DAVMA
(31:52):
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the dav Department of Massachusetts, and thank you veterans for
all you've done.
Speaker 1 (32:00):
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Speaker 2 (32:24):
Bloomberg's writing this morning about the world economy being resilient
to terriffs, and I'll acknowledge for a moment that compared
to my expectations on April second, I do think that
the world economy has proven.
Speaker 4 (32:35):
Quite resilient to terriffs.
Speaker 2 (32:37):
But a few things have changed since April second that
you have to acknowledge when trying to evaluate the effects
of all this.
Speaker 4 (32:42):
One.
Speaker 2 (32:43):
On April second, the average effective tariff rate that was
announced was somewhere around forty percent on goods being important
into the United States. We're now sitting between like twelve
and fifteen percent. So let's you know, start off with Yeah,
that's a big increase in the previous effective tariff rate,
but it's a far cry from where we were back
in April two. There's some question as to whether or
(33:07):
not those tariffs are going to be long term, and
so trying to measure the effects of all of these
after you know, barely six months of collections of tariffs,
I think they're seeing a question.
Speaker 5 (33:20):
It's impossible to measure the effects of terroriffs, virtually impossible.
It's very tricky statistically speaking, because you can't hold all
the other stuff. Constant economists are very good at looking
at individual markets. Like the Trump steel tariffs of twenty nineteen.
They cost eighty jobs for every steel job that they saved.
It's very it's straightforward to do that analysis.
Speaker 4 (33:38):
Because five years later, Yeah, it takes.
Speaker 5 (33:41):
Time the study was actually published. Yeah, a couple of
years to get the data. Yeah, but no, you're right,
it takes years.
Speaker 4 (33:47):
It's the point.
Speaker 5 (33:48):
So we're very good at isolating effects when the policy
is sort of limited and targeted this type of stuff,
tariff's on everybody, changing almost day to day, varied amounts.
Very hard to estimate that in the long term it
will reduce growth. There's absolutely no doubt about that. That's
that's pretty well known about tariffs. But don't expect a
(34:09):
big recession or something like that right away.
Speaker 2 (34:11):
Right and the other points too, like that all else
held equal thing is really important. What would the effect
of teriffs be if we weren't spending deficits of six
percent of GDP, if the government weren't pouring money out
there still.
Speaker 5 (34:23):
Well half of that is interest, but yeah.
Speaker 4 (34:25):
Yeah, agreed.
Speaker 2 (34:26):
But you know, if we weren't running those types of deficits,
what would that look like? If the main portions of
the US tech industry were not spending all of their
free cash flow or a large portion of their free
cash flow on AI development and build out and borrowing
a whole bunch of money to do.
Speaker 4 (34:44):
So, what would It's just very hard to do.
Speaker 5 (34:46):
Economy look because the model is so immense. Of course,
it has to be general, it has to take into
account many many economy wide variables. It's easier to keep
in mind that when you raise prices on and import.
It does a couple of things. It could increase inflation
in the short term. Indeed it does, so I'm very
(35:08):
comfortable with saying inflation is a little bit higher than
without the tariffs. We're at three percent, which is a problem.
Maybe we would have been at two seven, so a
little bit higher. Some have pointed out that tariffs reduce employment,
which reduces demands. So tariffs can actually be disinflationary under
certain circumstances. But on average they raise prices, and they
also cause capital to flow to industries at which we are,
(35:33):
in a relative sense, less productive than than than foreign countries,
so over time it reduces They reduce productivity and thus growth.
These are the lessons of history, and any economists would
have told you that. But again, dire predictions might imminent recession,
(35:53):
imminent jump and inflation. I don't have any serious economist
that was making predictions like that. Proponents of tariffs say, oh,
the economists were wrong. Show me a respected one who
was making those types of predictions. You won't find it.
That was kind of media hype.
Speaker 3 (36:06):
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(37:15):
Go to visit USVII dot com and book your trip today.
That's visit USVII dot com.
Speaker 2 (37:21):
Staying on the tariff subject for a moment. Here, Costco
has filed suit against the Trump administration in regard to
their tariffs. Bit of legal wrangling that I'm not sure
I fully understand here, But there's some concern apparently from
legal experts that if they don't participate in a lawsuit
prior to the Supreme Court ruling on the legality of
the tariffs, they may be ineligible for reimbursements. I don't
(37:45):
really understand the legal argument of that, but I'll trust
Costco's legal counsel over my own expertise. They join companies
like Revlon Consumer Products, Bumblebeefoods, Kawasaki Motors in those lawsuits
against the Trump administration. What's notable here, it's just the
size of Costco, right, the third largest retailer by revenue
(38:08):
in the country filing suit is, you know, pretty different
than Bumblebee Foods filing suit against the Trump administration. I think,
so take that for what you will. Taking a look
around at markets, we have a strengthening market as we
head towards the eleven o'clock hour. Here, all three major
indices in the green, with the Nasdaq leading the way,
(38:29):
up a full percentage point SNP up thirty five points,
about half a percent. Dow Jones Industrial Average also up
about half percent. We've got to take a quick break,
but we've got a lot more to cover, including the
code red warning from Sam Altman over at open AI.
That's next here at the Financial Exchange
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