LIVE: Business Matters Full Broadcast (April 10)

Is inflation back on the rise? New data showing price increases are hotter than expected. Coming up on Business Matters. All right. Thank you very much for joining me here today. Let's start on Wall Street. U.S. stocks tumbled today. And of course, this is after hotter than expected inflation data, which, by the way, hurt hopes that the U.S. Federal Reserve would begin cutting interest rates as early as June. All three major indexes here turned sharply lower at the opening bell after the Labor Department's Consumer Price Index report. We also got the minutes from the Fed's March policy meeting today. It showed that reflecting concerns possibly that inflation progress towards their target may have stalled and a restrictive monetary policy may be needed for longer than expected. So S&P 500 lost 50 points, or 0.9 percent. Nasdaq lost 139 points, or 0.8 percent. And the Dow fell 422 points, or 1 percent. OK, inflation, right? The drawn out battle between American consumers and higher prices saw another setback last month. A key government index said price increases picked up again in March. And this is driven up by two essential areas. Here's the detail. U.S. consumers continue to feel the squeeze of higher prices for essentials like gas and shelter. The Bureau of Labor Statistics said Wednesday that the Consumer Price Index increased at a year over year rate of 3.5 percent in March. The reading, the highest annual gain in the last six months. This has definitely been a setback. This is not good news. It doesn't necessarily mean that the Fed or anyone else should give up the fight against inflation. Overall, grocery prices stayed flat month to month, but they're up 1.2 percent from a year ago. I think consumers continue to feel the pinch. I think consumers continue to compare prices to sort of pre-COVID or two or three years ago. Purdue University professor of agricultural economics Joe Balagta says that comparison, in addition to increased costs in other areas, could shade how consumers feel about their grocery tabs. The things that we pay for outside of the grocery store also affect the money we have left to spend on groceries, right? So if we have to spend more on gasoline, if our auto insurance becomes more expensive, if our housing becomes more expensive. Gas prices ticked up 1.7 percent from February to March, and the cost of auto insurance was up 2.6 percent last month, up a whopping 22 percent from one year ago. And now joining us for more insight on this inflation print is Trevisani, Joseph Trevisani, senior analyst at FX Street. Now Joseph, so this this new report seems like to show that this is the third straight month of strong consumer prices. What are your thoughts on that? How do you feel? Well, the Fed's biggest problem is that if you look at the annualized rate for the past three months, including the March number, it's at 4.4 percent. The prior three months was at 3.4 percent. That's a pretty big increase, and it's one that's going entirely in the wrong direction. The Fed's entire policy, this whole scenario that they're betting on or that they're figuring on, is inflation is going to come off and the economy is going to slow, and that justifies. That's the rationale for having rate cuts this year. So far, neither side is coming true. Do you think this disinflationary trend, has it stalled? I think it probably has. There's many other factors involved. You look at some of the background factors, certainly the Federal Reserve's ability to control the economy through interest rates is always at a lag and always a bit of a problem. The deficits of the federal government are still running 1.2, 1.4, 1.6 trillion, 1.8 next year. There are increasing problems that are forcing energy prices higher, and energy is, of course, the basic commodity for the world industrial economy. So there are real reasons for the increase in inflation that the Fed is seeing, and they know that. So you're saying there is, in fact, risk of it actually increasing and not just stalling? I think there is. Take an example of the Middle East, which is not necessarily an economic factor, but it could very well become one. If something happens or something escalates in the Middle East, oil prices will most certainly shoot higher. If they do, that ramifies throughout the entire economy. That is something the Fed cannot control. What do you think about the market's reaction to this print? Well, the market's enjoyment, if you will, of interest rates, of the prospect of lower interest rates, is diminishing because the prospect of lower interest rates is diminishing. And if you just look at the Fed futures, they had three rates, three cuts toward the end of the year. Now they're betting in two. I think that may actually continue. The first rate cut had been considered to be last month before this number in June. Now it's moved out to September. So you're having a real change. So Barclays sees about a one rate cut this year. Is that about right, based on your estimates? Well, the Fed funds at the end of today were pretty much basing in, putting in two rate cuts by the end of the year, by where the end of the year rate would be. I would not be surprised at all if the Fed dropped to one or no rate cuts this year. What logic, what rationale, in the Fed's own words, do they have for cutting rates right now at the moment? They don't have any. Well, we also had the Fed Minutes come out today. So I want your thoughts on that. Seems like officials are worried that progress on inflation may have stalled, as you mentioned just now, and that today's higher reading certainly doesn't help the case. So I mean, what do you think stood out? You know, the Fed has a very recent history. Of course, we remember when inflation was going to be transitory, they have a very recent history of being wrong about that. I could say that they've got a very long history of being wrong about inflation. So they are very wary, and that seems to be what the Minutes are telling us. They're very wary of cutting rates if they don't have a very obvious rationale for it, if they don't have rates, in their favorite term, progressing towards 2%. I don't see any evidence that rates are moving towards 2%, neither does the Fed. So we just have about a minute left. Let me ask you this. So higher prices, inflation looms large over the U.S. presidential election. What do you think is the dynamic between the Fed, the election, and inflation? That's a tricky one, because the Fed certainly does not want to be seen to be playing any type of political influence or political game with it. So I think they're going to stick very, very strictly both to the rhetoric and the logic of their rationale as stewards of the economy and stewards of inflation. They do not have a good rationale right now for cutting rates, so I don't think they will until they do. It is also true that among all of the economic factors that go into a person's consideration about who they might vote for, inflation plays a very large role. Consumers dislike inflation intensely. So all of this logic and these reasons, I think, will keep the Fed on hold. I see. Well, thank you very much today for your insight, Joseph. Thank you for having me. OK, Boeing saga continues, it seems like. A whistleblower is speaking out after the FAA announced that a probe into some of the company's wide-body planes yesterday. Boeing engineer Sam Salifore alleges that he saw unsafe practices in the production of 787 and 777 jets. I literally saw people jumping on the pieces of the airplane to get them to a lock. Salifore claims that some parts were the wrong size and the other areas of the planes didn't meet specifications. He also claimed Boeing used shortcuts to try to clear bottlenecks in output and ignored his warnings. Salifore's attorneys allege that he faced retaliation from Boeing before filing a complaint with the FAA in January. Boeing called the claims inaccurate and said it had full confidence in its products. And the allegations come as Boeing is reeling from recent mid-flight scares. They include a 737-800 engine cover falling off on Sunday, as well as a 757-200 suffering wing damage in February. And of course, the 737 MAX 9 losing a door plug in January. Salifore is now expected to appear before a congressional committee investigating the apparent quality lapses at Boeing. Okay, now staying in the skies, quarterly earnings for Delta are expected to take off thanks to strong travel demand. Delta Airlines reported record revenue in the March quarter and expecting record revenue in the June quarter. Executives have noticed that after the pandemic, people are prioritizing travel. Nearly 5 billion people are expected to travel this year, according to the International Air Transportation Association. Now, trouble with Boeing has contributed to plane shortages, though restricting available flights during peak seasons, which is translating to higher prices. And staying on earnings just a little bit, artificial intelligence is powering Taiwanese chipmaker TSMC's rise in revenue and record-high stock price. The world's largest contract chipmaker beat market expectations, bringing in more than $18.5 billion in revenue during the first quarter. The first half of the year is usually quieter for Taiwanese tech firms, but the AI trend is boosting demand in the off-season. So far this year, shares for the chipmaker have surged 37%. It is Asia's most valuable publicly listed company. Now let's move on to gold, making a lot of green for Costco, it seems like. Costco started selling 1-ounce gold bars made of nearly pure 24-karat gold last August. Now Wells Fargo analysts estimate the warehouse club might be selling as much as $200 million in gold bars in a month. Wells Fargo pointed to several factors that indicate a possible uptick in demand, including more Reddit posts, as well as selling out quickly online, and as Costco's robust monthly e-commerce sales pick up. One analyst said that the sales are adding about 3% to general merchandise sales, but not much to its profit. Gold prices have already reached a historic price at more than $2,300 an ounce. One economist is expecting the latest gold run to take the prized yellow metal up to $3,000 per ounce. So for more insight on the rise of gold, I spoke to a macro strategist. Here's Tavi Costa at Crescat Capital. Okay, Tavi, thank you very much for joining me here today. I want to know something about gold. What has been fueling this rally, if you will, for the past few weeks now? I think that logically, or maybe even the rationale of these purchases that we've seen in the metal, our accumulation of the metal has been mostly driven by central banks, which is mostly Eastern societies that have been purchasing, regardless if it is China, Russia. There are, I think Singapore is actually another country that's been accumulating in a large way. And the main reason for this, in my opinion, has to do with this race for central banks to really improve the quality of their international reserves. We're seeing a flood of issuances of U.S. Treasuries. And I remember, I mean, I'm not, you know, I'm not too old to remember that people used to say that it would be impossible for gold prices to rise along with interest rates rising in the same, or in tandem. And that's certainly what's been happening. It's because central banks are transitioning towards gold, and we're yet to see them start selling treasuries. And that hasn't happened yet, which is, which is really interesting. That could be adding further pressure on the prices of treasuries over time. So you mentioned a couple of reasons why central banks may be buying gold. Can you elaborate a bit more on that? I'm very curious. What has been really the catalyst for this? Well, the catalyst is because when interest rates rise and we have an environment where inflation is higher than expected for most economies, it tends to cause cost of capital to rise. And when cost of capital rises, interest rates rise. And who is mostly damaged by those movements in the macro world are really sovereign institutions, because the sovereign debt instrument itself loses value. And if central banks are the largest holders of those instruments, they are usually holding, they are actually holding the bag. And so what's happening here is that they're seeing a deterioration of quality of their own international reserves, which tends to be the anchor for their own monetary system. So if their monetary system is based on the quality of what they hold in their balance sheet, and that balance sheet asset itself is actually reducing its value because of the rise of interest rates, then it causes central banks to actually have to own something that is more credible, that is also has a long history to improve the quality of those reserves. So that's what I'm referring to. Central banks today hold about 20 percent of gold relative to their balance sheets. Back in the 70s or so, they used to own close to 75 percent. So we're in this transition back to historical standards and which could drive gold even or I should say a lot higher. And you know, this is the first time in 45 years that gold has a better volatility profile than treasuries. All right, Tavi, just one final question. And so gold prices have had new highs multiple days in the past few weeks. Any froth in that? Yeah, I mean, I don't think there's froth at all. I think we're going to see much higher prices, maybe short term. We can see some volatility. I'm not here for the volatility in the short term. You know, if you're looking for a guest that wants to know what's going to happen in the next day or two, I'm not that guest. I'm here for the long term. I think in 10 years from now, gold is going to be way higher than where it is currently. And how do I invest? Well, I buy things that have leverage to go. And I've been I build a fund on that. I just bought the seventh largest silver mine in the world, along with our funds, clients and partners. And so this to me is a big opportunity. And so I'm not here for the volatility. I'm here for these opportunities. So bring it on. I'm here bracing that upward and downward move in the short term. But I understand that the opportunity is much bigger than that short term. So that frothing, as you referred to, I don't share that at all. I read the newspaper every day and I haven't seen, you know, the head of the newspapers here or I should say a magazine cover of gold just yet. When I see that, maybe there is going to be a break. But we haven't seen that at all. Well, all right. Great. Welcome to the new golden era, if you will. Thank you very much, Tavi. Thank you. Taking a short break now, but when we come back, Fitch cut its outlook on China's sovereign credit rating to negative today, citing risks to public finances as the economy faces increasing uncertainty in its future. As well, small business owners say current tax policies are, quote, crazy, complaining to lawmakers they need to be simplified. When we come back, don't go away. China has true beauty. I imagine it's like a door. The artists hold the key to open the door and bring people to a pure world where people are more compassionate. I'm Richard Karn, and I love my hose. It ain't those old hoses. This is my hose, the new Pocket Hose Copper Bullet, now infused with real copper, so your water is always clean and lead-free. Just turn on the water and watch your hose grow and grow. And when you turn off the water, away it goes. Our new inner tube uses three layers of high-strength latex on the inside, then it's wrapped in a new polymer filament jacket, three times stronger than the other hoses. Of my favorite part of our new hose build, the oversized, easy-to-grip fittings. Get the super-light 25-foot Pocket Hose Copper Bullet today for only $29.99. 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The same way you plan each detail for those moments, start planning to protect you and your loved ones from a natural disaster. Sign up for local weather and emergency alerts, prepare an emergency kit, and make a family communications plan. Protecting your family is the best plan you can make. Okay, let's start off with some China-related stories. Seems like Apple appears to be shifting from China to India for its iPhone production. This is according to a new report by Bloomberg. And it revealed that the tech giant is now assembling about one out of seven iPhones in India. That's twice the amount compared to last year. Now this move away from China comes as relations between China and the U.S. have soured. And the report says that Apple is now making about 14% of its smartphones in India. Now China still remains a big market for Apple, but a new report found sales dropping 24% in the first week of the year. And ratings agency Fitch downgraded its outlook on China's credit rating today. It reflects the challenging situation in China's public finance regarding the double whammy, if you will, of the decelerating growth as well as more debt. So Fitch expects China's central and local government debt to rise to 61% of gross domestic product in 2024. This is a clear deterioration compared to levels back in 2019. And at the same time, the rating agency expects China's general deficit, which by the way covers infrastructure and other official fiscal activity outside the headline budget, it expects this to rise as well in 2024 to the highest level since 2020. The rating agency also lowered its rating to negative from stable, indicating a downgrade is possible over the medium term. Fitch forecast China's economic growth would slow compared to last year. And the outlook downgrade follows a similar move by Moody's in December. And China's finance ministry denounced the downgrade of its outlook to negative today. Okay, a bit more to go through here. Moving on from China back here in the US. It looks like small business owners currently is criticizing tax policies, telling lawmakers they're quote crazy. Here are the details. The tax codes, but there have been, I mean, they're just crazy. Small business owners criticize current tax policies, telling lawmakers it needs to be more simple and stable. Straightforward, predictable tax laws means I don't have to spend time locked away with my accountants trying to figure out the rules of the road. Instead, I can get out on the shop floor and focus on growing my business. Small business owner Chuck Weatherington says Trump's Tax Cuts and Jobs Act drove a wave of industrial expansion, but now tax increases are hurting his business. My regulatory expenses have gone up over 460% in the last eight years and not done anything to make the products better or safer. Owner Walter Rowan says politicians focus too much on what the tax rate is because tax rates currently aren't affecting many small businesses. I, for one, since 2020 haven't made any money. So the tax rate that I'm paying right now doesn't mean a thing to me. Depreciating means a thing to me. Interest rates means things to me. Rowan says he has to hire tax accountants because his taxes are so complicated. Many small businesses can't afford to. Tax simplification is deregulation. Tax simplification is tax fairness. Fairness is about a level playing field where you don't have to hire teams of accountants and lawyers. Economist Aaron Hedlund says simplifying the tax code is critical, especially during the current cost of living crisis. The federal tax code currently sits at over 75,000 pages. This is about a 16-foot ceiling. The federal tax code and all the guidance that goes along with it would be twice the height of the ceiling. Republican Mark Alford says Biden's proposed budget contains $4.9 trillion in new taxes. The Treasury Department says $2.7 trillion would come from businesses over 10 years. Alford believes Biden's budget would hurt small businesses. Virginia Gibson, NTD News. All right, just a few more stories to get through here. Popular big-box retail store Target is introducing new technology to combat theft at its self-checkout registers. Cameras at the self-checkout registers will be able to detect items on scanners and anything unscanned. Shoppers will get audio and visual cues when they don't scan items properly. The technology will also help Target track those who repeatedly fail to scan their items even after being prompted. The new technology will be rolled out to all stores this year. And as well, the Biden administration is setting new regulations on the amount of forever chemicals that can be found in drinking water. This new standard is going to require water utilities to filter out five of the forever chemicals, also called PFAS, that are currently found in half of the drinking water in the U.S. Environmentalists have been linked to a number of health issues, including cancer and heart disease, as well as reproductive problems. The CDC says they're finding that in the bloodstreams of nearly 97% of Americans, they're often used to help products repel water and oil but linger in the environment and the human body. Environmentalists say the ruling is monumental in protecting people's health. It's the first federal standard of its kind. And that's all the stories we have for you today. Thank you very much for watching and we'll see you tomorrow.