On "What's Moving Your Money with Spencer Hakimian," Spencer discusses the effect of President Trump's tariffs on the economy for the rest of the year, which set an average American tariff rate of roughly 17 percent, and what this means for both the "old" and "new" economies.
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0:00 - Introduction: The Old Economy vs. The New Economy 0:34 - The New Reality: A 17% Average Tariff Rate 1:44 - The PROS: How the AI Revolution is Powering the Economy 4:10 - The Shocking Stat: AI's Outsized Impact on Growth 5:04 - The CONS (Part 1): The Frozen Housing Market 7:00 - The CONS (Part 2): The Slowing Job Market 9:02 - The Historical Pattern of a Jobs Slowdown 11:15 - The Market Reacts: A Great Economic Bifurcation
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00:00After a few very long months, the tariffs in the United States are finally in place.
00:06So today's episode is going to cover exclusively what this means going forward for the rest of the year for the economy.
00:13We're going to talk about the old economy and the new economy.
00:16We're going to talk about the traditional economy, your regular mom and pop shop, your retailers, your transportation companies.
00:23And then we're going to talk about how it is or isn't affecting the new economy, tech services, AI, so on and so forth.
00:31So I want you to sit back tight and I hope you guys enjoy.
00:37So we are officially at the point where the majority of tariffs are in place, say for a few countries that are still working out deals like Switzerland.
00:45It appears as though we are moving forward with this method and we are not going to be revoking any more tariffs.
00:54Of course, this can all change.
00:55Carveouts can be made, such as with those semiconductor tariffs that were essentially all carved out last night.
01:02But for the most part, the bottom line here is that we are now living in a world where we have an average American tariff rate of roughly 17 percent.
01:11Now, this compares to an average American tariff rate of roughly two and a half percent at the beginning of 2025.
01:18So it is a seismic sea change.
01:20There's no doubt about it.
01:21And there's no way around the fact that there are going to be both positive and negative consequences for our economy at large and therefore for all financial markets.
01:31We're going to cover the pros and the cons.
01:34And I'm going to start with the pros here because it's not all bad.
01:37There are still some stuff that are positive that can hopefully ride out all of this tariff-induced weakness that we're seeing in the economy and hopefully help us get through this adjustment period.
01:50Now, we are in the middle of an AI revolution as a country.
01:54It's not hyperbole to say this is a once in a generation, possibly even once in a century moment where businesses have to once again modernize themselves for a rapidly changing world.
02:07The last time this was happening was during the computer revolution of the 80s, 90s, and early 2000s.
02:13And prior to that, it was the industrial and railroad revolution of the early 1900s and late 1800s.
02:20And we are in a new phase where general artificial intelligence is becoming commercialized to the point that businesses, consumers, households can use it on a regular basis.
02:31Now, this is causing massive investments from companies, specifically from technology companies, as they are trying to get ahead of all of this.
02:42AI is generally considered a winner's take all type of industry.
02:47Now, what that means is that whoever can get the first commercially viable product into people's hands is going to have that first mover effect and they'll benefit for generations from it.
02:58Right. A great example of this is ChatGPT. Right.
03:02So many people colloquially refer to a LLM, a large language model, just as ChatGPT.
03:08If you ask somebody that's not really into the tech world or into the finance world, they'll say, hey, I'm going to ChatGPT it.
03:14They don't say, hey, I'm going to llama it or I'm going to grok it or I'm going to meta AI it.
03:21Right. It's become ingrained in their mind that LLMs are synonymous with ChatGPT.
03:26Now, this can also have many other effects going forward because whoever gets that first mover effect is going to amass a lot of cash early on.
03:37As an example, ChatGPT's user base has quintupled, which is 5x in the last year.
03:44All of that cash is funding their future operations and their future investments into improving their LLMs going forward.
03:54This is a very cash heavy industry.
03:56So access to cash is critical here.
03:59One is via credit.
04:00One is via equity.
04:01But one is from good old fashioned free cash flow that can be reinvested.
04:05So it is an arms race, quote unquote, between these tech companies to see who can get there earliest.
04:13And this is a massive tailwind for the American economy.
04:16On yesterday's podcast, you can guys go back on the Forbes YouTube page and watch it.
04:21I spoke about just how much AI is adding to the economy right now.
04:26It is contributing more net growth to the American economy than all of consumer spending is.
04:33That is wild because consumer spending is 10 times bigger than AI is.
04:38Yet AI is contributing more net growth to our economy at this point in time.
04:43Crazy to think about.
04:44So we covered the good stuff.
04:46Now, we always want to be fair.
04:47We always want to think about everything.
04:49So I also want to obviously cover the downsides in our economy right now.
04:53And there is a few of them.
04:55But let's focus on two specific parts right now.
04:59Housing and consumer spending slash the job market, which are very correlated anyway.
05:05Housing right now is completely frozen.
05:08We have not seen a housing market this cold in the United States since 2008.
05:14There are a few states in our country, specifically Texas and Florida,
05:19that had a boom during COVID because you had residents from New York and California moving
05:24to better climates to have cheaper housing so they can get bigger space for them and their families.
05:30And it led to a boom, which led to a building boom.
05:33And then what ended up happening was that the population growth slowed down slowly
05:38while the construction did not slow down.
05:41And now we are in this very substantial adjustment phase where builders are going to have to sell down
05:46product that they thought they were going to be selling for X, for only 80% of X.
05:52And that's going to cut into profits.
05:53If they are over levered, it's going to cut into their equity, so on and so forth.
05:57And eventually it's going to cut into manufacturing, construction jobs, you name it.
06:02Jobs at Home Depot, jobs at Lowe's, jobs at Sherwin-Williams, that sell paint, you name it.
06:08It's all affected.
06:09There's a famous saying on Wall Street, as the housing market goes, the entire economy goes.
06:14And it's true because the housing market, first of all, it's everyone's biggest asset.
06:19But second of all, it is such a wide supply chain.
06:24Building a home or renovating a home, as I'm sure anyone that's ever done homework can tell you,
06:28you deal with hundreds of vendors and they deal with hundreds of vendors.
06:32And those people deal with hundreds of vendors.
06:34So it's a very long chain of people that are affected if home spending goes down in our country.
06:41Now, the next part that is really alarming is the job market and by virtue of that, consumer spending.
06:48The job market is cold right now.
06:50There is really no way around it.
06:52This morning, we got continuing claims in.
06:55And since April, since right around Liberation Day, it's just been a straight line up and to the right.
07:00Continuing claims, which basically means somebody that is unemployed, that files for a jobless claim.
07:07And then the next week, he or she reapplies for jobless claims, meaning in this previous week,
07:13they have not gotten employed or been given a job offer by anyone.
07:17And continuing claims rising is a very good indicator of a slowing job market
07:22because it means employers are pulling job offers off the market.
07:27You can also see this in private sector data.
07:29If you look at employment companies like Indeed, job listings are being rapidly removed.
07:34If you look at JOLTS, same idea, job listings are being removed.
07:39I really stress this and I don't want to sound like a broken record, but I have to tell you again,
07:42how unemployment grows in America historically is you do not go from job growth immediately to job cuts.
07:50There is an interim phase.
07:52You do job growth and then you do no hiring, but no firing.
07:56Companies are trying to tough it out.
07:57They're trying to weather out the storm.
07:59They're trying not to fire people because if they fire people and we end up avoiding a recession,
08:04they're not prepared for what's the positive economy that's on the other side of all this.
08:10And on top of it, it is very hard to retrain new employees.
08:14So companies are really reluctant to lay people off.
08:17But then the longer it goes and the more the economy overall slows down, companies have no choice oftentimes but to begin laying off people, especially public companies.
08:29Now, you guys have to remember, public companies are run by a board that is not the majority owners of the companies.
08:34They are people that are doing a job, the CEO, the CFO, and the majority of cases that really joined the company only a few years prior.
08:44And their main form of compensation is via the stock price.
08:55The easiest way for a company to protect its profit margin and its return on equity and its profit estimates for the year is to lay off people.
09:04Because it is their biggest expense for most companies and it is the only one they can discharge of at will.
09:11Obviously, no company can get rid of their interest expense or their utility bills that easily.
09:16But they can more easily, unfortunately, get rid of, I hate to talk about humans like this, but get rid of employees rather than, you know, getting rid of some other expense obligations that they have.
09:27So, look, we have pros, we have cons to this economy.
09:31I think it's manifesting very uniquely on a day like today.
09:35The Nasdaq was green slash flat today.
09:38The Dow Jones, which is more of the old economy, was crushed.
09:41It's down close to a percent on the day.
09:43So, I think we're already seeing it manifest in security prices.
09:47I think Wall Street is getting the signal that there is a bifurcation in our economy between the haves and the have-nots right now.
09:55And it is likely only going to get bigger as the year goes on, as we head into back-to-school season, as we head into the holiday season.
10:03I believe we will see this.
10:05I believe we will see stuff like the Apple Store spending go up, while at the same time we see home goods spending go down.
10:13And that is just something that we have to caution.
10:15Nothing is good or bad.
10:16It's just something we have to caution.
10:18And our job here, I've always said, is just to call the balls and strikes.
10:22So, that's it for this week, guys.
10:23I hope you guys had a great time this week.
10:25And I'm looking forward to seeing everyone again on Monday for our next episode.
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