Recession Rumors & Real Data: What the Numbers Actually Say, with Guest Alex Chausovsky

[00:00:04] Welcome to Around the Horn in Wholesale Distribution with Kevin Brown and Tom Burton. Sponsored each week by LeadSmart Technologies, Tom, Kevin and their guests review the news of the week and dive deep into the topics impacting manufacturers, wholesale distribution, independent sales agents, and the global wholesale supply chain. Whether it's M&A, SaaS and cloud computing, B2B e-commerce, or supply chain, we'll be able to get into the next few weeks.

[00:00:30] With the supply chain issues, we peel back the onion with our guests into the topics that impact your business the most. I'm Kevin Brown. This is my lifelong friend and business partner, Tom Burton. We get together every Friday morning, as we say, unless someone's in the hospital, on a planned vacation, or on an airplane. Or under the desk for an earthquake. We're under the desk for an earthquake needs to be added into that now as well.

[00:00:56] So we get together each week and talk about the news of the week, both in North America and internationally, and how that relates to a wholesale distribution. So what we try and do is look at topics like the economy and supply chain and mergers and acquisitions and AI and cybersecurity and all of the things that are going on around us in this fast-changing, fast-paced world that we live in.

[00:01:18] But instead of just having news articles, we try and break those down and discuss what and how we can apply those into the world of manufacturing and wholesale distribution, the world that Tom and I work within, and the technology company that we work for, LeadSmart Technologies. So how we get that information out, though, is we publish a newsletter every week. Again, it goes out first thing Friday mornings. It's called Around the Horn in Wholesale Distribution and Manufacturing. We'd love you to have that because that's what we'll be referring today for a lot of our discussion.

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[00:02:46] And closing on that, we couldn't do it without the sponsorship and support of the company that Tom and I work for, which is Leadsmart Technologies. We've developed an AI-enabled customer intelligence and CRM platform solely for wholesale distributors and manufacturers. We call that product the channel cloud. So it's a cloud-based solution that gains deep insights into your customers, your team, and your overall business in a single platform that will really give you access to what we describe as silo data.

[00:03:17] Wholesale distributors and manufacturers both have treasure troves of data in ERP systems, marketing automation systems, e-commerce systems, many other software tools across the organization. But they don't do you any good when they're in the silo. So we bring those together. And we use the term corral those from silo data into actionable insights that can help you accelerate growth in your company. We use AI tools to empower growth, seeing even risks within your organization.

[00:03:45] We do this quickly and easily to get folks up and running fast with great return on investment. So if your company is looking to digitally transform, use existing data to understand customer behavior better and grow your organization, we would love to talk with you. So excited to know as well today, though, that it's not just Tom and I. In a little bit, we're going to be joined. In fact, you know what's funny? I just got a note. Yeah, he says he's going to, he can, I'm going to send him a message now. I'm just doing it right now.

[00:04:15] Just keep talking. No. Very good. So, oh, you already did it. Good. So we are excited to have our friend Alex Shosofsky coming with us. Alex is with the Bundy Group. He's a analytics person, economist, a D all of the above guy with numbers and the economy and supply chain.

[00:04:42] Speaks and lectures hundreds of times a year around North America mostly. And we're going to talk a little bit with Alex today about what's going on in the world around us. So, Tom, that's great that he's able to come in. He just, we weren't planning to have him until about 930 Pacific, but we've got him coming in. So as soon as he comes in, we'll get rolling. Tom, why don't we, though, jump to an article or two while he's coming in and we'll just jump right in with him on everything else.

[00:05:10] Let's kind of move past our economy and supply chain segment. And we have in the newsletter that we do each week, we have multiple different sections. So we start each week with the economy and supply chain. We're going to hold on that until Alex comes and joins us in the next segment. He's coming in. All right. Well, there we go. There he is. Gentlemen. Hello. Good morning, sir. Good to see you. It's great to see you as well. Thanks for having me back.

[00:05:39] I was mid-sentence of describing that you'll be with us soon and then saw your email. So fantastic to have you earlier. Thanks for joining us right away. My pleasure, Tom. Great. I'm going to rewind. I'm going to rewind. Okay. We were just, we were going to move past the economy and supply chain segment of the newsletter, Alex, until you joined us. But we hit pause and now we've got you with us, which is exciting. So before we dive in, Alex, would you do me a favor and maybe introduce yourself and the

[00:06:08] Bundy Group and what you do and what the organization does? And we'll kind of get kickoff from there. Yeah, sure thing, Kevin. And Tom, hello. Good to see you again. Good to see you again. Yeah. Thank you for having me back on the show. So my name is Alex Chosofsky. I am the director of analytics and consulting with the Bundy Group, which is a boutique investment bank out of Charlotte, North Carolina. We mainly advise clients that are sellers or are trying to raise capital.

[00:06:34] We also do some buy side advisory when people are trying to acquire companies and really to provide advice and guidance in an M&A market that is very complex these days, as you can imagine. Trying to predict forward earnings for businesses in this environment is no easy task, but we help people work through all of that. My personal background, I've got about 25 years now in data analysis and application

[00:07:00] of that data to business operating environments across a wide variety of industries, across supply chain, operations, revenue. I mean, you name it, I deal with it on a day-to-day basis and both in the trenches with businesses one-on-one and with a lot of trade associations, which is how you guys know about my speaking engagements. So I do find a few of those. How many of those do you do a year? It depends on the year. Obviously, COVID fewer, now more.

[00:07:29] I've had seven keynotes in the last seven days. That's a pace that I hope not to sustain. Wait, say that again. Seven keynotes in the last seven days. And so it's been extraordinarily busy, as you can imagine. Can't even imagine. Yeah. So I'm on pace for about 100 this year. Hopefully my wife won't divorce me if I hit that number. Yeah. What percentage of those are remote? Almost none. I mean, most of it is in person.

[00:07:57] So the vast majority, in fact, I would say. I mean, I do a few webinars here and there, but the vast majority is at trade association meetings or boardroom environments where I'm working through an individual company's performance and the markets that they're in. But yeah, I'd say probably 95% are in person. Right. Word. Yeah. Good. No, it's good. Job security. I'll take it. Yes. I'm sure. Go ahead, Tom.

[00:08:24] I wanted to, you know, Alex, before we jump into the news, you know, that you're out there with people, obviously day in and day out. And over the last couple of weeks, what are you hearing? What are people asking you? What are they concerned about? You know, just in general, as you, as you meet these different, you know, I'm sure there's a lot of questions and things that are coming up in your keynotes that are obviously more specific to the things that are happening right now. Yeah.

[00:08:50] Well, I'd say that there's probably two or three key things that I'm hearing over and over again. One is anxiety. You know, people don't know what to make of this environment. There's a lot of volatility day to day, hour to hour. A lot of times I present the slides that I got ready the night before and already some of the information is out of date on the day of presentation. So people are anxious.

[00:09:17] Some of them are scared and kind of projecting the worst. Others are determined and they say, you know, we've been in difficult situations before. We know we're able to adapt and adjust and get on with our business. I would say exasperated increasingly, just like why are we, you know, shooting ourselves in the foot? Because if you look at the hard data, both on the consumer side of the economy, and the industrial side of the economy. So I use benchmarks like retail sales as a proxy for consumer, industrial production

[00:09:47] as a proxy for B2B. The data there all the way through March looks solid. I mean, there's no evidence that we're imminently tipping over into recession. In fact, there's evidence that people brought forward some buying both in their individual lives and as businesses to try to get in front of the tariffs. But certainly when you look at data as a gauge of future activity, there's nothing to say that we're destined for a recession this year. At the same time, you've got these optimism and sentiment indices that are completely falling

[00:10:16] off a cliff, right? So the difference between what we feel and think versus how we actually behave, probably the biggest delta that I've seen, including during the pandemic. Because at that point, businesses were pessimistic and not doing anything. Now they're pessimistic, but they're still doing things. Try to kind of figure it out and get ahead of the curve. So those are the top two things. And then the realization that we're in a new paradigm in terms of geopolitics, in terms of

[00:10:45] the landscape of trade and business in general, it's being rewritten right now. That realization and the need for simulation of various outcomes to make sure that you've got prepared plans ready to go no matter what the outcome is, is kind of the third thing that I hear a lot of people talking about. It's, you know, the amount of mind space and corporate attention that's being paid to geopolitics

[00:11:12] these days is through the roof relative to even, you know, we saw a big spike when Russia invaded Ukraine back in 2022. But then it fell off substantially in 2324. And now it's kind of risen to the top. There's a great metric that tracks the number of times geopolitics is mentioned in quarterly calls. This is for public companies. And it is absolutely remarkable. The percentage growth and how important businesses are positioning those developments to be.

[00:11:40] And it's hampering their ability to even provide future guidance in many cases. I mean, we've seen this with earnings calls just in the last few days across a spectrum of industry. So those are the top three themes I would say I'm hearing about. So Tom, I'm going to try and pull this in a little bit for us. Um, so in my thinking, right, Tom, we can kind of still something. No, no, no. I didn't say that at all. Okay. I was going to say, well, we are getting out of your lane. That's your job. Yeah. That's why I keep you around. Yeah.

[00:12:09] Alex, I call Tom the great distiller. He's, uh, but where were the 18th? I'm not, I've complimented you already once this month. I try and only compliment him once a month, but Tom does a really nice job of taking kind of complex discussions and breaking them down nicely. So that's why he called me out on me distilling something. But Tom, is your man cave called Tom's distillery by chance? I mean, yeah, it is. It is. Has it multiple aspects to it? Yes. That's right. I might get him that sign for above his office. There you go.

[00:12:39] Very good. But, um, I want to kind of get us on, on a track here because I think we could just chat forever, but things on my mind right now is that we should be talking about today, Alex, with you and your research and what you're hearing. I mean, 17 keynotes in seven days is you're, you're, you're seven in seven days. I'm sorry. That's what it is. Yes. Because the 17, that's why I was so astounded. Like, how can you possibly do that?

[00:13:05] And, um, but I want to, because you're so close to this, I want to kind of break this down and you, either one of you just add to this, but in my mind, we should address tariffs, inflation, recession, and geopolitics for things that have already come up. But what we've been talking about, tiny subjects. Yeah. But the line of economics. Yeah. Yes. But if we kind of break them down a little bit, then we can, and they'll weave it together, I think. But I think we should try and kind of look at each one of those. I don't know if I have them in the right order, but I think I do.

[00:13:35] And, uh, and I think that will be helpful to us. But before we do that, Alex, one question I had for you, and I was thinking about this. In fact, I was messaging with you the other day that I had, uh, met, uh, in Nashville a couple of weeks ago, your good friend, uh, Taylor St. Germain, um, and, uh, from ITR economics. So we were talking about you and, and, uh, I was kind of listening to him and his presentation.

[00:13:59] And then I'm hearing you is when I listened to you talk, I just think economist because of when we have had economists on, they talk about the same things you talk about, but you don't use that term necessarily to describe yourself. Um, I don't, you're right. Is there a reasoning behind that? And I'm not trying to put you on the spot. It just, no, no, by, by all means. Yeah, there is. So, um, the simple answer is my degree is not in economics.

[00:14:24] I have an international business degree with a, uh, MBA that's focused on quantitative statistical analysis. So, um, that's the, the easy answer. The more complex and nuanced answer is that I find that the economics in general, the study of economics, the way that a lot of economists talk about what's going on is theoretical in nature. It's if this is happening, then this should happen. Correct. My focus is much more on pragmatism.

[00:14:53] What is, what is actually happening? Let's talk about both things because a lot of times theory does not manifest itself in actual developments on the ground. So I'm much more oriented towards, let's discuss the pragmatic element of it. In fact, I have a slogan. It's all over my LinkedIn profile. It's information applied correctly is power. And it's that application of economic data that I really am passionate about, not just the theoretical part of it. I think you nailed it, right?

[00:15:21] I think theory using theory to predict actually what's going to manifest, I think is stupid. I mean, it's just, it's not an effective way to do things in this, in this day and age anymore. And we've seen that over and over and over. Right. I mean, how many, even back, you know, COVID days with the federal reserve, there was a lot of conversation. Oh, we're going to be in a recession. We're going to be in a recession. We're going to be in a recession and none of it really materialized, at least from the way that they had described it.

[00:15:51] So I think you're absolutely right on. I'm glad I asked the question because I loved your answer. So yeah. Very good. All right. So let's kind of dive in first. We talked about tariffs a little bit, right? So much the craziness of it all. One of the things, Alex, and I'm just going to kind of kick off the conversation is, and one of your, as you were talking earlier, what really hit my mind is you were talking

[00:16:15] about statistics and numbers versus what people are feeling and saying, right? That's right. And they're two different things. I think what ties in nicely to that, and it's been just been going through my mind a lot is like, you know, we've seen two pictures of our president of the United States right now, right in front of us on the screen. For those of you that are with us live or watching the recording later, right? You may or may not like that person, right? You may or may not like the rhetoric that goes with that.

[00:16:45] My caution for people is understand the big picture of what the intentions are rather than news bites and snippets to base your opinions upon, right? So you could look very quickly and say, I'm a cutting tool distributor and most of my cutting tools are coming from China, or I'm a safety equipment distributor and my reflective vests and my safety glasses are coming from China. And there's 145% tariffs.

[00:17:15] And those are going to last for the long haul because that's what the sky is falling says to me. And so there's my sentiment as opposed to looking to what is the big picture of what's trying to be accomplished, which I think I can hit most of these, right? His starting off with fentanyl on the borders, right? Tariffs to level the international playing field for the United States to grow and expand its economy. Third would be tax breaks coming from that.

[00:17:44] And then on shoring manufacturing, I think would be the fifth. Either one of you jump in if I'm missing anything with that. But if we start looking at this big picture, I'm not going to suggest for a minute, I'm smart enough to think that I know what's going to come out of all of this, but there is a big picture view and the tariff issue is a component of the goal for the big picture. And what you've seen from this president and administration so far and his prior business

[00:18:12] dealings before becoming president is everything is about getting people to the table to negotiate. So that kind of paints a picture. And I think it ties fairly well into the comment that you were making earlier about data, about recession and inflation and so forth versus what the sentiment is out there. So I'm going to throw those thoughts out on the table for our broader discussion before we get started. Yeah, lots and lots to unpack there, Kevin.

[00:18:42] I tend to be very objective in my assessment of the administration's policies. So I really work hard to keep my personal biases and political leanings out of the conversation. And to summarize my view is I think some of the things we're doing make sense and should be pursued, whereas others, I think I can't find the justification in the data to support the current course of action.

[00:19:09] And tariffs is a really great example of that as a microcosm, right? So I do agree with you that there are many elements to it. Tariffs are not the only one. There's things like our long-term strategic direction, our military superiority, our debt. All of these things are a big part of the pie. But looking at tariffs, you know, and I'll use a couple of examples to drive this point home, right?

[00:19:36] So if we talk about the tariff approach that we've implemented on Canada and Mexico, I think you have to recognize that based on the logic and the rhetoric of the administration, if we say the main issues we're trying to address there are the border, meaning immigration and fentanyl, Canada and Mexico are not the same when it comes to those things. And yet we are treating them largely the same. And so the question that I have in my mind is why are we taking that approach?

[00:20:03] Why are we not taking a more nuanced, more reflective approach of the reality on the ground? When you talk about China, I think that there is absolutely justification for saying, look, not only are we recognizing for probably the first time in many administrations that we are the gorilla in the room and we have weight and heft to throw around as an economic power to achieve wins and get concessions from our trading partners.

[00:20:28] But it's also recognizing the fact that the Chinese government has made a very deliberate strategic pivot since COVID. They have gotten away from trying to create an economy that is more like Western democratic economies like the one we have here in the US, which is consumption driven. And realize that the mentality of the average Chinese person is not driven towards consumption, is driven towards savings. And therefore, they have made the decision and have taken strategic action to say we're going

[00:20:58] all in on being the production center of the world. We're going to increase our manufacturing capacity. We're going to produce product and oftentimes sell it into foreign markets below cost to win share and drive out domestic competition and then able to increase prices after that. So it's a very strategic, deliberate thing that they're doing. And we cannot just idly sit by and let them continue to do that because there are significant ramifications of that down the road. We see it in military and defense spending.

[00:21:28] We see it in the ability to project soft power and influence partners all around the world. And so I think it's all about recognizing that we can't just take a blanket approach with tariffs and say, you know, trade deficits are bad across the board. I mean, you look at the deficit side. China's our biggest deficit. Mexico is second. Canada also has a deficit, but only because we import a huge amount of discounted heavy

[00:21:55] sour crude from Canada, which are refineries then turn into jet fuel and diesel and gasoline and sell for a huge profit margin. So like that trade deficit is actually a beneficial thing. Interesting point. Those are some elements of why I say, you know, I agree with some of the things that President Trump and his administration are doing on tariffs. Others, I just can't get behind because the data doesn't support it. I can't hear you, Tom.

[00:22:26] No sound. You know, Alex, for a guy that makes the kind of money that Tom makes, I'm just going to buy him. He should have a microphone. I'm just going to get him one this weekend. How's that? Is that better? We can hear you. Technology is hard, Kevin. Give him a break. Technology is hard. Yeah. Except the challenge, Alex, is my livelihood and my future related to technology that our company makes is in his hands. Right. Right. Yeah. So the data tells you to look elsewhere, I think.

[00:22:52] The data just tells me to spend 150 bucks and solve the problem. Yeah. Alex, would you think part of what's happening here with the tariffs, because I agree with you, right? If you look at them from a holistic perspective, kind of this one size fits all seems a little bit ridiculous. But do you think it's being done as a kind of an initial shock and awe to get everybody's attention?

[00:23:19] And now, and you see, and this kind of ties back to this first couple articles, right, that we have here. Where now there's a lot of quote unquote negotiations occurring that are in fact very tailored to that country and that specific thing. So we kind of shotgun first, but now we're going into much more of a sniper, you know, and I guess that's the first part of the question. The second part of the question is, do we really believe that tariffs are going to be

[00:23:46] a long-term part of the strategy to achieve some of the objectives that Kevin mentioned and Albert mentioned another one here. Yeah, I think so. I'm coming to that, Tom. Bring it up, Albert. Another objective. Do you believe that those will continue to be a key part of the strategy or was this more of a leveraged strategy to then start having individual discussions with these different countries going forward? Does my question make sense? Yeah, I think so.

[00:24:14] So I'll start by talking about kind of the transactional nature of what's happening right now. I think that being the businessman that he is, President Trump is used to operating in a very transactional short-term basis. And I believe the behavior that we're seeing unfold is very indicative of that, right? So if you were focused on immediate transactional outcomes, then yeah, shock and awe at the beginning

[00:24:42] and then negotiating afterwards is potentially a viable approach to that. If you're more focused on long-term strategic changes, then I think the outset would have looked different. You would have said, we need to have serious discussions here. Otherwise, we're going to implement punitive measures, right? So it's the idea of shoot first, ask questions later, or ask questions first, then shoot, depending on the outcome of what you find out. Yeah.

[00:25:10] And I tie that all the time, Alex, into the previous administration. And my comment here is not tied to any political party. It's just past administrations have spent their time jetting around the world to fancy locations with gold-leafed conference tables to spend months and months and months, if not years, talking about topics that what this administration is saying is, we don't have that time, right?

[00:25:39] We need to go get some action. And I almost sometimes wonder if the rhetoric that goes along with this and some of the bombastic things that are said, and if that was more tempered and it was presented in a different way, if there would be more support behind some of these things. Yeah. I mean, you take this 90-day pause that we've now implemented, right?

[00:26:04] I mean, we could have said, if we don't get new deals from all of you that are better for the United States in the next 90 days, this is what's going to happen. Rather than first implement, then walk it back, then create all these disruptions, and people don't know what's going on, right? So from a business decision-making perspective, this is not helpful in terms of planning and things like that. Sure. Absolutely. I agree with you. Yeah. I mean, the- I think it's naive, Alex. I'm sorry to interrupt you.

[00:26:30] I think it's naive to think that there wasn't already the plan in place for the 90-day pause before the- I don't know. And Alex, I'd say your take on this. I think that the shock and awe, I think they grossly underestimated the manifestation or the side effect, maybe is the better word, of the shock and awe approach. I think that in some elements, yes. In some elements, no. They knew it was going to be disruptive.

[00:26:59] So the amplitude of disruption, I think, is what you're talking about, Tom. And I agree with you there. In particular, they probably knew the stock market wouldn't like it, which it hasn't, obviously. But the thing that has, I think, even President Trump alluded to this himself, the result in the 10-year, right? The bond yields and the volatility there swinging half a percent within a matter of days, that was probably unexpected and is reflective of this greater shift, right, in terms of is

[00:27:27] the United States the trusted ally and a reliable long-term partner that's being reassessed by the rest of the world that's part of this. And I think probably less thought was given to that. But to answer the second part of your question, Tom, on the do I think that these are long-term? I think that there is certainly an intent to address some long-term issues using tariffs as a tool. And President Trump has been very consistent in this.

[00:27:52] Since the 80s, he's been talking about the belief that the tariffs are a part of the armament that leaders have at their disposal. That we're not leveraging enough. I mean, he's talked about things like the revenue that it's going to generate as a means of offsetting some of the spending that we're doing. More recently, obviously, the rhetoric around, well, we've got about $9 trillion worth of debt that we've got to roll over this year.

[00:28:17] And driving down those yields that I mentioned earlier on the 10 note is a way for us to pay less income, less of our government income as a means of financing the $37 trillion debt. Right? So there are longer-term issues in play here that I think make me believe that at least at some level, there will probably be tariffs in place long-term. But tariffs in and of themselves. Let's say we, just for the sake of this conversation, let's say that the 10% baseline tariffs remain

[00:28:44] in place for the next 12 months, which I think is very realistic at this point. I think that's realistic. The knowledge that that is going to be the playing field will then allow businesses and consumers to adapt and adjust. Yes, there will probably be some inflationary pressure associated with it, but not 10%, right? Because it's always a nuanced mixture of who absorbs it, the manufacturer, the supplier, the end customer, right? And so then we could adapt and move forward. And I think that the economy could withstand something like that.

[00:29:14] So 10% is a very reasonable number to offset across all parties, right? In that setting. Maybe not the Penguin Island, you know, but... Well, I mean, from that standpoint, right, when you're looking at that, I mean, was it the purpose behind a lot of these, you know, tiny nations and so forth? The idea, but, you know, it really relates to Southeast Asia, right? The same idea is... Vietnam has a pass through for Chinese goods. Yeah, it's just a... Right.

[00:29:44] It's exactly... You said it perfectly, right? Because we're seeing some of that in Mexico already, but we saw... A fusion. A fusion. Right. And we saw... And this was, you know, a good friend of mine runs operations and purchasing for, you know, about roughly a quarter billion dollar a year industrial distributor. And they had been moving tons and tons of their products that they were bringing in, including

[00:30:10] private label products, into other parts of Southeast Asia, Vietnam, Laos, other areas, right? And not even thinking for a minute that when the big day happened, right, that we would see all of those because now there's just this huge scramble. And... But China had... And the reason behind it, right, is China had been pushing their own manufacturing into those locations. And now we have whatever that Penguin Island was called.

[00:30:38] The reason it's there is to stop, you know, as the big list after list after list of countries that you would never imagine. And I'll finish the statement. It just brings another big trigger for me to my mind about where we get our news, right, is looking deeper beyond the news snippet that says, what's the reason that, you know, Marshall Islands or the truck islands of Micronesia are on this list?

[00:31:04] They're on the list because they don't want the Chinese pass-through that could happen so fast with that. So thinking through it is the issue for me that I just... I see these rampant comments from normally smart people that are just watching whether... I don't care where you get your news from. If you're only getting your news in snippets and not looking at the big picture, you are missing a lot. Yeah. No, I couldn't agree more. Elimiting the loopholes that you're talking about is obviously the goal here. Yeah.

[00:31:35] I do think that, you know, some of the places that were listed there, there's no shipping infrastructure at all. Yes. Correct. Like, come on. But your point is valid. And I fully can get behind this idea. I've worked with many, many companies where, like, it was open knowledge that the products that we're importing from Vietnam are just re-stamped Chinese goods that are being stored in warehouses. There's no value add that's actually happening. And they're just doing it to skirt tariffs.

[00:32:02] So, yes, I think the big picture view, the understanding of the tendencies that drive the decision-making is critical. But, you know, I'm increasingly becoming convinced that critical thinking is a huge shortage in our society. It's very much a huge shortage in our society. Yeah. And it's... Like people come here on Friday mornings. Yeah. Yeah. I'm not sure we're going to get here, but... So, yeah. Yeah. So, I think, you know, on the tariff side, again, it needs to be more... Less of a broad-based...

[00:32:32] Let's talk about tariffs as a general concept conversation and more specific about each case. So, that brings up a couple other points. And I really like your idea about, you know, all tariffs are not all the same applied equally across... Regardless of what the percentage is. Right. Because the Canadian and Mexico example that you gave is great, right? We're not seeing the influx of Chinese-made products coming from Canada that we are from Mexico. Right.

[00:33:00] There's probably a lot more stability in from an infrastructure standpoint and what they're likely to do with Canadian trading partners than what you may see in Mexico. And I've been saying this for a year now is that Mexico is probably the most important country for us to be paying attention to right now from a... I was going to say geopolitical, but that's probably not correct. But just from a business standpoint of what can happen there.

[00:33:27] And it could become even more so from a geopolitical standpoint as well with that. But that said, I shared this last week on the show and had made a comment from an article that I had read that said, and again, this goes back to the bigger picture strategy of what the administration wants to accomplish, was that if there was just 10% tariffs across

[00:33:50] the board, the revenue from that would fully fund the intended tax breaks that the administration wants to put out. Right. So that was really an interesting component. Now, I've not done the full research on that, but just to be kind of thinking about it, even if it's plus or minus 20%, right, is there's a bigger picture of this than just saying we're slapping tariffs on. There's the geopolitical issues. There's the trade balance.

[00:34:19] There's the infrastructure issues in the US. So I just thought that was really intriguing that that number played out roughly to that spot. Yeah, I mean, the numbers do support the assertion. So the data that I've seen is if we keep the 10% tariffs in place, that could generate upwards of about 700 billion a year in revenue. And the tax proposals, the tax cuts, including the extension of the Tax Cuts and Jobs Act,

[00:34:48] cutting taxes on Social Security, overtime, tips. And then the big one, which is kind of like the real hard one to quantify, that's corporate taxes being lowered to 15% for quote unquote domestic manufacturers, whatever you decide that means, right? What percentage of your production has to be in the US for you to qualify for that distinction? Yeah. The total cost of that ends up being somewhere in the neighborhood of maybe eight, nine trillion dollars over 10 years. So we're in the ballpark. I wouldn't disagree with you there.

[00:35:18] But the big assumption that that makes is that we're able to extend that the full 10 years. And obviously, President Trump is only guaranteed four years, right? So who knows what happens in, you know, 2028, what happens in 2026 during the midterms, if we get a more resistant Congress as a result of a swing too far, you know, to protectionism. So I think that there are a lot of assumptions. And, you know, I always like to go back to, you know, the word assume, right?

[00:35:48] What, what, what, how that's made up, right? And I don't like stacking assumption on assumption on assumption. It's, it's kind of, you have a specific agenda you're trying to get people to buy into already, and you're using these elements to convince them that it's viable. I don't know that that necessarily holds up to scrutiny. Given the timeline in question here, 10 years, a lot of things can change in 10 years. A lot of things will change in 10 years. But, you know, I, if, if we see some of the tax reductions, be interesting to see what

[00:36:18] happens with interest rates. And we see that these are working. I think it becomes very difficult for the next administration to make massive sweeping changes to it. If the sentiment is strong, that these things have accomplished something, right? If we see that factories are being built, if we see that interest rates are balanced, you know, I don't think we're going to see interest rates anywhere close to what they were a few years ago. But if we all of a sudden see that, you know, there's some significant, both corporate and

[00:36:46] personal tax reductions, those things are playing out. And a lot can happen in that 36 month plus range. Right. I think it would be very hard regardless of what, what party comes in to make sweeping changes to that. If it's working. Yeah. I mean, I'll give you my baseline assumption regarding the tax rates right now. So there's about six line items that I mentioned earlier that are potential on the wish list.

[00:37:14] I think we definitely get the extension of the TCJA. That means that our taxes aren't going up, which I think is political suicide for anybody, right? To try to get people's taxes up. Beyond that, the probability of those things actually being ratified and codified into law, in my view, becomes less and less. So, you know, if you're looking for one that is potentially viable, I'd say, you know, ending

[00:37:39] taxes on social security, because that really addresses the base that President Trump bears a lot about, which is the older voter that is drawing social security. But things like tips and overtime, and I think the corporate taxes is probably a non-starter as well, because it's open to litigation, meaning how do you define domestic manufacturing? How do companies go through the process of qualifying for that title, right?

[00:38:04] So I think that we get some of them, specifically the existing tax cuts get signed into permanence, and then maybe one or two other things without getting the full wish list of items. Well, and they only have about 18 months to get that done, right? Because midterms come around, and I just wasn't aware of this. I just heard this a while back, but the percentage of administrations that control the Senate and

[00:38:31] the Congress coming in is like a fraction of what you would anticipate is very, very low, but they continue to control that after the midterms. So I think this type of stuff, specifically these cuts are going to have to get through before the midterms. Yeah, right. And I think it's important to highlight for your readers, you know, most of the action that President Trump has taken so far has been by executive order, right? But you cannot change tax law by executive order.

[00:39:00] That requires approval from Congress. That's why you're saying, you know, within the next... Gotta go fast. Yeah, that's right. 15 months or so, I guess, basically we have. Yeah. So, yeah, it'll be really interesting to see what happens. Within the MAGA movement that say, don't forget, we have a $37 trillion national debt and it's increasing by a trillion dollars every 90 days, you know? So, like, we can't lose sight of that.

[00:39:28] Yes, tax cuts are good, but, you know, we are already spending more than we're making and tax cuts decrease the revenue that's being taken. So we need to figure out how to offset that, right? What are the cuts coming from? How do we fund that? Very good. So let's, before we leave tariffs fully, let's kind of talk about what are we... Yesterday there was the announcement and it was just a random news conference statement, right, about China being in negotiations. The Italian...

[00:39:56] I noticed that happened after the market closed as well, which I think was definitely by design. Yeah. The... But that was, you know, comment about China's, you know, coming to the table. He even said, I listened to one of the sound clips this morning again, said three to four weeks he thought that that could be sorted out. Japan is at the table. Some major companies, countries, I should say, Italy was visiting the White House yesterday.

[00:40:25] Alex, any kind of thoughts about how deep these are really going on? And I don't want you to look into a crystal ball, but I'm interested in your opinions. I mean, I think that the question of how disruptive will the continuation of the status quo and the potential of the full implementation of the tariff increases are to each country should guide our opinion on which country is likely to give up more concession and actually get a deal done in the short time, right?

[00:40:54] So I have a really interesting chart here that talks about, like, what percentage of each country's exports to the U.S. account for that country's GDP. So in the case of China, it's about 3%. So, you know, given their official Chinese Communist Party statistics, which, you know, take with a grain of salt, but they grew by about 4.5%. So even if that trade gets significantly disrupted, there is a semblance of them to eke out growth,

[00:41:21] economic growth, even with the disruption. But other countries are not nearly as well positioned to withstand the risk. Mexico, 27% of the Mexican economy has to do with exports to the United States. I mean, it's a really incredible amount. For Canada, it's just a little bit over 20%. But then we've got South Korea at, roughly speaking, 6% to 7%. Germany is around 4%. Japan, a similar number. Italy, a similar number.

[00:41:50] So as you go down this list, the impetus to get a deal done and get it done quickly diminishes. But countries that are at the top of that list will absolutely be incentivized to give up concessions to stave off any major long-term disruption to that part of their economy. I mean, if you look at Germany, which has already struggled to grow for several years, right? And now you're talking about a minus 4% of GDP hit just because of disruption to trade,

[00:42:20] that becomes a very untenable situation for the Germans very, very quickly. So I think the EU as a broader member, Japan being a good example here, very incentivized to strike a deal and try to get something in place to mitigate the impact of tariffs. Do you think that that 3% on China is misleading or, if nothing else, miscalculated? Or false. Well, yeah.

[00:42:47] But I could also see, if you look at just like we were talking about earlier, what you were mentioning earlier, right? Kind of the proxy in Vietnam of the Chinese goods that are there. And they're coming from Vietnam and all those things ultimately back to the US, right? So if you start to factor in the ecosystem that is ultimately China is driving into the US, I would suspect it's much, much higher than that 3%. Yeah, total exposure, much higher for sure.

[00:43:15] The Chinese, though, have a very unique set of cards that they're able to play that other countries simply don't have access to. So a great example would be, you know, this recent move to require permits for exports of any rare earths, right? They have a stranglehold on critical materials. Not only things like neodymium and dysprosium and things that make magnets for military and defense equipment, but things like gallium and germanium that go into semiconductors and telecommunications.

[00:43:43] They control the vast majority of the supply and it's irreplaceable outside of that. So I think that the negotiations with the Chinese will be more robust. I would be shocked, frankly speaking, to think that they can get that done in 90 days to any kind of meaningful outcome. And I look back at President Trump's first term as a guide in terms of how long those negotiations took. And more importantly, just because the Chinese say they're going to do something,

[00:44:10] that doesn't mean they actually do it after the fact, because the implementation of any deal, that's where the real rubber hits the road. And we didn't see any evidence of that happening in the 2017-2018 timeframe, right? So what makes us believe that it will happen this time? And he said in this article here, he said that he expects an agreement or a deal, maybe is the better word, in three to four weeks. So, you know. I mean, as of right now, my understanding is there's not even a date set when Trump and Xi are going to meet.

[00:44:39] So let's get that on the books first before we start prognosticating about how quickly we can get it done. And the question is, do they... You've been in progress, so... Yeah. Go ahead. The question is, is it even going to be them that... Probably not. Because both of them... But the only reason I would see that potentially being a case is that both of them want to go back to their countries and say, I got him to the table, right?

[00:45:05] And we're not watching Chinese news and the average Chinese person is not watching the U.S. news. So they get to go say whatever they want about, you know, that they got them to each other to the table. Right. I do think that in Chinese society, and this is permeating the average person all the way through the top ranks of government, the belief is that they are much better positioned and more insulated to withstand the major disruption today than they were 8 to 10 years ago. Right.

[00:45:34] And so they've been selling off treasuries over the period of the last five years. They've been decoupling purposefully from the U.S. economy because they knew this was going to happen at some point. And so, you know, it's going to be very, very difficult for me to envision China giving, you know, meaningful large-scale concessions unless we're prepared to do the same. And I'm not sure that President Trump is going to be willing to do that. Yeah, that one will be an interesting thing.

[00:45:59] And the other part of that, you know, component of it compared to the other countries that you had mentioned, Alex, as well with this is that, you know, you're not going to see South Korea or Germany or some of these other countries, you know, putting a government backing behind some of the companies that are going to get hit by this as well as manipulating their currency. Right. Right.

[00:46:23] So many levers available to the Chinese, which is exactly the point that I was making, that it's a very unique set of circumstances and shouldn't be talked about in the same breath as, you know, as the other countries. Again, let's continue to look at the big picture as opposed to a news bite. Bob made a nice comment here about, you know, too many of the U.S. trading partners have looked at tariffs on U.S. goods as a permanent revenue stream in their countries, right, as opposed to a short-term or a temporary fix.

[00:46:51] So it's built into their economy now. And that's a, that's a, I hadn't thought of it from that perspective. I thought that was interesting. While true, I think there's going to be a cost benefit analysis done by, you know, in terms of the economic damage potentially associated with allowing those tariffs to remain in place versus readjusting their formulas to remove this permanent contribution from, you know, import tariffs on American products. Right. So. Good.

[00:47:18] So before we move here, I just want to do one final question and a kind of a bottom line question. Because my guess is this is what a lot of people are thinking about, right? In our industry in particular. And we talked about this, Kevin, with Brendan Breen a couple of weeks ago on the show. Is, Alex, let's just say we're at April 15th. So let's just go until the end of June. Right. Right. So, you know, almost 90 days or 90 days.

[00:47:46] Where do you think we sit with all of this? Is, is the noise and confusion and uncertainty still here? Do we have more clarity and more certainty, even though we may not like all the things that we find out? Where do we sit in and by the end of the quarter?

[00:48:03] I'll tell you what I've been saying from the stage and many of my keynotes, which is if you look back at the early phase of this tariff rollout, my position was if we can contain it to Q2, if it doesn't bleed over the uncertainty, the ambiguity doesn't bleed over into the second half of the year.

[00:48:22] I think we have a probable rebound that happens and we're able to kind of mitigate some of the downside pressure and therefore no reason to think that we are going to go into a substantive recession. No harm, no foul. Right. Right. Now, 90 days from April 2nd, to your point, is the very end of Q2. Now, we're also talking about potentially implementing tariffs on semiconductors, on pharmaceuticals, on copper, on lumber.

[00:48:52] Those are still theoretical. Right. Those are just concepts of ideas. We don't even know what that looks like. So, sometime around the first week after this reciprocal tariff announcement was made, I became more convinced that this does bleed over into the second half of the year and that it's going to be increasingly difficult to see positive growth this year based on not only the impact of the tariffs. Right. There's other elements.

[00:49:22] There's the government spending cuts that are being implemented. And the government spending is 17% of the economy. So, that's accretive to the negative impact of tariffs. We do have this thing that I mentioned earlier in business optimism and consumer confidence. Eventually, that will translate into less behavior. So, not only the increased inflationary pressure, but the demand destruction that happens as those prices elevate.

[00:49:47] It's very difficult for me to now make the math work to say we don't see at least a mild contraction in the macroeconomic environment by the end of this year. So, I still am hopeful that we get clarity. But being the pragmatist that I am, I think that it's very unlikely at this point that we have full transparency and clarity of how the playing field looks like moving forward by the time we're getting into the early part of the region. I guess part two to my question is, do you think we'll have that by the end of the year?

[00:50:15] I think that there's, you know, as with all things, there's not a black and white answer, but I think the probability of that is higher. I think the more we see the negative economic consequences, I mean, Besant, Lutnik, a lot of the people involved in the negotiations are still adamant that we do not get a huge spike in inflation. We do not get a recession. If the hard data starts to turn and turn visibly, then there's no way for them to continue to have those positions. And so, an adjustment will have to be made.

[00:50:44] So, I think that there is a higher, potentially much higher probability that we have clarity by the end of the year, but not a guarantee. So, you know, if I were to say less than 50% by the end of Q2, I would say maybe upwards of 75% by the end of the year, but I wouldn't give it 100%. Fair enough. Well, and I think there's an X factor, right, that you have to take into account that our president cares a lot about his legacy and how people view him, right?

[00:51:12] And if you start to see hard data that we're moving in the wrong direction, and then you start to get a reputation associated with you're the president that is creating a recession or worse, I think that is as bad as anything to him, right? Because you lose that legacy, you lose that acceptance, or you have the risk of losing that. And I don't know that we always take that into account, again, on some of the decisions that are being made.

[00:51:41] Yeah, I mean, certainly his legacy is in the back of President Trump's mind. But I also think that he, his legacy, based on what I know of his moves in the past, I think he's going to be willing to endure a little bit of pain in the short term to guarantee a big picture legacy. If he's able to do, I mean, the promises were, I'm going to bring back manufacturing, you know, how realistic that is based on the amount of skilled labor we have in this country is a totally different conversation.

[00:52:10] But if we start to continue to see investment in manufacturing facilities being built here, if foreign companies are more committed to bringing in plants into the US, even if those plants are robot operated rather than human operated, you know, he can claim, say, I rebounded manufacturing. Now, that might take 18, 24, 36 months.

[00:52:30] So I don't think that if we just have a downturn in the economy this year, but if it becomes a prolonged period of malaise, then yes, certainly legacy considerations have to be made. Yeah. So. I wanted to hit one more question, Kevin, before we jump out of here. Is Albert asked about, and you touched on this a second ago, he asked about consumer debt, you know, are we concerned about, are you concerned about consumer debt? Or do you think that, you know, where would we spot any drop in computer, computer, consumer spending?

[00:53:00] You know, where's the canary in the coal mine there, I guess, if you want to. Yeah. Great question, Albert, by the way. Hello. I know Albert quite well. So I track consumer debt on an ongoing basis. There's a great report that's released quarterly. It's called the Consumer Credit Panel from the New York Federal Reserve Board. Everyone can access it there. They track delinquency rates, both 90 and 30 day delinquencies. And, you know, in order to understand consumer debt, you have to look at it from two perspectives.

[00:53:28] Number one, what is the makeup of that debt? Right. Because you hear all of these headlines regularly saying consumer debt hits record high. Well, of course it does. We're a credit driven nation with a growing population. So the overall number increasing is not a problem in and of itself. It's how are we able to keep up with the payments on that debt? That's the really big question, both at the government level and at the consumer level. So they break up the debt into basically housing, which is made up of mortgages and home equity line of credit.

[00:53:57] That accounts for about 72% of the total debt. And the vast majority of that is locked in below 5%. So it's not going to become a problem as far as I can tell. Certainly not in the foreseeable future. The remainder is student loans, which is about $1.1 trillion, credit card debt and auto loans. Those are the three main other characters. There's an other category, but it's pretty small.

[00:54:23] So I look at delinquency rates for those three elements, student loans, credit cards and auto loans. And they had been rising quite substantially, particularly for credit cards and auto loans. But in case of credit cards, the last quarter, we actually saw them tick down. And in case of auto loans, they're leveling off. So we're not having this worsening situation.

[00:54:46] So I'm going to keep watching that and figuring out whether or not it's becoming problematic enough to affect the overall economy and really stifle retail environment spending by the consumer. The other thing that I watch is the debt to income ratio. And what you want to see is that being relatively stable or declining, which is what we had through the end of 2024.

[00:55:10] We had two years worth of decline in that ratio, which means that wage gains were enough to offset the accumulation of new debt that consumers were taking on. It'll be really important to see what happens in the labor market. So far through March, we have a relatively resilient labor market. But if we start to see job losses start to mount, then the impact that consumer debt is going to be very, very significant in a short period of time.

[00:55:37] So those are the things that I'm watching to ascertain whether or not the consumer is able to keep it up. And so far, despite a complete collapse in consumer sentiment, whether it's the Consumer Sentiment Index from University of Michigan or any of the other data sources, we're not seeing that translate into behavioral change yet. Once that happens, then that will be really quick in my view. I'm going to throw this out to both of you.

[00:56:04] One of the things that surprised me is with all of the activity with Doge and so forth going on, that we've not seen the uptick in unemployment to the level that I would have anticipated. I don't know how many jobs have been cut, but it's tens of thousands at this stage. Either one of you have any thoughts on that? Yes, there is a website, I think, by the New York Times that actually tracks government job losses.

[00:56:33] The last time I checked, I think it was like 150,000 to 200,000. Keep in mind, total government, federal government employment in the, that might include state and local. I don't know off the top of my head, but it's somewhere between two and three million people. So we're talking about, you know, single digit, maybe 10% of total workforce layoffs. A lot of times those people are finding work relatively quickly.

[00:57:02] You know, in fact, when you think about the buyout offers that the administration through September, right? They have, they're paid and they have the ability to search for, find and earn money through another job during that timeframe. But they're actually employed, right? I mean, is it actually, the buyout packages, I believe they're actually employed in some cases through the end of it. Right.

[00:57:25] I mean, in some cases, it differs department by department, but certainly they have the ability to start looking for work because they're not going into the office. So I think the actual hit to that in terms of the overall job market, when you think about 200,000 people, I mean, last month alone, just as a point of reference, we added about 250,000 jobs in the U.S. Despite the layoffs that are going on in the government sector. So I think overall right now, it's not a major issue.

[00:57:52] In fact, if you look at the website for Doge and Elon Musk as a primary source, you know, originally the target for Doge cuts was $2 trillion a year. Then he lowered it to a trillion dollars. Now the latest was we're going to provide about $160 billion worth of cuts to government spending before the end of 2025. And when you consider the fact that federal government budget this year is $7 trillion, you know, we're talking about 2%. So not a huge amount.

[00:58:22] Very good. Okay. So let's kind of pull some of this together. So very earlier in our discussion, Alex, you said, I don't want to put these words in your mouth, but the numbers that you're seeing versus the sentiment related to a recession don't match. Yes. Fair enough? Fair enough. Okay. One, let's unpack that a little bit more.

[00:58:46] But then what I'd like to kind of do is move into the discussion amongst us related to inflation, right? Because we've got Powell saying one thing in the last few days about watching his numbers. We've got a president that is saying, I want interest rates down because if interest rates are down, it can get more factories open and it can do all of these different things.

[00:59:10] So let's spend a little bit of time, Tom and Alex, on talking, maybe unpacking the recession a little bit more. Risk, what we were really unpacked those numbers you were talking about earlier, Alex, if you're okay with that. And then two is, and by the way, for those of you listening, I asked Alex like not even 48 hours ago if he, hey, want to come join us again? Yeah, I'm open Friday. Great. Let's do it. That's one of the beauties of this show is we have some good flexibility and we just want to make it the best we can each week.

[00:59:39] So thanks again, Alex, for that. So let's talk recession, move past that, and then let's start talking about, well, wait a minute, how can we have the pressure from the administration on lower interest rates with a Fed that is saying, I'm using these numbers from, you know, 30, 40 years ago, and I'm sticking with those. So fair enough, guys? Yeah, I think so. A lot of different elements involved in answering that question.

[01:00:05] But, you know, in terms of recession, so I mentioned government spending is about 17% of the economy. Business investment, so things like distribution, manufacturing, all of the B2B side of the economy is also 17%. And then we have the big gorilla in the room, which is personal consumption. That's two-thirds of overall GDP, right? So retail sales, advanced retail sales, which is the data that I track as a proxy for the consumption segment of the economy,

[01:00:35] the latest numbers just came out. Through March, year-over-year growth is at 3%. Quarter-over-quarter, which is a short-term trend line that is indicative of future momentum in the annual trend line, is actually up over 4%. So when you look at the business cycle of the retail environment, not only is it not saying capitulation and recession, it's saying there should be acceleration happening over the next two quarters. Now, that can turn very, very quickly. We saw that during COVID, right?

[01:01:04] But that was a physical limitation of people not being able to go out and buy. This time around, I don't think we're facing the same dynamic. And so if there is a decline, it'll happen more gradually than what we saw during Q2 of 2020. But again, right now, I'm not seeing the evidence in that data. It's holding up. The big question in most people's minds that are tracking this right now is, is this just folks trying to get ahead?

[01:01:28] And we saw some reason to believe that because there was a big surge in large-ticket item purchases like cars, for example, and appliances, things that would be very susceptible to the tariff environment if it was to persist for a long period of time. But the hard data says no recession in the immediate future, two quarters out into the future. We'll see if that sentiment number remains as low as it is right now for the next three, six months,

[01:01:55] then surely the actual data for retail is going to follow suit and turn over. Now, on the business side, business investment is also following a similar trajectory. It had a nice momentum coming into early 2025. The latest numbers from the Federal Reserve Board for Industrial Production was just released on the 15th of the month. Once again, it's the first time the short-term growth rates are up in positive territory, up about 1.5% growth.

[01:02:23] The year-over-year, very mildly positive at 0.2%, but again, indicative of that upside momentum trend that we saw with the consumption data as well. So when I look at the fundamental drivers of hard data for the U.S. economy, they're not flashing recessionary signals. And the question is of timing, right? How long can this continue?

[01:02:43] I'm looking towards the April and the May data to be real first indicative signs of are tariffs detrimentally impacting the buying behavior of both businesses and consumers? I know from a business perspective, many of the folks that I talked to have said consistently, we're seeing projects being delayed. We're not seeing them canceled outright just yet because people are adopting a wait-and-see mentality in terms of what happens with the shakeout of all of this tariff stuff.

[01:03:13] But if they eventually get pushed into late this year, early next year, or canceled altogether, then again, that data can collapse relatively quickly too. Can't hear you, Tom. How about now? Yes. Okay. What kind of projects are you, when they talk about projects being canceled, what kind of projects are those?

[01:03:42] What are the types of things that are being considered to be delayed or postponed? The large stuff is, you know, building and equipment. Really, those are the two categories where... Capital expense. Capital expenses. Exactly. And, you know, they're delaying them for a couple of reasons. They would love to see interest rates, you know, the cost of capital go down as part of that inflation conversation with the Fed that we're about to turn to.

[01:04:07] But then also, obviously, increasing warehouse space, you know, the build-out of additional production capacity to meet future levels of demand. Those are very, very difficult things to justify in this environment of uncertainty. And that's where we're seeing the biggest cuts occur. We're not seeing it headcount yet. You know, the layoff numbers are remaining relatively benign.

[01:04:30] So, you know, those are the big expenses that I'm seeing people hold off on is buying new equipment and machinery, buying new facilities and buildings. And that's where really, you know, if you have that come back, that comes back in a meaningful way. And we have a boost towards the end of the year. If it doesn't, then that's going to be a big hole to fill. I think there's a lot of people that maybe have bought a piece of land thinking about a new branch or a new location.

[01:04:56] If you're a wholesale distributor that are hitting pause saying, wait a minute, let's see what tariffs are going to do to impact my business. But maybe even more importantly is, let's see if some interest rates adjust down. And now my cost of money and all of this, you know, why not hit pause for the short period? And that justifies our conversation from last week about organic growth. And that amazing article that we had in last week's newsletter about the importance of organic growth, right?

[01:05:26] Those are things that you can work on now without having that risk of the capital expense. Yeah. And the other element that people, I think, miss out on right now is, you know, when is the last time you went out and shopped around for a lot of the inputs that you use as a business? Meaning electricity, your shipping and logistics providers, like all of these things. Use other people's pessimism to your advantage. Lock in better rates. You know, it takes some time, yes, out of your busy schedule.

[01:05:55] But go out and get four, five, six quotes for the things that you're buying anyway. And maybe you'll recognize some good savings as a means of, you know, protecting your margins this year. Well, and I think that adds well. We had a guest on a month or so ago, John Gunderson. And we were, John talked about this and using it as a huge leverage point is based upon how you do pricing in your business, right?

[01:06:18] Because if you're only basing your pricing, which so many people do on, what is my current and incoming price, right? And now I've got to go push out these increases that I'm going to feel from tariffs. The smart guys are leveraging and saying, what do I have in inventory now? Right? What am I going to be paying next? And maybe even, you know, I don't want to say arbitrage, but maybe looking at what are my anticipatory pricing. And then let me do my balance between those.

[01:06:48] So my increases are incrementally less than what my competitors are. There's a whole game that can be playing just based upon how we do our pricing, especially if you did one of two things. One, if you were, well, I guess first off, you need a strong balance sheet to start with to be able to do that. If you have a strong balance sheet in your business to do that, and you've been able to one stock up pre-tariff, right? Which many people with strong balance sheets have done.

[01:07:18] And you already were in a good inventory position ahead of time. Now you can start doing your cost basis averaging with that. Yep. And your increases to your customers. And maybe you even balance that out with saying, I'm going to take for the next four months, whatever the time frame is, I'm going to take a little bit of a margin hit even. And all of a sudden you're in a place where maybe you're holding prices, where all your competitors are screaming tariff, tariff, tariff, maybe even talking force majeure.

[01:07:47] And you're sitting back because you leveraged your balance sheet and your thought process of your buying process. Yep. You can do some really neat things. Apple, I think, is a great example of this. They just flew in six cargo planes worth of iPhones, right? But Apple doesn't have a strong balance sheet. No, not at all. Not at all.

[01:08:05] I did some rudimentary analysis and it basically is a cost to Apple of $4 a phone, which is a margin hit that they're willing to absorb given that their average price point for an iPhone is like $800, maybe closer to $1,000, right? So, yeah, absolutely. Doing something like that is very, very informative and will help you plan for the future in terms of price increases and things like that. So, I fully agree with you.

[01:08:33] Yeah, I think it's just an interesting time right now if you weigh all of the factors that are going on. So, let's kind of shift a little bit in the time we have left today and talk a little bit about the inflation and interest rate issues. Yes. Because, Alex, I'm really going to lean to you in this from the standpoint of I'm struggling right now watching what Powell said and what the president is wanting, right?

[01:09:02] So, there seems to be a big dichotomy at this stage. Yeah. I want to add something real quick, Alex, for you to answer and I think I would love your take on this. Is this full circle the example of what you said earlier about the economist versus looking at the pragmatic data? Because every time I listen to Powell, I feel like I'm listening to an economist. Absolutely. Who's looking at the theory on things versus looking at the pragmatic data and the situation that exists. So, I don't know if this is an example of what you said earlier.

[01:09:32] No, Alex, I'm sorry. Before you even go to that. I'm going to keep cutting you off. Yeah, we both did. I'm sorry. But even in my frustration in looking at this as well as I've been saying this for a few years now is it's not even Powell. It's some crazy New Zealand government economist who in passing in a news conference said 2% is a good number and the world adopted it, right?

[01:09:57] So, we've got a talking head kind of in that setting from Powell that's looking at economic factors. So, anyways, Alex, now jump in. I think both people, both Powell and President Trump are sensitive to being blamed for the outcome. And that's driving a lot of the behavior that we're seeing unfold, right?

[01:10:20] So, in the case of Powell, he knows that the Fed was behind the curve in terms of cutting rates the first time. They got a lot of slack for that. He doesn't want to be seen as jumping the gun and doing too much because he also knows that the American public hates inflation way more than they hate high interest rates. Inflation is something that stares you in the face every single day at the gas pump at the grocery store.

[01:10:46] Interest rates, yeah, affect some people when they go to buy a house or a vehicle, but not on a day-to-day basis. And so, he does not want to be accused later on of allowing inflation to surge if he were to lower rates right now. And this is despite the fact that last year, or last month, sorry, the CPI ticked down to 2.4%. And the core CPI, which is extracting volatile food and energy, was at 2.8%. So, it continues to make traction towards that symbol.

[01:11:14] What I think he's also watching is, you know, wage growth on average in this country is still up 3.8% year over year. So, as long as companies are paying people on average, roughly speaking, 4% more, it's hard to envision the trajectory back down to 2% sustainably, right? We might touch that number, but given the fact that it's the sustainability of that number that's really in question, which is why I think he's really hesitant to cut those rates right now. President Trump, on the other hand, knows that, you know, the cost of carrying the debt

[01:11:43] and any help on interest rate policy will be very, very beneficial towards the amount of interest rate, interest that we pay out on the national debt, wants to see those numbers cut. He's also been convinced, I think, to some extent by the people in his inner financial circle, that the tariffs are not inflationary. And I think that, at the end of the day, is the major discrepancy between President Trump's view and Powell's view. He said it as much yesterday. Powell said, we expect the tariffs to be inflationary in nature.

[01:12:12] So, he's mindful of the upside pressure on prices and doesn't want to cut going into that. He wants more data to unfold in terms of the hard numbers. So, I find it fascinating to talk about interest rate projections because, you know, in the smart circles that I tend to gravitate towards in terms of paying attention, there is conversation of interest rate hikes potentially on the table by the end of the year, right?

[01:12:39] So, that's such diametrically opposed rhetoric to cutting into potentially rising inflation, right? And again, it goes back to the point that we do not want to see inflation spike again. I've been positioning on my year-end inflation target of somewhere between 3% and 5%, realistically speaking. I think that that's still my view, given, you know, we're sitting here about nine months out from the end of the year.

[01:13:06] But the tariff is the big X factor, right? The tariff upside pressure, it could go substantially higher. It could be non-sequitur, right? Non-issue in terms of we saw that play out basically in 2017, 2018 when the original round of tariffs were introduced and they were not inflationary in nature. So, the devil is in the details in the way that companies choose to absorb it versus passing it on to consumers versus what the suppliers are willing to endure, right?

[01:13:34] So, I think following either extreme example, whether it's aggressively cut or hike, I'm thinking we end up somewhere in the middle and probably around the current status quo on the federal reserve rate in terms of by the end of the year, you know, probably in that 4.25% to 4.75% range somewhere in that. So, not drastically different than where we are right now, meaning that it really doesn't either boost the economy

[01:14:01] or drag on the economy relative to the status quo. If tariffs really rear their head in higher inflationary pressure, then I do see the Fed holding off on cutting rates because that, for them, as long as the labor market maintains stability, which it has been so far, their other mandate is inflation and that's where they're going to be focused. So, it'll be interesting to see if President Trump decides to, you know, go ahead and do something about Chairman Powell

[01:14:30] and try to install someone that will be more agreeable to his views. But at least for now, I think this is the truth. I don't think he has the authority to do that. I don't think he has the authority to fire him. Well, there's a lot of things that are being questioned now. And certainly, we have an example of really old policy and acts and things like that that are being leveraged in ways that previous administrations have not used before.

[01:14:56] So, I wouldn't put it past President Trump to develop, you know, an interesting and at least a legally viable way to do something about it, just because it hasn't been done before. I think Powell was asked during the election cycle, you know, if he would be asked to step down and he said no. And then went on with some rhetoric about the inability of the President to do so. And I think if you were to ask him in all honesty and he were to not be in a microphone,

[01:15:27] he probably figures the President has a way to get him out. Right. And I think the President knows very clearly what that is and is probably looking for, you know, more options. But, Tom, to your point, I think historically that has been the case. But that, for me, wouldn't... And I don't know what you're thinking about. I don't think that would be a good idea. I think that would create more uncertainty. I think it would create more disruption.

[01:15:54] I think it would create more divided views. I just... I don't think that the... What do they say? The juice is worth the squeeze, so to speak. Something like that. I mean, it would be, you know, the question of the system of checks and balances exists for a reason. And if we continue to undermine that system through various mechanisms, whether you agree or disagree with them, that really challenges the notion of stability and consistency.

[01:16:23] And, you know, even if we do have all of these actions done by the current administration, and then the next administration comes in and undoes them all, even if a lot of the immediate damage is reversed, long-term the damage is being done to credibility and, you know, the reliability of the United States as a constant that we have been for many, many years. Yeah. So I agree with you on that. Yeah.

[01:16:48] And I guess the bigger question with that is, even if we had a new Fed chairman, how far could those numbers go down? Right? I mean, it's not like you're going to get... My point. Right? Yeah. They still have to operate off the data. They still have to make the... You know, they're not going to say, hey, we're going to cut interest rate three points. Well, you... Yeah. And that's the reason I brought the point up, right? Right?

[01:17:15] You're not going to see, you know, 3.15 or something like that because you just put someone new in there automatically. They can be supportive of the administration's goals, but there's still the data at the end of the day that you can be, you know, less conservative than maybe Powell is trying to be in this setting, but you can't go off the rails. Right. So, I think the real question at heart here is, I mean, the federal funds rate is indicative to certain things.

[01:17:45] Historically, it kind of guides where mortgages are, where the 10-year rate is. But what we've seen is that there's somewhat of a decoupling happening between what the market thinks the rate should be and what potentially official policy is, right? With this fluctuation in the 10-year between 4.5 to 4, back to 4.5, right? So, like, there has been no change in the federal funds rate, and yet we see that actual interest rates that are being used by markets to price money fluctuate quite wildly.

[01:18:14] So, if we do have, let's say, him replaced, and we do get the aggressive cut to 3% on the federal funds rate, which is what the Fed controls, that does not mean that the 10-year rate does the same thing in response, right? And if we have a breakdown in that relationship, then it becomes this anathema of, well, what does this mean? Like, we've always had the stability of the connection between those two things. That's how the Fed really manages the economy.

[01:18:41] If that relationship breaks down, what tools do they have left? Kevin, now I can't hear you. What's wrong with your microphone? God. Can't you get your technology straight? I pushed mute. I was going to set up a GoFundMe page for all of our audio. Mine's fine. Mine's all new technology. Because of the cough, I hit mute.

[01:19:11] Now, Bob, just so you know, thank you for the GoFundMe. We're not going to ask you to contribute, or we're not going to send Alex a bill or anything like that. I will order and have it delivered to Tom's house, a new microphone this weekend. Hey, notice, I'm the only guy on this thing with no audio issues, and I don't have one of those fancy mics in front of me. I'm just using the Logic Cam external video camera as my input. And you sound pretty darn good, too. Well, thank you. So, this is good. Okay. So, we covered tariffs.

[01:19:41] We covered recessions. We covered inflation risks. We've talked a lot, and we're going to kind of wind down, Alex, so we don't keep you all day, and we've got you through your lunch hour as well today. I assume you're at home in New Hampshire? I am, thankfully. Yes. So, in going with this, Todd, we've talked a little bit about the geopolitical pressure.

[01:20:07] Any kind of, I'll say, global thoughts on geopolitical pressure on all of this as we kind of wind things down for the day? Yeah. There's thoughts on geopolitics, and then one other comment that I wanted to make before I answer that question, which is the other element of the policy agenda is immigration, right? And this is the thing, you know, we talked about tax cuts. We talked about tariffs. Immigration is the other thing, and we really got to figure out how to fix the legal immigration system in this country.

[01:20:35] Otherwise, we're going to have a pretty substantial shortfall of workers relatively quickly. There's a great report that I will recommend to people. It's put out by a company called Lightcast. I'm not affiliated with them in any way. I just read the report and found it to be very enlightening. It's about 10 to 15 pages, but it's called The Rising Storm, and it talks about how without fixing legal immigration, we're going to be really hurting for workers in this country.

[01:21:00] The workers that we are producing are geared towards office jobs and social media influencing. What we need, nine out of the top 10 jobs in this country that are open right now are non-college degree jobs. They're retail environment, they're leisure and hospitality, they're nursing, they're customer service. There are all these construction, agriculture, frontline manufacturing, all of these jobs that nobody wants to do in America. So how do you address that? Well, you got the robot solution,

[01:21:29] or you let other people that are skilled come into this country. So I think that that was important as a plug. I'm obviously an immigrant myself. I'm very passionate about doing it the right way, but recognizing that that has been one of the success stories in America's history, and we shouldn't break that. Now, going back to your question from a geopolitical thing, I would say my overarching observation is that the last few years have kind of put a

[01:21:54] exclamation mark on the evolution of the kind of the multipolarity of the world. So what do I mean by that? I mean, if you look in the 1900s, you had a bipolar world. You had the US versus the Soviet Union. Then in 1990, when the Soviet Union collapsed, we had a unipolar world, right? Went from bipolar to unipolar. That's when US was really unchallenged. China hadn't come up yet. No Soviet Union around to challenge the United States.

[01:22:22] And we had, you know, a multi-decade timeframe of relative prosperity for the United States, growth, projection of power. But increasingly, we have transitioned to this multipolar world where we are, we do have an adversary now in China that is on par with us and can challenge us the way that the Soviet Union did before. We have the emergence of kind of like the second tier of countries that are,

[01:22:48] you know, important in specific ways, maybe not as all around powerful as the US and China, but you're talking about places like Russia from a military perspective, and the UK and Germany from an economic perspective. So, okay, kind of like a second tier. You have a third tier of countries that are, you know, sometimes they're referred to as the global south, but it's places like Brazil and India and Turkey and Saudi Arabia.

[01:23:13] They're not necessarily aligned with either the US or China in terms of the polarity. They're aligning themselves. That's right. Their own interests. Sometimes they align with the US, sometimes with China, but it's very, you know, dependent on the situation. And then the biggest difference for me that people need to be aware of is the advancement of the corporation and of individual corporate leaders as a power center in the global geopolitical arena.

[01:23:42] We see this with the likes of Meta and Google and Microsoft and Amazon. I mean, you know, the Magnificent Seven, if you will. Not only are the companies themselves, the revenues they're generating, oftentimes exceed GDPs of many medium-sized countries these days. The electricity consumption to run their data centers and the control over the flow of information that these companies have is really incredible.

[01:24:07] And increasingly, their leadership, Elon Musk is a great example, but he's not the only one. Jeff Bezos, Sunderbichai over, you know, they're getting involved in the geopolitical arena. Elon Musk. Right. Negotiating with the foreign minister of Iran at the United Nations. He's obviously determining who has internet access or doesn't in the Russia-Ukraine theater. He's got really important business ties with the Chinese government, given, you know, Tesla's exposure over there.

[01:24:36] So this emergence of a multipolar world means that complexity and the relative stability of the pre-multipolar world has come to an end. And we've got to be, as both individuals and corporations, adapting to this new reality, which means scenario planning and wargaming a lot of different outcomes and being prepared to enact plans no matter what that situation calls for. It's much more strategic.

[01:25:04] You know, it's much more dependent on, you know, the ability to implement plans in reaction rather than scrambling to come up with plans. So that would be my commentary on the broader geopolitical arena is this multipolarity. That's the new normal. This is how we're moving forward into the future. I like that comment about the business side of it, right? Playing into things much, much greater. Right. But something to pay attention to, something to watch.

[01:25:33] This has been a great conversation. Alex, thanks for kind of popping in last minute with us. We, you know, normally, it's kind of funny, normally with our show, we, and when you were with us last time, we went through much of the newsletter, but there was so much to talk about that I thought it was worthwhile, kind of scrapping some of our normal conversation. But Tom, you want to maybe lead us through and just, we won't necessarily comment on them because we're running through an entire article. I'm not going to go article by article, but what's interesting,

[01:26:00] if you look at the rest of the newsletter, and as I was reviewing it last night and this morning, a lot of the articles we have this week kind of talk about what do you do about it, right? I think we've talked, and I think, Alex, I really appreciate you going through a lot of this stuff. I think if somebody really wanted a summary of the situation that we're all kind of sitting in and worrying about or whatever, I think we've covered all angles of it this morning. I'm going to listen to this again.

[01:26:28] I would recommend others listen to this a couple of times to understand, you know, at least have the data, right, as to where we stand and understand the strategy. But, okay, that's great to understand, but then what do you do, right? How do you handle these things? How do you get up on Monday morning and after the holiday and what are you doing? And a lot of the articles that we have in here, Kevin, kind of, on some of these, for example, 10 ways to prepare for the downturn, seven ways.

[01:26:56] And these are, and this is a McKinsey article. This is an excellent, this isn't like a AI written blog post or something about it. I think we're going to leave a couple of these in next week's newsletter and make sure that we come back and discuss those, Tom. Yeah, but I would recommend hitting those. There's another really good one. I mean, some good stuff about AI that we haven't talked much about AI in two weeks. Tariffs are outweighing AI right now, huh? Right.

[01:27:22] But I mean, the sales plan one here, really good. Some really good articles here is in the sales M&A. So anyway, my point being, there's some really good stuff in here that talks about how do you, what do you do about some of these things? And how do you, you know, keep moving ahead regardless of whatever the flavor of the day is in terms of the disruption and all that going forward? Yes, sir. For people that don't get the newsletter, how would they get it? Do you know what? I wish we'd talk more about that.

[01:27:52] No, so it'd be hello at leadsmarttech.com. They can get it there. Yeah. Or they can go to our website, thearoundthehornpod.com. And where else? One more. LinkedIn. Oh, LinkedIn. That's a different newsletter. That's a LinkedIn newsletter. It's the same newsletter. It's available. It's on LinkedIn. Yes, you can go to LinkedIn. You can get it there. Or you can get the email version of it on those other two places. Right. Yeah.

[01:28:19] So the beauty of LinkedIn, if you're active on LinkedIn and you want to sign up, just search around the Hornet Wholesale Distribution and Manufacturing Newsletter and it'll pop up. But it's available to read it on LinkedIn, but it'll also email you a copy of it as well. So three good options with that. So great show today, Alex. Thank you again. Little plug for the Bundy group again before you go. I'm sure Mr. Bundy would appreciate that as well. Yeah, most definitely. Absolutely.

[01:28:47] And I mean, based on everything that we talked about, you can imagine the world of M&A is facing a huge amount of disruption right now. What you need is a solid person that you can trust to walk you through it, give you the latest developments. That's what Bundy group is all about. We often say that we start building relationships with people years in advance of any potential transaction.

[01:29:07] So if you have any questions on that front, multiples, what the market state is, who's active, whether it's strategic buyers or financial sponsors like private equity, we're here to answer any of those questions for you. So please reach out. And then for me personally, as busy as I am, I always appreciate engaging with new groups. So if you need a objective kind of down the middle of the runway assessment of the economy, the implications to your industry and your company performance, I'm here to support you.

[01:29:36] Connect with me on LinkedIn. And if you have an event coming up or even want a webinar, I'm here to support you that way. That's awesome. Great. Well, thanks again for joining us. Thanks, everybody that was logged in and listening to this later. We appreciate you being with us. Can we do this every week? I'm Kevin Brown. This is Tom Burton. Alex, again, we appreciate you joining us. We couldn't do this without the sponsorship of our company. It costs money to have this prepared. And the people are reaching out to you ahead of time, Alex. And then John. Oh, there's body and visual equipment we have to buy.

[01:30:06] And the AV equipment that has to be purchased. Exactly right. And maybe I'm just going to send you the same whatever Alex has. But we're appreciative of the company that Tom and I work for, LeadSport Technologies. So if you're a wholesale distributor or manufacturer and you're looking to accelerate growth, understand your customers better, your team better, and your overall business by bringing siloed data from across your organization to a single platform that can help you across all facets

[01:30:35] of your business to grow and accelerate, we would love to talk with you. So until next week, we wish everybody a great weekend. Be kind, be safe, and do good things. Thanks, everyone. Take care. We hope you enjoyed today's episode and our guests. Each week, we try our best to dig into the topics that are impacting your business. So please reach out to us and let us know how you think we can make the show better or

[01:31:03] topics you'd like for us to tackle or talk about more often and even guests you'd like to see join us. We're looking forward to bringing you next week's session and hope that until then, you stay safe, stay focused, and do great things. If you haven't already, please subscribe to the podcast and leave a review to help others in wholesale distribution get access to the conversation. And finally, please check out our sponsor, Lead Smart Technologies and their manufacturing and

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