Speaker 1: And welcome. Hello, How are you welcome to the Big
Podcast on this Monday, the twelfth day of January, year
of our lower twenty twenty six, almost set the wrong gear.
Welcome to the podcast. My name is Tom Sullivan. And well,
well it's Monday. Come on, we're getting the cobwebs out
of there. Hope you had a great weekend. Man live
do we have? We have a boatload to go over today.
There's a lot of kind of financial topics that I love,
dealing with the about the Federal Reserve, about j. Powell
criminal indictment. Maybe, we've got the protests going on across
the nation regarding Ice. We've got the investigation in Minnesota
maybe going, maybe not going. We've got Iran and whether
or not we're going to take some kinetic action against them.
We've got the oil markets in Venezuela. The list goes
on and on and on. I mean, I mean, hello,
what about that Epstein story. What happened to that? Oh yeah,
we were on the list of the They were going
to release all these pages and then they found some
more pages, and then all of a sudden, all this
is this wag the dog. It makes you wonder the
Epstein documents and the list of clients and all that exist.
I don't know where it is, but I haven't seen
it in a couple of weeks. The cost of groceries, affordability,
anybody's seen that story lately. Inflation. Oh, by the way,
tomorrow we get our consumer price index for the month
of December, so we'll get a fresh inflation report tomorrow.
But I mean, we're talking again about the threats and
the and the kinetic action. We'll start with Venezuela obviously,
and now lots of concern about what we're going to
do about Cuba. What's Cuba going to do? Iran? Like
I said, are we going to war with Iran? Iceland?
We're still talking about going into Iceland. Syria. There was
a number of missile strikes over the weekend in Syria
to basically retaliate against their killing of two soldiers in
a civilian a couple of weeks ago. I thought we
already did one of those Iraq Nigeria attacks there. Iran.
I'm going back around again, But I mean, are we
the policeman of the world, because this is what it
looks like, and this is what surprises me about this
is that I truly thought that Donald Trump was not
going to get as involved in any military conflicts. I
I guess I was wrong. I really did think that
he talked about no more forever wars, Well these aren't
I think in his mind these aren't forever. But then
I'm talking about Venezuela and that we're going to run
it until when we don't know. And speaking of Iran,
we got involved with Iran in nineteen fifty three. There
was a democratically elected leader of Iran that we did
not like, so the CIA got rid of him and
put in place the Shaw. And the Shaw was fine
for a while, and then he started having secret police
start harming people that were opposed to the Shaw, and
that led to the overthrow of the Shaw. And while
we got ourselves the Ayatola. So when you start changing
regimes and start interfering in other countries, you don't know
where these things are going to go. You just do not.
So we got a lot to go over all of
all of that. The President also made some comments over
the weekend about about putting a cap on interest rates
for credit cards for one year. You know what he's
trying to do. He is trying to go after the
problem of affordability, and he's trying to help people feel
like he's helping them with their wallet. But if you
do that, the bank stocks all took a dive earlier
this morning. If you do that, banks make a lot
of money off these credit cards, tons of money off
of them. And I have to tell you that what
will happen is that there's a lot of people that
will no longer be allowed to use their credit cards.
They will cancel them. Banks are not going to offer
credit cards or keep credit cards in the hands of
people who have low credit scores. They're too much of
a risk, and that's why they charge outrageously high rates.
They are outrageously high. And the whole idea about it's
called usery laws. They're used to be usery laws. I
just know that this will make it much much harder
for people to get credit, to borrow money, to get
a credit card, to keep their credit cards. Andrew Ross
Sorkin over at CNBC was talking about this earlier today.
Speaker 2: I was on the phone with a bunch of bankers
over the weekend who were basically not just mad, flipping
out of their minds, frankly, and they were flipping out
of their minds. I believe in the argument they were
making is if you don't want credit in America, if
you want us to shut down, you know, millions of
people's credit cards, because that's what we will have to
do to make the economics of these businesses work. That
would be the outcome. I don't know if that's I
don't know if that's a threat. I can't tell you
about the actual math. I do think that what's happened
to the business from what I've told is because there's
so many service that are now being layered on top
of credit cards that the only way for them to
obviously make money really is to actually charge what might
be described as usually rates or not whatever you do,
what kind of services, I mean, there's all of the
I mean, some cards have loyalty points, some cards don't.
Some cards have insurance on the product, some cards don't.
But there's all sorts of things now that are embedded
in your credit card that go far beyond strictly just
buying and selling products, you know, whether it's insurance on
when you go to rent a car or this or that. Now,
some of these cards, as I said, their fees, you know,
Mark Express charges your fees. There's other cards that give
you the card for free, but those cards that are
giving you for free, the way they're making up their
money is typically on the other end.
Speaker 1: I mean, they want you to charge everything on it.
Speaker 2: They want you not just to charge everything on it
because they're getting the three percent for each sale there,
really want you to actually not pay so that you
pay the answers, right, that's the business.
Speaker 1: Yeah, and about one third of people pay their credit
card balance every month so they don't incur those interest rates.
But that means two thirds of our nation they roll
those balances over and the credit card companies love it.
Thank you, thank you very much. So listen. On one hand, yeah,
capping interest rates on credit cards goes against the marketplace.
I am a free market guy. The president is not.
I mean he's not. I know, he's not a Republican
even though he ran on that ticket. He's a populist
and this is a populist move. So what it will
mean that the arguments against it people with lower credits
are credit card score or credit scores I should say,
is going to if you're in a gym, you're going
to have to go to payday lenders or loan shark
for somebody else going to charge you a lot more
than credit cards do. It will the market, The credit
cards will leave a number of markets, The number of
benefits or reward programs will quickly disappear or be reduced
to only the people who pay their bill every single
month in full. The thing about it, though, is these
rates that they're charging are outrageous. You're talking twenty to
thirty percent, and the cards are enormously profitable, but it
also traps a lot of people that into a debt spiral.
There is no question that personal finance bankruptcies will skyrocket.
So it's not I don't I understand what he's doing.
He's trying to do something to pretend like there's affordability,
but what happens at the end of one year, because
in one year the midterm elections will have been done.
So he's just doing this just for political benefit to
try and get Republicans reelected. He's not on the ballot,
so I don't know if it will really work. The
other financial stories that popped up over the since we
last met on Friday was he also wants Freddie Mack
and Fannie May to go out and buy two hundred
billion dollars worth of mortgage debt mortgage backed securities. And
I used to. I helped one of my clients. We
went in and we started a mortgage banking company many
years ago. So I was in the mortgage business for
about seven years something like that. And I will tell
you this won't this won't do a thing for mortgage rates.
Fannie May and Freddie Mac. I'll have to do a
separate show just on who they are and how they work.
But basically, you go down to your local mortgage lender,
you borrow the money. Let's say you borrow just for
round numbers one hundred thousand dollars. The one hundred thousand dollars,
They take that and they put it in a package
of a bunch of other loans that are similar to
yours in the similar same city or region. They package
them together and then they sell them to Fanny mayor
Freddie Mack. That way they get money so that when
the next customer comes in the door and wants to
apply for a mortgage, they have money to lend. It
refreshes their pool of money to lend. Now, Freddy and
Fanny don't hold on to those that never used to
They turn around and they sell them to investors, mutual funds,
pension plans, all of that. So by ask by telling
Freddy and Fanny, which used to be independent, which is
another whole topic, they're now part of the government. They
the reason they are is because the people that ran
it were a bunch of crooks. A number of years ago.
Before they got involved, Fanny and Freddy was a great
mortgage system in this country. Millions of people were able
to buy homes because of Fannie May and Freddie Mack
and so so they buy two hundred billion dollars worth
of mortgage backed securities. That's not going to deal with
thing to mortgage rates, and mortgage rates are not set
by the Fed, Morgan. The FED only controls indirectly interest
rates that are two years or shorter in duration. So
mortgages are more than two years, they're fifteen or thirty.
There's some twenties out there, I guess. But so I
don't know what he's doing. I don't understand his motivation
in this. I just it will not move mortgage rates.
But while we're speaking of mortgage rates, mortgage rates actually
slipped just microscopic slip below six percent. So rates have
been coming down a little bit, so will six percent
do the trick? There are now more people with mortgages
at six percent or higher than people who have three
percent or lower mortgage rates. So there you go on
on what that's all about. All right, let's get into
as we're talking about interest rates. J Powell, the chairman,
Jerome Palll, the chairman of the Federal Reserve. This caught
everybody by surprise. It's something that you normally see in
third world countries where the head of the government wants
to manipulate for political reasons, interest rates. The other thing
about this is that they have the DOJ has opened
a criminal investigation into J. Powell and apparently I haven't
read the charges, but apparently it's going to a grand
jury in Washington, DC. The US attorney that has opened
this criminal inquiry the investigation is Janine Piro, the US
attorney in Washington, DC, and she's going to do whatever
Donald Trump wants to do, or whatever the Attorney General
wants to do. Pam Bondy, but it's lawfair. It's using
lawfair to undermine the fed's independence, and the fed's independence
is a major, big deal in the financial world. So
I mean, he's gone after banks, he's gone after law firms,
he's gone after media companies, he's gone after universities. He
went after Lisa Cook and that decision is still pending,
and now it looks like he's just going to go
after the FED chairman. The FED chairman is one of
twelve that vote on the every six weeks on their
recommendations regarding short term interest rates, so Jay Powell is
just one vote. The other thing is he's out. Well,
he's out as chairman. Come may not that much, just
a few more months, so I don't I mean, I
know all presidents have fussed about the FED, but it
truly looks like vindictive prosecution. It looks like lawfair and
I understand that he's very upset about lawfare that was
used on him. So I guess we're going to do
the tit for tat here J Powell. He came out
last night, Sunday night, with a statement about this criminal
it's not an indictment yet a criminal investigation.
Speaker 3: The threat of criminal charges is a consequence of the
Federal Reserve setting interest rates based on our best assessment
of what will serve the public rather than following the
preferences of the president. This is about whether the FED
will be able to continue to set interest rates based
on evidence and economic conditions, or whether instead monetary policy
will be directed by political pressure or intimidation.
Speaker 1: The whole idea about FED independence is well. First of all,
it was the Federal Reserve Bank was set up by
Congress as an independent agency. The argument is that j.
Powell was testifying before Congress about the remodel and expansion
of the Federal Reserve Bank. It's headquarters in DC, and
it does seem to be excessive, it does seem to
be unreasonable, but it's an independent agency. And here's the thing,
and people keep getting this mixed up. I'll play a
cut for you coming up with John Yu who's a
very bright lawyer, talked about the government money involved. There's
no government money involved. The Federal Reserve is a bank.
It is the Central Bank of the United States. The
Central Bank is called that because all the banks in
the country belong to the Central Bank. They have to
pay fees to the central Bank. The central Bank controls
them buying or selling treasure. Reason I don't want to
get into those weeds. But essentially there's no tax dollars involved,
there's no government money involved. It's all banking money. The
banks that are the members of the Central Bank pay
the central Bank fees. You don't, I don't. The government
is not doesn't have their hands in the kitty at
but no nothing, So why does anybody care other than J.
Powell looks like he isn't all that great at building
buildings or managing money of the Fed. He's not that
great as a FED chairman. In my humble opinion, I
think he was super slow to raise interest rates when
he should have that. If he had done that on time,
we wouldn't have had the big inflation spike and we
wouldn't have wound up with a lot of people in
financial trouble. So I'm not a fan of J. Pellll,
but I am a big fan of the FED being independent.
Here's Richard Quest, a long time financial reporter.
Speaker 4: Is the emperor's new clothes. J Powell yesterday basically told
us that the emperor was naked. Having had this announcement
about the investigation into the FED chair, Powell came out
and declared war, or rather, the administration declared war and
Powell has now enjoined it. Because it's really about interest rates.
It's who controls monetary policy, whether the markets go up
or down. It's not really the core issue on any
given moment or any given day. The question is the
independence of the FED. And you have to see it
in context a new FED chair to be announced. Lisa Kohane,
of course, has been attacked and they're trying to get
her off the FED board. Put it all together, this
is just one more example of the administration's determination to
question the Fed's independence.
Speaker 1: Yeah, and that's exactly why you want independence, because otherwise
federal reserve boards can manipulate the interest rates based upon
political reasons, not financial reasons, not economic reasons. What the
big difference is politicians have short term views, namely the
next election. The FED has long term views. What will
this do to help the economy, to cool inflation or
to boost growth. Those are not short term decisions. You
need a long term decision maker and that is why
the FED is independent. So what about the legality of
this referral criminal referral that is underway. Here's Elie Honing.
Speaker 5: Whichohn perjury charges are much harder to prove, I think
than people often realize if you are going to bring
a successful perjury case, the prosecutor has to show, first
of all, to direct objective false testimony, and you have
to show that that testimony was given falsely intentionally. So
it's not enough to show that an answer and I
don't know exactly what they're looking at that, Jerome Powell
said here, but it's not enough for prosecutors to show
that an answer was ambiguous. It's not enough to show
that an answer was misleading. It's not even enough merely
to show that an answer was false. You have to
show a direct, specific answer that was intentionally false. And
so there's always a lot of talk and speculation about
perjury charges, John, but that's the reason why actual successful
perjury prosecutions are way more rare than the talk would suggest.
Speaker 1: Yeah, and the purjury he's talking about is Jay Powell
was testifying before Congress and they were asking him about
the two and a half billion dollar expansion of the
Federal Reserve headquarters in DC, and apparently they did somebody
didn't like his answers, especially about did you put in
some fancy elevators, did you put in some fancy rooms,
and things like that. And again Congress gets to ask
the FED all kinds of questions because Congress created it,
but they don't give it a dime. They FED does
not have a dime of taxpayer money or the government money,
none of it. So it's back to Richard quest for
a moment.
Speaker 4: To take all of these points. Regardless of how this
plays out legally, the damage is done because the checks
and balances in the US administration of executive, legislative, and
judicial are clearly not working. Therefore, de facto, from the
some point of view, came done.
Speaker 1: God what he wanted already. Absolutely, yeah, but the damage
has been done. People around the world, central banks, investors,
pension funds, you name it, are going to be going, well,
wait a minute, who do you trust? Is this FED
going to be a puppet for whoever the president is?
So they accuse j Powell of lying to Congress. The
person who brought this, by the way, is a Republican.
Uh what is her name? She's that congresswoman from Florida. Yeah,
it's uh Anna Paulina Luna. And she's the one that
said that Jay Powell lied. Well, here's Donald Trump doesn't
even mention that. Here's the president talking about j Paul.
I'm sorry Jay Powell. In just a few weeks ago,
in December, we're.
Speaker 6: Thinking about bringing a gross in competence which called grossing competence.
Slow sit, it's grossing competence against Powell and left to fire.
But we're so close, you know, maybe it but maybe
I shall might Yeah.
Speaker 1: So there. He wasn't talking about the spending of the
money on the on the new headquarters building. He was
just taught he doesn't like Powell. Oh, by the way,
guess who appointed Powell the chairman of the Federal Reserve Board.
That's right, that would be Donald Trump. Yes, he did
in Trump one point zero. This was his choice, and
now he doesn't like him. Powell isn't dropping interest rates.
I agree with the president. Rates should be lower. I
agree with the president. Powell was late to the to
the game when interest when inflation started up, we could
have avoided that whole inflationary cycle. So, but the Fed
takes longer views. Politicians take short term views. Let's see
what Harrietton has to say on how the public feels
about this very.
Speaker 7: Very and I'll just say, to quote the movie TOUTSI
this is one nutty hospital.
Speaker 8: This back and forth.
Speaker 7: My goodness, gracious, they think it's incredibly important that the
FED acts independently of Donald Trump, and they think it's
best for the economy. We're talking about more than two
thirds of adults, sixty eight percent, ninety one percent of Democrats,
seventy five percent of independence, and even forty one percent
two fifths of Trump's thinks it's important that the FED
acts independently of Trump for the best of the economy.
So when you get forty one percent of Republicans and
ninety one percent of Democrats agreeing on something with seventy
five percent of independence, you know it is a popular position.
The bottom line is the American people vigorously disagree with
the President of the United States on this. They want
a FED that acts independently of him because they think
it's best for the ECONI.
Speaker 1: All right, let's bring in John You. He's a long
time he was assistant Attorney General. He's a big Republican guy.
He is a conservative. And while let's see what he
thinks about this as a legal issue. That says this
is going down the legal road.
Speaker 9: Now, I think that both sides here are escalating a
dispute into something as you said, we have never seen
in the history of the country. It may be the
case that the Federal Reserve under termin Powell has wasted
hundreds of million dollars in the renovation of the building.
But if President Trump really wants to get Powell out
of office, he's only going to be there until May.
There's no way any kind of criminal probe and investigation
can get going and get into court in time to
make any difference about whether Powell's going to remain as
chairman or not. It just takes too long. He's only
going to be there another four months. It may be
something larger, though, maybe Powell's right. Maybe what President Trump
wants to do is to say, well, Powell, you're going
to be on the Federal Reserve another few years, even
after your chairman and maybe the other members of the
board ought to be worried about whether we're going to
investigate you. Although I haven't seen any evidence or proof
yet that would suggest any kind of criminal charges have occurred. No, no,
one last thing is odd is right now the Supreme
Court is going to be hearing a case within the
next month about whether President Trump just has the right
to fire members of the Federal Reserve Board directly anyway,
and if President Trump were to win this case, there's
no need to get the criminal justice system involved. This
might be a long way of saying I'm sorry. Maybe
what's really upset the president and gotten the Justice Department
involved as they are trying to root out some kind
of suspected wrongdoing and what looks like overspending on the
building of the Federal Reserve headquarters.
Speaker 1: There's two things.
Speaker 9: As he said, did he lie? I think that's a
really hard case in general, ever to prove lying to Congress.
It doesn't happen very often. Usually you would expect Congress
to complain about it. First. I don't remember people at
the time Chairman Powell testified saying that he had lied.
You have to prove that he intended to lie too.
So it's not a question of whether he made a
mistake or he slipped up in his testimony. Did he
actually intend to lie to Congress about the building of
the headquarters. I think that's a really hard case to prove.
This may be able, you suggests. I think maybe this
may be one hand of the Justice Department not knowing
what the other hand of the government is doing. As
we've been talking about. President Trump has been engaged in
this serious political fight with the Federal Reserve and its independence.
That's going to be settled by the Supreme Court in
short order. It will get a decision by the end
of the summer, in fact, probably the month after Chairman
Powell steps down. Bringing up the criminal justice investigation, that's
a serious escalation in this fight. And as you said,
there's going to be a lot of hard accounting issues
and other kinds of spending and what kind of plans
were put into effect, who proved them, did they realize costs?
By God of hand, that might be a really hard thing. Again,
to prove.
Speaker 1: Something was criminal.
Speaker 9: You could probably prove this was way too opulent, This
goes too far. They should spend this much money may
not be taxpayer dollars, although it is money I think
that belongs to the federal government. But was it criminal?
I think there's a really high bar for the Justice
Department to prove here. This is what also worries me
is that Chairman Powell and the Fed are escalating this too.
What if they just sat on the subpoena or had
never revealed publicly that they'd received them, and just complied
with them quietly. This is what worries me about this
is not only is a President Trump pressuring the FED
as many presidents have before, but not to this length,
but Chairman Powell seems to want to throw down the
red flag about this too and try to spark an
even bigger political fight when he might have handled it
more politically, more in a more subtle way that would
de escalate matters, not try to spark a major constitutional fight.
Speaker 1: Well, Jay balcomes across as this nice, little quiet man,
but he's not anything like that. He was a big
executive with Carlyle. He's a very wealthy individual. You don't
push him around. And I think he just finally had
had it because Trump has called him every name in
the book, and he he's going to fight back on
this one. One more lawyer on all of this, Jonathan
Cantor is a former assistant Attorney General, so he was
number two in the DOJ and he's kind of shaking
his head at this whole thing.
Speaker 10: And that already with the number of the sort of
politically motivated or would appear to be politically motivated indictments
where they haven't even been able to get past a
grand jury, which is extraordinarily rare due to lack of evidence,
let alone getting to court and an actual conviction. The
other issue here is going to be courts are now
I think, starting to judges in particular, see that politically
motivated prosecutions usually don't cross the bench of a judge
with a lot of favor, and those judges are likely
to allow discovery or evidence into whether the prosecution was
politically motivated. So this can get quite messy. But what's
more interesting perhaps here is whether this is, as Chairman
Powell suggests, really just a pretext for removal, and where
the President can say, well, now that there is a
criminal investigation, I now have cause to remove Chair Powel,
and therefore I'm going to exercise that which itself will
set into motion a whole bunch of other legal disputes.
Speaker 1: So again I remind you that the Fed does direct
short term interest rates, the three months to six month,
the one year, the two year treasury. But once you
get out past five, that's the bond vigilantes out there,
that's the bond market. They're the ones who determine what
the interest rates are. And that's nice what the Fed's doing.
But so this is it surprised everybody in the financial
markets that this would actually happen. Let's get into the
oil markets a little bit, because on Friday they had
that meeting at the White House. The President had I
don't know, there was ten to twenty top executives of
the top oil companies in this and they went around
and had discussions each and every one of them. And
at the end of that meeting, I said to you,
it had just concluded by the time we were taping
this podcast, and I said the president or the CEO
of exon mobile, the word that jumped out to me
was uninvestible. Let me just play again for you what
he had to say.
Speaker 8: The legal and commercial constructs and frameworks in place today
in Venezuela today it's uninvestible and so significant changes have
to be made to those commercial frameworks, the legal system.
There has to be durable investment protections, and there has
to be a change to the hydrocarbon laws in the country.
We're confident that with this administration and President Trump working
hand in hand with the Venezuela and government, that those
changes can be put in place.
Speaker 1: So he well, yeah, he didn't get to be the
CEO Oh of Exon Mobil, the largest oil company in
the country. By being a softy oh, he's saying, look it,
this is uninvestable, but unless changes had to be made,
but I'm sure working with President Trump, it can be done.
The President apparently did not like that, and it stood
out to me too, because after the meeting on Friday,
the President said, oh, we had a great meeting. And
I don't know why he opened it up to the
cameras because it without the cameras there, we would have
listened to him say it was a great meeting. Everybody
was on board and all that. He was all very
positive about it. Today he comes out and says I
may block Exxon Mobil from doing oil business in Venezuela.
So he is running Venezuela. He's running the oil business.
This was supposedly about drugs, then was about something else. Anyway,
it's oil, that's what it's all about. And so andys
oil industry consultant weight.
Speaker 11: In this way, Exxon is asking for what the rest
of the oil industry wants, is a change in the
current legal and commercial framework in order to go in
there for a decades long investment profile. So there I
think is going to happen is Exon really is spending
a lot of money next door in Guyana where they're
producing hundreds of thousands of barrels per day, and see
to increase that production over the next couple of years.
So the industry buy and large, really needs change in
Venezuela to spend any money. And that's where we stand
today waiting on that change.
Speaker 1: So I have to wait and see. But Exxon is
no softy, and their President Trump going up against the
guy who has been around the block number of times,
knows exactly what he is doing. I'll give you just
a little update. As we're recording this, there is a
news conference going on in Minneapolis, and the Attorney General
for the State of Minneapolis, Keith Ellison, just announced that
the State of Minnesota is filing a lawsuit against the
Department of Homeland Security. He says it's because they're targeting
Minnesota because of the for political opposition reason. We'll see
where this goes, but they're founding a lawsuit trying to
be fight back. They've got a lot of problems in Minnesota,
especially with the fraud in addition to all the issues
regarding illegal immigration in ice so Wall Street today. Boy,
when that came out over the weekend that Japow was
having a criminal investigation by the DOJ, the markets were
all down now was down three hundred four hundred points
in pre market trading. But when all was said and done,
the major indexes went to work and worked their way
back to positive numbers. The Dow up eighty six. We'll
take it. Like I said, it was down three four
hundred points, so it worked all the way back to
a gain of eighty six. The Dow at forty nine
thousand and five ninety, the S and P up eleven,
the NAZDAC up sixty two, Gold new record high, never
seen this amount for gold before, up one hundred and
two dollars to four thousand and six oh three, and
oil up another fifty cents, just under just under sixty
dollars for a barrel of oil. So that's it for today.
Tomorrow morning we get our CPI Consumer Price Index, the
inflation rate for the month of December. That'll be an
important one and markets will react to that. Thank you
for coming by today. We will be here tomorrow and
I hope to see you then.
Speaker 9: Six