Telis Demos

The risk is that we aren't really clued in on what's happening in consumer credit because the numbers are looking better, but under the hood, things are getting worse.

The concern is that what's going on in the economy with tariffs, with potential slowdowns and growth, President Trump didn't rule out a recession. Those things are not great for consumer borrowers. And so the issue is whether or not consumer lenders will continue to see increasing spending. Part of the way they make money is when you spend money. They make money when you use your card.

The other way that they make money is by lending you money and you paying it back. And if you're not paying it back, that's not so great for them. So consumer lenders tend to be highly cyclical stocks. The risk is that we aren't really clued in on what's happening in consumer credit because the numbers are looking better, but under the hood, things are getting worse.

Employment is the lifeblood of consumer credit. Whatever's going on in the economy, if people are working, they're pretty good at paying back their debts. And so the risks that people see to employment are what will ultimately really drive if there's going to be like a significant sell-off of consumer lenders and consumer credit companies. assets.

And so the last jobs report was a little light versus expectations. So there's not necessarily any screaming red alarms right now. However, you spin forward some of the things happening with are we going to lay off huge numbers of government employees? They are consumers like anyone else. And so something that impacts them would be meaningful for consumer credit.

Here's what I focused on and maybe the kind of pivot point here. And that is what's going on with wealthier borrowers. Are they feeling the squeeze of concerns about their job future? They don't have endless budgets. And so that is the thing to key in on as the real variable here for the sort of the consumer borrower and consumer economy.

Thanks for having me.

If you're looking at... KPIs are like numerical targets that people are looking at that might not be earnings, revenues.

Yeah, I want to ask you, you talked about this kind of, you know, expectations are changing. I feel like Delta and maybe airlines have been an interesting one, right? After the fourth quarter reports, Delta was very optimistic. They came out in January with positive indicators. You know, the stock was doing well.

But then, you know, in recent weeks, Delta has lowered its first quarter outlook, citing reduced consumer and corporate confidence and economic uncertainty. So, you know, that seems like a... kind of a bellwether that if people aren't flying, they're probably tightening their belts in other ways too, right?

But I think the drama is even beyond, you know, we'll talk about what's going on with stocks and earnings and things. But I think this is just like a kind of like it just feels like one of those – you read about in your history textbook kind of moments, right?

That had been a stalwart of consumer spending the last few years.

Gosh, that seems complicated to figure out with the tariffs.

A car made here has imports. A car made over there has exports. You know, it's so complicated.

And regardless of what comes next, it just certainly seems like this announcement has kind of knocked everybody off their axis a little bit. Miriam, can you take us through exactly what transpired last night?

Could there be companies that actually benefit from this dynamic, right? Like we have, say, a company like CarMax, right? They report next week. Maybe you're going to rush out and buy a used car, right, before you think the prices of cars are going to go up. If you think the price of auto parts are going to go up, maybe you rush out and you buy all of the parts you need, you know, now, right?

Well, maybe you should get those winter tires now before the price increases. So could there be companies that actually have great first quarters or have – give strong guidance because of all this going on?

Because I think just setting it up, I think that this was beyond what people were saying, I guess, depending on your point of view, best case or worst case scenario for tariffs would be what was ultimately announced was Maybe even in excess of those scenarios.

So in general, if tariffs do what I think the president and people around the administration intend, which is to reshore parts of American manufacturing and things like that, are there companies whose shares or earnings might reflect that now? Or are we just in a long adjustment period and those benefits will be difficult to quantify or things that we might not see for a long time?

Should we be thinking about that in earnings now or is it too soon?

Are there any companies that stand to more or less directly benefit from tariffs? Are there people who, because of the impact that tariffs have on the price of imports that they compete with, maybe it's because of something that happens because of currency movements and things like that. Are there any companies that are like tariff winners that you would point out?

Materials, that's like making basic stuff, right?

Interesting. Miriam, of course, we had an episode a couple of episodes ago. We talked about the difference between small companies and large companies.

Large companies having lots of ability to negotiate and other kind of levers that they can pull. It might be the smaller midsize companies that really feel the heat from tariff and trade policy. All right, Christine, we're going to take a quick break. But when we come back, we've got one more question for you. So stay put.

Yeah, thanks for being on.

And that's everything you need to know to take on your week. The show is produced by Trina Menino, Jessica Fenton, and Michael LaValle with help from Jess Jupiter. Michael LaValle and Jessica Fenton are our sound designers. Michael also wrote our theme music. Aisha Al-Muslim is our development producer. Scott Salloway and Chris Zinsley are the deputy editors.

And Philana Patterson is the head of news audio for The Wall Street Journal. For even more, head to WSJ.com. I'm Telus Demos.

We're doing a podcast, huh?

It's like we do one every week. God, we do one every week when you say it like that. Okay.

And it seems like, like you said, you know, both things happen. Right. Even countries that have trade that the U.S. has trade surpluses with will be paying a I think it's a 10 percent is the is the proposal as it stands now as we record.

And then countries that had a trade deficit, it seems like the journal had a story laying out basically the math they did, which was like how big is the trade imbalance with the US, right? How much more do they buy from us than we buy from them? And then taking that amount and I think in some cases like basically dividing it by two and saying that's going to be the tariff.

And so those add up to big numbers.

Yeah. And we can and will have, you know, long discussions about the economics, you know, of these things. You know, there are obviously people on both sides of the issue who feel very strongly that this is the right or wrong way to go about things. But in the meantime, let's talk about what the markets have been doing in reaction to that.

And, you know, one thing that the markets have really been struggling with is not even so much what the tariffs are, but just the exact policies, but just that it is done and dusted and in the books.

I perhaps the market now will at least have some certainty that, OK, maybe these tariffs will be slightly different, but that they will be dramatic and significant either way, because there are still some exceptions. Right. I think that Canada and Mexico for now are not involved in this reciprocal regime. You know, whether or not those things stick around, we'll see.

But it does seem like there's at least certainty that they weren't joking when they said that they wanted to do something very significant.

Yeah. And so and so again, for the for the time being, here we are, you know, speaking the morning after the announcement and the U.S. market is down, you know, by it's down at this very moment by about 4 percent. We'll see, you know, how that plays out over time. But I think that next week people will be looking for those announcements. There's also the Consumer Price Index update next week.

We'll see if there's anything in that report that kind of gives us a little view of obviously one of the main concerns about tariffs is that it will raise prices here in the U.S., that we will all be essentially paying for these tariffs if they are passed along to us in the form of higher costs. And so we'll see in the CPI, which obviously will not

include what's happening now, it's backwards looking. However, we'll see if companies have started to raise prices on things ahead of tariffs, maybe as they have tried to buy things up that they want to hoard, essentially, before the price of them goes up. If you're buying raw materials and things like that, we'll see if those things start to filter through to prices.

The most recent inflation reading we had, the Personal Consumption Expenditures Index, that was pretty hot. So I think people might be a little... interested in what goes on with this consumer price index.

Miriam, which ones are you going to be watching closely?

Absolutely. Big consumer read there. And then I think one I'm watching is CarMax. They are the kind of car seller. They sell out of used cars. It's going to be super interesting, I think, to see what happens with them. Their stock has been a bit of a roller coaster lately because on the one hand, you know, if you tariff

The importation of new cars or new car parts, that should, I think a lot of people think, make used cars. Prices go up.

So in theory, that might be good for CarMax. But in the immediate aftermath of the tariff announcement, their stock was down. So I think it'll be really interesting to see what they say.

Sell your winners. Maybe that's the old saying goes. So it'll be interesting to see what they report and what they say and also how the market reacts to it. Yeah. But I want to step back a little bit on earnings given the environment that we're talking about here.

Obviously, we know that there are worries about the economy amidst what's going on with tariffs and frankly other kind of big policy changes. There are recession risks that people are talking about. But that is not the same as saying how are companies themselves actually doing corporate earnings?

Because as much as big companies collectively make up, you know, our economy, you know, they employ us. We buy stuff from them. Their fates and the economy's fate are not exactly the same. Tariffs could increase costs. Maybe companies pass along those costs to consumers. Maybe some companies raise their prices because other prices are going up and they end up making more money.

Hey, everyone. I'm Telus Demos. I write for The Wall Street Journal's Heard on the Street. And this is WSJ's Take on the Week, the weekly podcast where we give you a leg up on the worlds of money and investing. Each week, we bring you conversations with insiders and from inside The Wall Street Journal's newsroom about, well, mostly about tariffs, frankly. Frankly, we mostly talk about tariffs.

Absolutely. What if companies lay people off and improve their profitability that way? Right. We could see a struggling economy, but companies doing OK to maybe well.

Those someone's being consumers, you, me, people.

And then does the market even care? Right. Does the market care about how companies are expected, their earnings are expected to perform? Because really, you know, the market is sort of two things. Right. One, it's a sort of prediction of what company earnings will be and then also how much it values those company earnings and what kind of volatility it expects from those things. So.

And there are times when companies have great quarters. They report big positive earnings and then their stock goes down. And that makes our jobs as reporters interesting but also difficult.

Because we have to explain why that happens. That brings us to our interview this week. We spoke to Christine Short. She is the head of research at Wall Street Horizon, a TMX group company. And she looks at earnings in really a mind-boggling level of detail. So she talked to us about what we should expect from earnings season, what impact tariffs could have.

We looked at a bunch of different sectors, individual companies. It is a wide ranging conversation and a user guide to the upcoming corporate earnings season. Stick around for that. It's going to come right after the break.

I will briefly reintroduce someone that everybody should be familiar with now, who is Miriam Gottfried, who is on her last guest hosting assignment before Gunjan Banerjee returns, but first in our hearts still. Miriam, welcome again.

So obviously, we're looking at first quarter results. So these are how companies did in the first three months of the year when tariffs were nascent, right? They were just beginning. So we might not see an actual like earnings hit from even companies that will be dramatically affected. We won't necessarily see it yet. So what kinds of things should we be looking for from earnings reports?

You mentioned companies talking about tariffs. Is it forward guidance? What are other things that we might hear or see in earnings reports that will spark the market and, you know, move prices.

That's a long streak of increases, right?

Yes. Well, this past week, there was obviously big, big news in the world of tariffs, the market's obsession. And it was, I mean, quite honestly, it was pretty dramatic. I was like having trouble sleeping last night just sort of thinking about how to pull it all together on today's podcast. We're recording this on April 3rd. You know, the market has obviously reacted quite strongly.

So we know that the message on tariffs changes day to day. Is there a point at which you think decision makers are going to say, you know what, this I will make a decision to reshore to build, you know, my next plant in the United States to move production from one? I mean, Apple has talked about, you know, moving moving things to India. Right. That's already in train. So it seems like.

People aren't necessarily waiting for full certainty because, A, it may never arrive. I mean, you'd have to wait to at least the midterms. Heck, you'd have to see who's the next president, right? Are businesses acting today, would you say?

So the biggest decision would be to start manufacturing again here in the United States. And that's the one that's the toughest to ultimately make.

Well, we're going to get more into this buy or sell America trade after a quick break. When we come back, we'll have more with Rob Kaplan. And if you're enjoying the show, check us out on video or on YouTube. We'll leave a link in the show notes. You can find us on WSJ's podcast page.

Rob, you mentioned in what goes into American exceptionalism, you mentioned Fed independence. So let's talk about that for a second. A few weeks back, the Journal reported that the White House lawyers were exploring whether or not President Trump could effectively fire Jerome Powell before the end of his term as Fed chair in 2026.

President Trump has said that since that he has no intention of firing Jerome Powell, but he's also not shy about how he thinks the Fed is doing things. basically a terrible job in his eyes by not slashing rates. Why is Fed independence so important? Why did that episode really focus everyone's attention on this?

So, Rob, President Trump has been pretty vocal that he thinks Fed Chair Jerome Powell is not doing a great job, that he is too late to trim interest rates. Granted, he does not often say this in a very respectful way. But in 30 seconds or less, is there any merit in the economic point that the president is making about rates?

Well, Rob Kaplan, thank you so much for this wide ranging and very interesting conversation about the Federal Reserve, the economy and all else.

Thank you. Thank you. And that's everything you need to know to take on your week. The show is produced by Trina Menino, Jessica Fenton and Michael LaValle with help from Jess Jupiter. Michael LaValle and Jessica Fenton are our sound designers, and Michael also wrote our theme music. Aisha Al-Muslim is our development producer. Scott Salloway and Chris Zinsley are the deputy editors.

And Philana Patterson is the head of news audio for The Wall Street Journal. For even more, head to WSJ.com. I'm Telus Demos.

Fedspeak. You should get foreign language credit in college for taking macroeconomics.

How does the Federal Reserve think about price growth when it's being driven by something that's so specific, policy driven, right? Because sometimes prices rise because the economy is overheating, right? That's the kind of early 1990s sort of thing. type price growth, right? This is something a little different.

Does the Fed think differently about it or is a rising price, a rising price, a rising price and the Fed always reacts similarly?

We've talked a lot over the last several years about economic data and the economic sentiment, the vibes. You've been in the room for these Fed conversations. How seriously do they take those sentiment indicators?

Why? Why is that so important? What does that change about people's behavior if those expectations... History has shown...

Well, so you're You talk to CEOs. You talk to business leaders.

And talk to investors. What is coming up in those conversations? Is tariffs and inflation sort of topic number one? Are there other things on people's minds?

And I'm Telus Demos.

Well, the deglobalization that is part of the Trump administration's agenda would like to see more activity reshored in the U.S., That means that maybe there are fewer kind of truly multinational companies, right? There are companies that produce things in the US and they sell it to Americans. There are companies that produce things in Europe and sell it to Europeans.

In a world in which more companies are like that, there is maybe less of a need for a multinational bank that can help facilitate that sort of thing. Now, that doesn't happen overnight, but in the long run. In a deglobalized world, U.S. banks are going to ultimately find themselves in the crosshairs. Jamie Dimon, the chief executive of JPMorgan Chase, used that word, right?

He said, we will be in the crosshairs. That's what's going to happen. Some clients or some countries will feel differently about American banks, and we'll just have to deal with that.

US banks are still going to be, for now, the first call for a lot of international companies when they run into trouble. So if US companies are having to rewire themselves for decades, tariffs that are coming in the short term. They are probably calling the same bank they bank with today, which might be an American bank and saying, hey, we were getting this from China.

Can we get this from somewhere else? But until we start to see people really settling in and betting in for a long term kind of change in tariff policy, you will probably still see short term defensive tactical things that companies are doing. And that probably plays into the hands of their existing partners, which are U.S. banks.

There was an interesting report that came out recently. The former head of the European Central Bank, Mario Draghi, put together a lot of ideas that have been bubbling around in the European Union for a long time. And among them is of how to strengthen that union. And one of them is to improve the depth and kind of diversity of Europe's markets for companies raising money, right?

Like today, a lot of European companies, if they want to get a bank loan, they go to their local bank. If they want to borrow from investors... They go through a U.S. bank. A, that's because U.S. banks are the biggest capital markets banks in the world. But B, because they can go to the U.S. market, right? They can sell bonds in the U.S. They can go public in the U.S., things like that.

You could see countries saying, you know what, this is how we're going to fight this trade war. You've got to stop doing business with an American bank today.

But what Mario Draghi's message was is that Europe needs to get its act together and start to develop more of those muscles and abilities. And so if Europe really gets its act together and says, OK, let's deepen and improve our banking and capital markets, maybe European banks – re-emerge as like domestic champions.

That doesn't mean that they're going to necessarily become top investment banks in other parts of the world, but maybe just domestically, they will begin to take up more of that business. Hurt on the Street columnist, Telus Demos.