Global Trade This Week – November 8th, 2022
What’s going on in Global Trade this Week? Today Doug Draper of ACME Distribution and Trade Geek Pete Mento of Mento LLC cover:
2:55 -China’s Zero COVID Policies. New Leverage in Trade War?
7:55 -White House to Focus on Foreign & Trade Policy
11:15 -Halftime
22:17 -Continued Consolidation and Acquisition of Companies
26:06 -Expensive Used Cars & Loans
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Keenan Brugh 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Pete Mento 0:08
Hey, everybody. Welcome to another exciting edition of global trade this week. I'm Pete Hollywood mento. And joining me as always is my my right hand. The Starsky to my hutch, the TC to my Rick, it's it's duck Draper, everybody. And you're probably wondering why I have on my sunglasses?
Doug Draper 0:34
I do. That was my question.
Pete Mento 0:38
Because the future's so bright. I've got to wear my shades. Doug, it's it's, you know, this just there's so much. So much brightness in front of me. So much hope and joy, you know, I do this blinding future. In front of me, I had to put on the shades today. So much hope and joy, my friend and I've gone Hollywood, there's no other way to put it. I've got to hide from the paparazzi. Things are just so great for you and I all this exposure that we have all the many media outlets that we're on. I've got to hide from the press, you know, just the other day I was at. I was at Starbucks and and someone said to you, Pete metal, and I said yeah, and they said you're you're trying to cold brew was ready. So you can leave now. It's gotten to that point where, you know, just that notice of right.
Doug Draper 1:30
I'm good. I'm good. We've been doing the show for a while. And I think one of the first ones it was, I can't remember. holiday seasons ago. You made mention there's two types of people that you said. Sinatra said there's two types of people that were sons, right? Do you remember?
Pete Mento 1:47
Yep, that's right. He said, douche bags. And that blind kid Stevie Wonder. Yeah.
Doug Draper 1:53
Yeah, exactly. So I don't know if he's called out yourself on that one or not. But we'll just we'll call it even.
Pete Mento 2:00
We're gonna go with it today, buddy. I'm you know, I'm I'm just feeling it. I'm feeling our rise to stardom. Just how massive the show's gotten? You know, we are we're just international superstars of global trade dog. That's just how it is pal. So I know you're on a tight crunch this week. I did vote. I know that you and Keenan are our vote by mail, guys. So we've done our civic
Doug Draper 2:30
vote by Dropbox. I don't think you're in Colorado if you didn't drop it in the mail like several days ago, wouldn't, wouldn't make it so we're vote by by Dropbox, right? Maybe five, five blocks from my house. There's a rec center. So I will be participating in the drop this afternoon.
Pete Mento 2:48
I love it. Absolutely love it. All right, man. So why don't you kick us off with Topic number one for global trade this week. Brought to you by CAP logistics.
Doug Draper 2:56
Yep. So this one is going to the China's zero COVID policy? And is that going to perpetuate supply chain chaos in months to come? Maybe? Basically, is that policy big enough to create a ripple through through the whole supply chain on a worldwide basis? And I don't think I have a definitive answer. But generally, I would have to say no. The reason I brought this topic up Pete is I saw something the other day that Foxconn, there's a district where it was locked down in John Joe, and they locked it down the Foxconn. It's a campus beat. I was blown away. 200,000 people work at this factory. It's a campus. You live there, you work there, you do the whole nine yards. And the Chinese government started locking it down for for COVID. And I think the cases were if you look at 200,000, that was like 167. It was in the hundreds, the low hundreds. And it went locked down. So I bring that up because two things number one, there was also talk about the workers and the employees were jumping ship because I didn't want to be isolated. There were people that were potentially exposed and they were putting them the government was putting them into areas where they were be quarantined. And so there was kind of this mass exodus of people saying I'm out of here. They literally were walking home, further inland China to say I'm not going to be held, held, held hostage. But then the Foxconn came back and said, hey, you know what, if you want to work, extended hours. If you are super efficient in how you work and you wanted to work essentially non stop in the month of November, they will give you all these times For bonuses, so and that seems to be working. So my whole point is one piece is that I think there's going to continue to be zero COVID policy they doubled down on, I think, this weekend, where there was some talk about, hey, those restrictions and that approach may be lifted. But this past weekend, the Chinese government said, Nope, we're still in a zero COVID type of policy. So ultimately, I think that their companies are gonna throw money at the problem and say, Hey, for a few extra bucks here and a few extra dollars, there you stay, we'll keep the assembly lines moving forward. I think that there will be a slight impact. But the financial compensation, like anything else in the world is, I think, going to trumpet and there won't be much of a supply chain blip, you'll hear about it, because it's a good story. And the one thing I'll leave Pete is, is this potentially, just like Russia, is talking about pipeline problems, we have to take it down to repair to control the situation, on the macro level, I don't know if zero COVID policy is going to have the same impact where they could use that to control the flow of goods out of China. I don't know if that's conspiracy theory, ask if there's bigger problems over there, and then to tweak it and turn a lever and push a button to have that type of outcome. But so I guess my take on this Pete is that, no, I don't think there's going to be that much of an impact, I think it's still gonna make the headlines. But it's not big enough to really impact you and I as consumers on this side of the pond.
Pete Mento 6:36
I'm gonna I'm gonna agree with you. And the reason for that is we've we've already reached a point now where this policy has gotten so dialed in, for a focused, so they're, they're like a laser beam. And we're talking about a specific factory in a specific part of the world. And we're not talking about big, massive cities, like when they know locked down Shanghai. So with the zero COVID, you know, it's not like the flu, right. But as more and more people are doing a better job of keeping this thing locked down, as they're doing a better job of geographically pinning it down and understanding its effect on its populace. I think that the, the likelihood of them, allowing this to be disruptive to their export economy is probably minimal. And their understanding of how it's going to affect the supply chain has broadened over the course the past couple of years. So I think they'll use it with sparing effect, but they'll use it in a more focused way. I don't think it's going to have the same effect that it would have had say a year ago, I think we're all learning how to better manage the effects of COVID-19 on economies on our societies. I think you're absolutely right, it's not going to have the same long, long tail that it would have had say a year ago.
Doug Draper 7:54
Yeah. All right. Your topic, my friend, what are you kicking us off with?
Pete Mento 7:59
Yeah, so it might sound like a political topic, but it's not. So today is the What's today's date here, buddy. It's the eighth of November. And it is election day here in the United States. So if nothing else, hopefully, I'm going to not have these stupid political ads and spam texts on my phone anymore after tomorrow. But we will, if we don't have everybody arguing about whether or not these elections were legal, we'll be able to have a Congress in the Senate. That is intact after January. And what most people are assuming will happen is that at least one one part of this bicameral legislature either the problem most likely the Congress is no longer going to be controlled by the Democratic Party. It's going to be you know, fully Republican. But there's even a chance that the Senate might be run by the conservative party here in the United States. If that is the case, it allows the president to stop focusing on domestic matters, because let's face it, domestic matters are probably going to be pushed by the Republican Party. Now, if they go anywhere with the President, I guess we'll find out. But it's more likely what will happen is that the President, the White House, and his administration, will start to push down to Congress, more bipartisan, friendly, international relations based foreign policy, a lot of that will have to do with trade. So we're probably going to see a push towards bilateral trade agreements, as we've spoken in the past with Chile, probably a push again, to do something about GSP. To get that thing back again. The Republican Party has made it pretty clear that they wanted to make that a win for a Republican Congress. So that will probably come up again, talks about a bilateral with Cambodia, a bilateral with Vietnam, and trying to simplify something between the United States and Europe. So this could be two years of some really, really fascinating growth, with trade policy and the United States given The fact that that's more likely to find success from a bipartisan perspective with any new Congress or Senate.
Doug Draper 10:08
Do you think that's detracting from the main focus of the economy, gas prices, things of that nature, and it's more of a play in that in that realm, or you think there's genuine interest to have good international trade policy?
Pete Mento 10:22
I think that there is interest to have good international trade policy. And I think that the Republican Party, conservatives are always going to be the party of trade. And there's a there's a genuine desire by all parties to find some way of overcoming these tariffs that are still in place with China. I mean, at this point, we might as well just call them the Trump Biden tariffs, because they've been in place now for what two years with President Biden, so they're just as much as as they are President Trump's he could turn them off anytime he wants. So, you know, we need to find some way to bring probably more, more stable trade relations with China as well. And that can be something that he could work on as well. So I don't see it as much as a distraction as a way to create a legacy of trade for President Biden prior to the coming election cycle.
Doug Draper 11:12
Cool. Good point. Good point. So I guess it's halftime, we're jumping into the favorite part of the show, where we have a little banter. And the beauty of having the show Pete is that we can talk about whatever we want, doesn't have to be related to supply chain logistics. It's just whatever we feel is on our mind, which I like and cap Logistics is the one that enabled us to do that. So halftime, brought to you by CAP logistics. He, why don't you just kick us off? I'm good with that.
Pete Mento 11:42
Yes, sir. So for those of you who are living under a rock this past week, we had a $1.9 billion Powerball that was available to us. If you were of that ilk, I did buy Powerball tickets, when the number is that big. I'm taking a swing at it just found out a little while ago that nobody won. So there was a delay. In the drawing for I guess, were a couple of states that had a difficult time reconciling their system. So they drew it a little bit late. But in that drawing, there were no winners, which I think is incredible, just mathematically the likelihood that they came up with a number that nobody had, I think that that was worth the five bucks, or whatever it was that six bucks, whatever it was that I put in for my couple of numbers. And I think that lotteries are fascinating, because I am mathematically skilled enough to know the likelihood of winning is so remote. That it's just it's it's not gonna happen. But two questions, Doug, and I'll help you by giving you my answers. One, do you play? Do you play massive lotteries? That's question number one.
Doug Draper 12:53
Absolutely. Massive, meaningless size of jackpot.
Pete Mento 12:57
Yeah. Do you play like Mega Millions and Powerball? Yeah. Yeah. And then to have you spent any time thinking about what you would do with the money. So I am the worst to ask this question to me. And I have actually descended into arguments about this because I am so uptight and conservative, like, do not send the ticket, call our lawyer, lock up the house, pack up everyone we're leaving, we're going into seclusion until we set up a trust. You know, the trust is signing the back of the ticket. We are not that money is being immediately put into a trust. We're not spending any of it. We're taking out part of it, so that we can buy a home. I'm hiring security, we don't go anywhere without people with this from this point for 24/7. armed security, I'm talking about the kind of navy seals that still around meet people that are armed to the teeth. I'm getting I don't know, like, we're gonna buy a bunch of cars. But no, no, no, no. Bulletproof Chevy Suburbans, and a guy is going to drive me everywhere I go, because I'm going to Daedric that's all I'm gonna do. That's gonna be my job for the rest of my life. I'm going to drink and there's going to be someone who drives me from place to place who is heavily armed and has a bad attitude and knows that I'm going to pay them extremely well, to keep myself and my family safe. And everyone that comes to me and says, I've got a great business idea. Too bad. I don't care. I don't care. We're not doing it. Don't come ask me for money. Don't come ask me for anything. Call my lawyers. Call my business manager. If they think it's a great idea. Cool, but don't be like Hey, Pete. Remember, we were best friends in high school. And yeah, I don't I don't care. I don't I don't care. I'm not don't even bother me. No, I don't care. So it's none of this. We're gonna go travel and get a No, all it does to me is create intense amounts of anxiety duck, thinking about being fat rich, if you win this next, that seems to be like 2.2 billion, I guess. If you take the cash, if you take the cash payout in New Hampshire, you're going to end up with like $900 million into me Yeah, that is like a death sentence of mental illness. I don't know if I could handle being that rich. I don't know if I could I don't know if I would be okay with that I would just be terrified of someone kidnapping my children or hurting me or, or, you know, tell me if they could not be they could keep me, you know, put me in a hole for six months, I'll lose some weight. But the idea of being that rich would just be too much. It would be too much.
Doug Draper 15:27
Yeah, I think you took kind of my thought on that, but dropped some steroids in it and threw a turbo charger on that might take is well, let's get a lawyer and we'll make sure we move slowly and make sure we're as anonymous as possible. And that's the extent of that conversation.
Pete Mento 15:45
I have friends that are like I that kind of money man. I'm gonna buy part of the Boston Bruins. And you know, I'm gonna live like Dan Balz area and I'm like, no, no, you're not. No. everyone you've ever known is going to sue you saying that you owe the money from something if your family is going to sue you, like your brother is going to sue you for for, you know, damp, emotional damage for when you were in your 20s you're gonna like No, no, this is not worth it. You need to hide in some some tax haven in the Caribbean, and be surrounded by African mercenaries armed to the teeth. That's what you need to do. Trust me like this is no, you're not you're not going to act like some cartoon character. You are going to live your life in fear. You can't be that rich. You just can. It's not fun anymore.
Doug Draper 16:29
Sorry, I just opened this little thing for spindrift. This is half full. This is half full. I just opened it. I'm a half full guy.
Pete Mento 16:40
Oh, you're half full guy. Well, that's That's adorable. But I'm, you know, clearly I've got problems, man, because I just can't I can't find the joy in those sorts of things. Like I used to, you know, I the idea of being that wealthy. It's paralyzing. It's paralyzing.
Doug Draper 17:02
If given the chance, I'll give it a shot.
Pete Mento 17:05
Got a call. The show will be oh, you know, it'll be me. Keenan, if you want, I guess because we'll never see you again. True.
Doug Draper 17:15
So yeah, so this one is basically how a CS and and why Crosby, Stills Nash and Young this one was when young was part of it, how a song can help you with raising your kids. And what I mean by that is there's a song called Teach your children. People may know it is achieved. Teach your children well, which is a lyric in the song, but the song is actually called Teach your children. Deja vu album 1970. I think Graham Nash wrote the song. And I heard it on the radio Pete after I had a conversation with with my wife. And so this, I'm going to give you some perspectives here, right, super important. I have a perspective, you have kids, I have kids, I have the book ends of perspective, because my children are in college. So we're on one end of the book end. And my wife is a first grade teacher. She's on the front end of that book book end. And I want to give you a couple of perspectives. Whenever my wife asked the kids, what do you want to be when you grow up? The answer when that question was posed to you and I was Doctor, fireman, professional athlete, things that were giving and helped people. You know what the comment is? Now when that questions asked. a six year old says they want to be a YouTuber, which is essentially they don't understand the term influencer. But that is what they are saying. And probably 80% of six year olds are saying they want to be a YouTuber, which is amazingly catastrophic. Take to the other side, right? My, my son, specifically, a lot of his buddies are into the gamification of gambling, and not how you invest, but how you trade. And if you can parlay this, and, and double down on that you don't really have to do a lot of work because you can just gamble and gambling is fun, and it's easy. And the gamification of it, these guys that are going into adulthood, are realizing or thinking that you can get rich by gambling. So here's my take is that there is a very important read in between those bookends. When when your children are five until they go off to college or become adults. You need to make sure your kids have the right perspective on life. You need to teach them correctly. Because it's horrifying when a six year old says they want to be a YouTuber. And it's horrifying when an adult an emerging adults says that the best way to get rich is to gamble is shocking to me. I'm not even kidding, Pete. We need to make sure that we're teaching our kids the right lessons. We need to push them in the right direction. action. And it's that 15 years in between those bookends that you're gonna have success. So I implore our listeners, if you have children within the book ends, take my story and make sure that your kids are moving in the right direction and teach your children well.
Pete Mento 20:18
I can't I can't disagree with you, Doug. But what if your son said he wanted to be an investment banker? Or do you wanted to be in finance, which is basically just algorithmic gambling,
Doug Draper 20:30
I see where you're going with this, I see where you're going with it.
Pete Mento 20:34
You know, in which case, he'd be just screwing entire generations of investors in the influencing thing. When I would, I distinctly remember telling my mother, I was going to give up a financially lucrative job to go out on the road and tell fart jokes for a living, which is about how you're going to pay your bills, and like, I'm gonna go up on stage and walk, I'll walk a walk, you know, and we're gonna see what happens. And it's probably no different than saying, I'm going to be an influencer. But
Doug Draper 21:15
it was, it was a good dichotomy between that story of the book ends and hearing that CSN and y song, within a matter of 12 hours of each other, which said, I got to talk to our listeners about this. So take care of the book. And the time in between is critical.
Pete Mento 21:33
Sure, is, yeah. We could talk about this all day, Doug. But let's, let's hit up the next the next topic. That's gonna do it for halftime brought to you by friends at CAP logistics. To learn more about them, check them out at capital genetics.com. And with that, we'll get back to the trade. So what is Topic number two, Doug?
Doug Draper 21:55
Yeah, that was a rough transition. I didn't set that up very well. So I apologize. No, it's
Pete Mento 22:00
not apologize for anything.
Doug Draper 22:02
What? I can't remember, what do you say it? Oh, the case a case and his dead dog? Yeah, that's it the case the case of transition? Like, oh,
Pete Mento 22:12
that is the best.
Doug Draper 22:15
Best. Yeah. So this is so my second topics, a quick one. And it's basically, I was trying to get cute with it, and basically say, you know how much for the doggy in the window. This is how much just a logistics company that window. So first of the pandemic, I'd indicate there's going to be a lot of acquisitions. And there were because there was a lot of money going into the supply chain logistics field, for obvious reasons. And everybody who is going to gobble up the next value add that will help grow their business as a full service, kind of logistics company. And we did see that there's a lot of log tech technology around logistics that people are gobbling up and accessing. And there was quite a few acquisitions. Well, there's still going to be acquisitions, Pete, but it's going to flip the script. And it's going to be more for, I need to really focus in and, and develop my core competencies. I think you've had some experience with that. But hey, we're gonna get rid of the distractions when the economy is challenged, and we're trying to make ends meet and be a profitable company, we're going to get rid of distractions, and we're going to hyper focus on our core competency. And there will be acquisitions, which will complement the core competency, because we've talked about owning the rails in the past. And if you can own their own rails, you can maintain control, but those rails are only going to be focused on the core competency. So I think what's going to happen in 2023, is they're still going to be acquisitions, but they're going to be more targeted to the point where you say, Yeah, that makes sense. You know, they're a trucking company, they bought another asset based trucking company that makes sense, versus the why the hell are they buying a large tech company to expand their, their, their portfolio? So the key part of that, in my opinion, Pete and this is my last comment here is it's going to be a lot of middle mile, meaning, not necessarily ocean freight, because the ocean freight guys talked a lot about buying airplanes and cargo and getting into those type of things. And the final mile, I think, is still trying to figure itself out with acquisitions, there's still a lot of energy around creative new solutions. So it's going to be that middle mile. That's just the blocking and tackling of moving freight, from warehouses to distribution centers, where you're gonna see acquisitions in that field that are going to be hyper focused on the core competency of those companies.
Pete Mento 24:44
Lots of money being spent left and right. A lot of people who are going to be selling at the top of the market, a lot of people who are going to be dumping assets that they probably shouldn't have bought in the first place and people who are patient that are going to be filling in the blanks of their business. I think you're also going to be seeing people who are late to the party, that, that are wondering why they didn't jump on board when they could have and are finding that they're missing something a key part in their overall capacity that they should have had. And that as far as focusing on the basics, that is what your shareholders want. They want to see the things that are working. And they want to see you expand on them. They don't want cute in a down economy. clever solutions. That was the last on LinkedIn. Simple skills, complicated fails, right? So you want to you want to stick with the recipe right now, when you're a stable large company, and then the smaller ones are going to be taking risks. And they're trying to make themselves a bright, shiny object. When we come out of this. I don't think it's going to be a long ugly financial cycle. But for the course of the next, say, 18 to 24 months. This is the time to buckle down and do what you do. Right. And we'll see what comes out of this thing on top. Yeah,
Doug Draper 26:05
good point. All right.
Pete Mento 26:09
Okay, so, you know, stifling news. Oh, speaking of the economy, stifling news all over the place over the course of these past couple of months. And weeks. Well, I was the victim of it, you know, the the the layoff news of these, of these technology companies, whether it was Wayfair, where I was part of that layoff. Oddly enough, my last day was followed by my first day at my new job, time, that went pretty well. And then meta, which everybody yesterday was saying that layoffs are going to happen over the course of these next couple of days pretty significant ones, Twitter, who just dumped jobs last week. And now we're seeing it across all of these tech platforms. And now across different places, and pieces of, of technology stocks. But now it's trickling into more interesting parts of the economy. Carvana yesterday had a positively dismal financial forecast revealed that on top of that really bad financial news, their stock is not performing at all. And that's for a couple of reasons that they can do something about, but a lot of ones that they can't, Doug, if you've been paying attention to the car market, the used car market, which was ridiculous for a while, because of chip shortages and supply chain shortages, as being very negatively affected by two very specific issues. Number one, is that we have a real problem now with financing. So because interest rates have gone up so high, and nearly, I think that the number I read this morning in the Wall Street Journal was that 70% of all use cars are financed. So nearly everyone is financing these are normally the second most expensive thing in an American home is their car. So it's the house, and then it's the car. And now they become so expensive, that people are financing cars, sometimes seven years, they're financing these things. That you're you're having a hard time justifying the expense of, of this car over seven years, when the typical American car payment analysis $650 a month. That's incredible, you know, so yeah, it's insane. So you, you see that in the second half of Carvanha is problem is a glut of inventory. So because the cost of these things to invest in to to buy one and two, the interest rates are so high, it's starting to scare people off, which means that necessarily having a lot of inventory, which was great for them and greed for companies like Carmax is actually a you know, it's an anvil around their throat. Having a lot of inventory is bad for the old spreadsheet. And it's it's bad for the balance sheet. So these two things are causing them a lot of pain. Now, taking her vana away for a second, what does that tell us about the broader economy, it says that interest rate increases are having the desired effect on buying used cars and probably buying new ones as well. As we're seeing the supply chain change in new cars, ones that were quite desirable, you would see massive markups. For Broncos as an example, a lot of the more desirable sports cars, you would see 5000 10,020 $5,000 markups the dealers putting on them. Those aren't there anymore. A lot of that is because of these interest rates. So it's happening there. We're going to start to see that lower the cost of cars than as cars begin to come down. Inventory is going to be sitting on lots as inventory sits on lots. Dealers are going to have a hard decision to make about lowering these prices even more. The next thing that that will start to happen to of course is going to be in the housing market, same situation. Houses are going to have to people are going to have to consider just how much do I want to make on the sale of this house. Will it be as much Probably not, the inventory issue is just not the same. People want these homes, they want them in certain places. And we're seeing a migration that people steal out of cities into the suburbs. And we're not making as many houses as we make cars. And people don't turn over houses, as often as they turn over cars. 40% of American households buy a new car every year. So it's interesting, though, that this is a is it a, I put this in the text today? Is it a good sign that we're seeing a slowdown, I would say, Yes, this is a good sign for inflation, because it means that the desired effects of hammering on the interest rates are now being seen in the marketplace. It's a bad sign for consumers, it's a bad sign for American households, it's a bad sign for people like you and I, that, you know, hopefully want to have lower mortgages, hopefully have want to have lower car payments, have kids that are going out world and starting their own lives, and want to build their own lives and their own investment portfolios.
Doug Draper 30:59
It's interesting to take that with interesting for your take to be a leading indicator of you know, the larger economy, which I never thought of that specific to cars. You know, like you said, I think Carvana went from a $60 billion valuation down to like, one 1.4 in a very, the swings that come around with with some of these, you know, unicorns so to speak, is just, it's, it's amazing. So I think you're you're spot on, and I have not thought of it is an indicator of other things to come as far as the car market doing that. So nice one, I like it. And I have no plans to buy a new car anytime soon, either. Yeah, good. Well, I think that's going to wrap it up for this week's edition of global trade this week, which means we had one last week, and we're going to have one next week. That's what's so great about the title of the show, Pete. The other thing is that we wouldn't be here without Caf logistics. I always say that. Kenan pushes the buttons and turns the levers to make this happen. And we really appreciate him and cap for putting this thing out there to the world. So I think with that, you know, we were talking about Big Lebowski I can't remember the guys name, but you're a dead ringer for a sidekick there. So it's, it's a good luck. Good luck.
Pete Mento 32:25
You're adding a deaths Donnie? Yeah, two deaths.
Doug Draper 32:29
And anyway, I think we'll wrap it up. With that. I want to thank everybody for joining us global trade this week, and we'll see you later.
Pete Mento 32:35
Take care, everybody. See you next week.
Unknown Speaker 32:37
Thanks.