Around the Horn in Wholesale Distribution - Episode 136

Hey, good morning, Good afternoon everybody. Tom Burton here. So as you can see, I am here by myself. So what's happening is Kevin was coming back from Nashville last night and got stuck in Denver. And you know, we thought about, hey, there's just not a lot going on this week at all. No real news. Why don't we just cancel? Forget it. But you know what, we decided the show must go on. So we'll try and find some news to talk about. So here's how this is going to work. I am going to put on some Vince Guaraldi hold music here. And Kevin is in a plane. He should be landing in about 10 minutes I think. So by the time he gets off the plane, finds a place to sit down, I would think it's going to be about 30 after the hour, somewhere around 9:30 Pacific, 12:30 Eastern. And then we'll jump in and we'll do at least a half hour and cover some of the news. If we can find some to talk about this week, maybe we'll find something about the tariffs, I don't know. And anyway, sorry for the, all the confusion but lots of weather related delays over the last week or last yesterday, last night with all the travel coming back out of Nashville. So what's going to happen? And I hope that this works right. I will put on a video here of it's going to be just like cold music type stuff. And as soon as Kevin lands and gets finds a place to sit down, we'll get started probably in about 30 minutes. So hope to see everybody here. It'll be on the same channel here, same thing with LinkedIn, same place. So nothing changes. It'll just be here for about 30 minutes. So hey, thanks again and we'll talk again soon. Okay.

Sam Sa sa sa sa. Sam Sa sa.

Sa Are you there?

I'm here. What's happening?

Not much.

Thanks for the patience with me.

Hey, I told everybody we were in a weather delay and to stay in the boarding area. So I don't know if they did or not, but we hit our 9:30 target that I told everybody.

As, as my flight was coming in here to Santa Ana John Wayne Airport in Orange County. I was trying to get a signal. My laptop had been connected to wi fi and then I got it on my phone and literally it popped up that says Tom Burton's going live. So as my flight was landing I was listening to at least a little bit of what you, what you were chatting about there. So here we are.

Hey, I was getting, I was getting Requests to go solo. I was. And, And. And Marty.

I don't believe that Marty said.

Right. And Will said fly solo. See this?

Proof. Do you have screenshots of that? Oh, you do?

I do, I do. I do. I can back up these things. All right. Hey, we don't have a lot of time.

Let's.

Let's roll.

Before we jump in with this, I'm actually in the wine bar here and I'm having some Perrier, but it's five o' clock somewhere, so if you want to fly solo, I'll head out.

Okay. Okay. I can do it now. Let's do it.

Let's. Let's roll into this. Thanks for everybody, for your patience, Hopefully. Well, we know we got the podcast audience. They'll hear the recording later will be good. But apparently there's a few things going on in the world and we should probably chat a little bit about today, right?

I think so, yeah. That's why I said there wasn't a whole lot of news, but we would come up with something, so.

Well, I don't know if you. I didn't. I couldn't really hear what you were saying, but I saw that you were there. But did you, you know, did you remind everyone what our mantra is? If we're on a plane, someone's in the hospital or a planned vacation, he's on a plane. So we're just a little late. But I see. I see a few people back there with us, which is great news. So. Yeah. Hey, Tom, before we dive in, though, quick question. I didn't get a chance to check myself, but did the jobs report was supposed to come out this morning? Have you seen anything about that?

It did, yes. It came out. Jobs were higher than expected. I think it was 250,000 and some change. Unemployment ticked up a little bit. The market doesn't seem to care less. All the market cares about is tariffs and, you know. Anyway, whatever I had of a 401k is much less today than it was 24 hours ago and certainly much less than it was 48 hours ago.

So I know some guys I could talk to. In fact, we have a meeting with them on Monday afternoon. Board of Directors, Elite Smart Technology. So maybe we can see if we can get you a bonus or something later this year.

Yeah, we're gonna need something because. So where do you start?

So I guess I'm just. I'm totally vacillating on all of this, you know, and I think I should jump in if, you know, if anybody that's with us today if we're connected on LinkedIn. And you were online this week, you saw my abundance of posts from the Industrial Supply association meeting in Nashville. I stayed in town after the hurricane warnings to see us a, a prospect and a friend as well.

Hurricane there too. I thought it was tornado.

Tornado. I just, yeah, I live in Southern California. I don't know what the difference is. What's the difference between a hurricane. I'm just kidding. I know the difference. But no, we had the, the tornado warnings and so forth and just crazy downpour of rain which caused me my delay in missing a flight back into Orange county last night and had to spend the night in Denver. But I posted a ton and there was two things and I haven't had a chance, my friend yet to send you all the info yet. But we had Brian Wild from National association of Wholesalers who's their key legislative analyst and he's on Capitol Hill every day, did a great presentation with Brendan Breen, the CEO of isa and we talked a ton about things that, you know, that you and I have talked about on the show in the past about, but kind of where we started in this country of funding ourselves by tariffs and then how the shifts have happened and the historical things that go with that. But what was interesting, what was followed by that. And we'll talk more about Brian's presentation and we've been messaging this morning about him joining us next week even for a little snippet or sending me on some data if he can't make it. But we talked after the show. I'd met him funny enough, last year's this time Industrial Supply association meeting. I was leaving Charlotte to fly to NAW for meetings and Brian and I were on the same flight back. So got to talk. But we'll look to get that feedback. But it was interesting Tom about it is that the positive economic ish info that came from the follow up presentation which was Taylor St. Germain from ITR Economics that was in, you know, they start all of their presentations, the ATR people with their accuracy rates of like 94.7% accuracy on their predictions over like the last 25 years or something like that. And they were talking about the second half of this year being fantastic and business picking up and so forth. Didn't question for one instance what was going on because this was like less than three hours before the announcements. What was it, Liberation Day? Is that what we're. That's what was called. Yeah.

April 2nd.

Yeah. Yeah. So anyways, I, I am my point with all of that is I'm kind of torn right now because I've heard some reports this morning. I see what's going on in the markets, but let's dive in and I want to get your thoughts and hear from the friends that were with us today.

Sure. Well, I, I don't think we, you know, I think everybody knows more or less what happened. Right. So there were.

Yeah. But the magnet we should talk about. Right, sorry. The magnitude of it. Right. And so go finish what you're saying and I'll bring up something that Brian. Brian brought up on. On Wednesday.

Yeah, but I mean, so in the first article here. Right. And this is a good article, by the way, the first one here in the newsletter is just a very good summary. It has all the charts in there. It has everything in there about the different countries and, and what are the quote unquote reciprocal tariff rates and so forth that are there. So I think that's a really good summary. I think where this. There was obviously a lot of spook about the broadness of it. Right. The number of countries that were included in that. I'm not surprised. I mean this has sort of been being discussed for quite a while, but clearly some of the market and analysts did not expect otherwise. You know, I'm very interested to hear more about what you heard at isa, but I agree, I think Bob made the comment here. Right. About that the markets are looking at this very myopically and they're not looking at this as part of. And I'm not saying that this. You could argue whether the overall strategy is a good one or overly risky or bad one or whatever. But there is a bigger strategy other than the tariff that is. And I think that's maybe what you heard and it'd be interesting to hear what you heard more about that. We can go into that more. But there certainly is a lot more to the equation than just a tariff. And everybody is, you know, and from the market perspective is. And look, the market was overpriced and it needed a correction. And you know, there's a lot of things that could be said for that, but certainly a lot of. Of seems to be a lot of overreaction.

So I'm gonna just take a step back from what you said and I think Bob's comments here at 09:35, I think that came in. Hey, did you do all the housekeeping stuff that I always do with the why we're here?

No.

And we don't need it.

Right. They know why we're here. We know what we're doing right. So yeah, no, I, we're not gonna do it today.

But, but, but you know, we're obviously live on YouTube live, Facebook live and LinkedIn live. If you hear the background airport noise, my apologies for that, but hopefully the noise canceling on my ear pods are okay. Bob's comment here, I think for me the last sentence nails it, right. Thinking about quarter over quarter losses versus year to year gains. Now that's not proven yet. Right. But what. Where my mindset is on this and I was really listening and I'm hoping I've talked to a handful of distributors the last couple of days that were, I would say caught flat footed, but I don't think people were planning on. Tom, do you by chance have any of those charts handy?

I don't know.

Okay. Maybe you can even open that article that has them. But you know, I think people were thinking about, you know, some level of tariff across the board. Right. To many countries, but not contemplating the number of them. And here's this list if you're with us live, you know, coming up now. I don't know if we can make that any bigger, but you know, we have. What we're looking at is a minimum of 10% and then, you know, 50 plus percent with a lot of countries in that setting that. The issue though, I think that comes with this is there's a lot of people that have been moving their supply chain out of China to Southeast Asia. And I was. He said he was going to try and be with us this morning. In fact, I'm going to text this gentleman briefly and while we're sitting here continuing to chat. But this is, I think the magnitude of this is different than what had been expected and that's what we're really seeing out of this. So the factors of Vietnam and Laos and Indonesia and Malaysia and Cambodia in all of these countries, I mean, look at Cambodia. What's the number related. It's hard for me to see, but what's Cambodia say? Do you see?

Oh, it's. Well, it's what it says here is 49% which is half of the 97% if that they supposedly charge us.

But what. Yes, but I mean the example that I was given yesterday with a wholesale distributor that, that is in the industrial and distribution space, safety space, you know, was talking about basically the cost of a box of nitro exam gloves or workplace gloves is you're almost going to double in this setting because of a couple of different factors. And when you start thinking about the commodity nature of A lot of things there's going to be an impact to these things. But it's been going by my mind you're going through my mind the last couple of days as much about what Bob said is and what the president is saying now is standby. Right. I don't think he I think he is way underplayed the factor of the short term impact. I think the short term impact, we're seeing it in the market, we're going to see it in quite a few other areas as we go through all of this. But I mean I heard a statistic, Tom, this morning as I was in denver o dark 30 Getting dressed. I had the news on and now I think we're going to see 50 different economists come out with what the answer to this question is. But they said the average American is going to see somewhere between a $2,100 and $2,500 a year change in their cost of overall living. Okay. Now this is and I'm leading up to answering your question is what I heard when I was back, what I heard Brian Wilde in particular from Naw say and Brian is a Washington insider for many, many, many, many years. He took the broad approach that we've talked about for weeks and weeks now, but even to a higher level. And what he looked at is he said there's multiple fronts. What we heard first was fentanyl in the border, China, Canada, Mexico, putting the pressure on them for those issues. Now it's moving on to and this is I think such a critical point to what we're talking about here is the discussion for this president, if you look at his hat, is not about making the world great, it's about this country. And I think if you start putting some of these things together and looking at and I'm far from a political expert or diplomat, but I think the past prior, I'll say Democratic administrations and probably historically outside of the current president in his previous presidency, most people as we've talked about, are more happy to go to meetings for months and months or years and do all the diplomacy and so forth. And it's more of a global view than a what do we want to make happen in this country now? And what he is saying is what I want to do in this country right now is I want to improve people's lives. I want manufacturing this country and I want to take it back to where this country is so called great. Now this isn't Kevin Brown pontificating this stuff. It's just what I believe what we're Seeing right now is somebody that says, tighten your belt, buckle up for a little bit, we're going to have more jobs here, better jobs here in the world is going to be a better balanced place and more fair. And what we'll see out of that. And Tom, you were talking about this on last week's show and it's very clear right now is the next level of what is going to happen. And as Brian mentioned, this is what we should be seeing next is we should now be seeing next the implementation of the discussions about tax relief. Sure. So right now, what was the number, Tom? Was it $150,000 or less? That's the proposal.

Yeah. So the proposal is $150,000 or less of income. You'll have no, at least no federal tax.

But so if you, if you go through a scenario where, let's just say you go up, you're an average American household, if you're now not paying any income tax, federal income tax, that's way past going to offset even that. That $2,000 I mentioned, $2,500 I mentioned was $4,000. Those things way offset. So short term pressure, everybody's flipping out, but the intention is these things are going to offset. Now, I'm sorry to keep going here, but I'm going to try to continue to answer your question. The next presenter that we had at the Industrial Supply association meeting was Taylor St. Germain, an economist. And what he was talking about was wages will increase because they'll be able to, because of tax breaks, wages will be able to increase. Those will offset these increase in costs. His comment to people like you and I were do all the hiring you can in 2025 because wages are going to increase for those people out looking for jobs. And if you have some people already in and working, you'll probably be able to offset a little bit of that. So I think this is a big picture approach and I think, you know, Tom, you're, you're more of a market guy. Andy's here. I texted him a minute ago. Andy and I have had a couple discussions the last couple days and I know he can probably give us some good examples of what he's seeing. He runs a national distributor of safety and industrial supplies and does his own manufacturing offshore. So he may share some things with us as well. But I'm going to throw this back to you and tell me what you think is what's going to happen to the market next.

What I think is going to happen to the market next or stock market, I think that the market is going to be, unfortunately, I don't think it has reached its bottom. So we could unfortunately see another, potentially another 10% or more drop given the fact we've seen over 10% in the last two days, predominantly by the reactive news. Right. So if you end up with Europe coming back going, oh, we're going to now retaliate or, or whatever, it's all very news driven. However, however, there's a number of factors that could change that. Pal spoke today and he didn't reassure anybody. He was like, well, we don't know, we think, you know, prices are going to go up and, but there is a lot of chatter about a lot faster and a lot deeper rate cuts. You know, there's all kinds of chatter. Right. So I think short term it's going to be very volatile. I wouldn't be shocked at all to see another 10%. I wouldn't be shocked to see if it stayed, you know, it bottomed out already. I wouldn't, I wouldn't, you know, it's, it's just, it's so unpredictable and so reactive at the moment that it's, it's in a. And would I get in right now? No, because I think it's very difficult to catch a falling knife. We have a, we have a falling, falling knife in my opinion at this point.

But, but I think if you're, if you're an investor versus a trader here, don't worry about the falling knife. Oh.

I mean, if you want to get in now and you take another 20 or 10% drawdown, I still think that's going to be a really good bargain. However, I don't know enough. I, I certainly, I wouldn't be enough to be able to predict the timeline of some sort of recovery or moving back the other direction. Right. Well, here I think you, you brought up a couple of points that I think are. So I had, I have friends that are man, you know, small manufacturing businesses. And I talked to them not last night but the night before and I said to them, I said, and they all get their at least a portion of the parts that they use for manufacturing from China. And I said, okay, with this coming about, what are you going to do? The very first two, for both of them, the very two, first two things out of their mouth was we are going to find somebody more local in the United States to get those parts from or at least partially source them from. Which is exactly what the strategy is. Right. Is to bring.

This is about, that's what this is about.

Right. I Can see like, you know, you know, Andy. Or, or people who are dealing with commodity like safety products or N95 masks or whatever. I don't know that those will ever be made in the US in any sort of quantity.

They're already being, they're already being made at some level in the US it's just the cost advantage has been so big. Right. So finding a supplier, you know, it's not impossible to do that. I could, you know, I don't know if he wants to comment on this, but you know, the other people that might be here are. But the, you know, it's just finding the balance of where the pricing's at with it.

Right. But I think the. Right now there's a person I shouldn't. Because there is a lot of uncertainty. Right. There's a lot of uncertainty on the, on the day to day and I think this goes back full circle to what you were just talking about. If you. There's a lot of uncertainty on the, on the minute to minute news or the minute to minute things. But if you take a step back and you look at the broader strategy, the uncertainty starts to fade a bit and you start to have some stability at least on what the strategy is going forward. And I've been working on this and I'll. We can talk more about it. I know we have limited time today, but really trying to document out exactly what all these parts are to the best of our ability for the strategy. Because I think if you keep your eye on the strategy and less on the noise, you're going to be much better off in terms of how you move forward.

Yeah. So let's kind of take a step back with this then. So we started with this talking about the borders in drugs. Right. Right. For phase one. Got some good things apparently accomplished there. We'll see if they really slow down or not. And, and the, the kicker on that. Right. Is. And the one thing we haven't talked about when you come back to this is really related to the, what the, what the Chinese government does in backstopping these issues and even currency manipulation that could go on in China which is not getting, you know, Vietnam is not going to be able to manipulate their currency and backstop things like China would be. But let's just look at these in potential phases. Right. So border fentanyl, not that those are fixed or done, but the big actions have been taken to start that next thing was level the playing field with tariffs and moving from a scenario where, where this country is at a disadvantage from tariffs and then put some geopolitical pressure as well as financial pressure on trading partners who are maybe less than fair in most things that they do. And then the next phase should be tax relief. And with the tax relief, one of the comments that came in is what companies are going to want to and invest with the instability and build factories in. That's one of the major factors behind all of this, is if the tariffs are high, that means there's government dollars coming into the government, taxes can be lowered, incentives can be put in place, build the factories, bring the jobs here, whether it's robotics or it's people or whatever it is, put more of those factories here. Raises our own internal. Even with the lower taxes, the tax rates that are going to come from manufacturing being done here, there. And I would take a step back and say there's a reason for the last 25 years that Toyota and Nissan and Mercedes and BMW have been building cars in the U.S. right. They're already, there's companies that have already been doing that. And I think what we'll see with that is, and you know, we'll see if there's maybe any more balancing between Canada and Mexico. But I can see a lot of manufacturing in Mexico in particular picking up, up as long as everybody's playing the game, right? And then we've got that piece in place. So if taxes can be reduced and we get manufacturing going, then these pieces of this puzzle come together. It is a little bit of wait and see. But my assumption is going to be that one, you know, the administration has been saying for the last few days, no, no kind of negotiating is over. That's the wrong guy. He's there. He's there already.

That posture has already changed today. There was already, I think, an announcement by Trump saying that I'm open to negotiation.

Yeah.

So look, like I said, if you try to follow the sound bites, you're going to go crazy.

So that's back to your, you know, what you've been saying forever is wait 72 hours, right? On these things. There's, there's nothing that suggests that the market couldn't open up on Monday and up, not open up, but open with increases on Monday either. So, so, you know, that's the, that's the, the piece that we're looking at with all of this. What back to a couple of the things, you know, I heard earlier in the week is that, you know, this was, you know, again, Brian's view from. Naw, was that, you know, just part of the, part of the game, right and the negotiator in this particular president is he will do whatever it takes to get people to come to him to negotiate something. But I think it's important to just stop and think about that hat. Right. That hat isn't about global unity. Right. It's not about that. It's about what's best for this country. And if people take a step from there, I think that's great. And Brian made probably the most impactful comment that I've heard related to this because we continue to talk over and over again about, about, you know, tariffs being a diplomatic tool. Brian made the example and he said was early last month, I guess it was when there was a plane load of illegal immigrants that was sent back to Colombia and Columbia refused to let the plane in. I think it was or turned around to send it back. And the next day there was this, you know, massive tariff put onto Columbia. This Topman, I don't think I even shared this with you by, by message or text message previously. But Brian made this great comment. I'm just going to quote him. And he said that was Trump's version of, he said his former boss and his former boss was George W. Bush. And he said had Columbia done that with George W. Bush, there would have been an American aircraft carrier off the coast of Columbia the next day. Day, military, economic pick. Right. All we have now is somebody that's saying I'm not going to send. And, and literally his words were my former boss, George W. Bush would have had an aircraft carry off their coast the next day to make it clear that we're serious. Trump, Trump uses something different than an aircraft carrier. And that said. So anyways, I think it's, it's, I don't know if it's, there's any point. I guess my view right now would be, I think it's be silly to be completely doom and gloom with this and I think it would be silly to be overly optimistic. But the pieces of this puzzle are coming into play and if you take a step back and whether you think he's a Cheeto or you think he's brilliant, put all of that aside and watch what is going on and look at it as a whole versus the individual parts.

No. Understand the game that is being played.

Right.

It's real easy to watch a football game and not understand the rules of football.

Right.

And, and see a bunch of people point out fingers. Right. And see people, you know, hurt on the playing field and all that.

Right.

But if you understand the rules of the game and the game itself, then it helps you have more control.

Yeah.

Right. So I think that that's what we said last week. Right. Whether you agree with the strategy or the game or not, that's one thing. But understand the game.

Understand the game and the strategy with the game.

Right? Right. And I think that maybe next week I. We can maybe go live again, maybe even before next Friday, because I've been. I've been. I've been kind of pulling together. There's. There's about 10 more pieces of the puzzle. Even though what you brought up that I'm finding and what I'm doing here, and let's go through it so that we can baseline what is the strategy. Right.

Yep.

Will there be a lot. A lot of volatility and ups and downs and, and disarray and. And all that stuff? Of course. But again, if you focus on the disarray, that is going to be confusing. If you focus on the strategy and are you monitoring the strategy, that I think is the healthier way to approach it. Right. Whether you agree with it.

Right. I mean, literally, what just. What just came to my mind, right. Is this is no different. If you really look at it and unpack it fully, it's no different than a small company or a large company. If your people that work with you are uninformed of the strategy, the goals and the values of your organization, you will have some chaos going on. So it's no different in this setting. If you take a step back and say, what is the view of this president in this case and this administration that says, this is what we want to go do now? But I think the challenge, right, is. And this is, you know, Andy's made some great comments today about supply chain stuff and things. I think there is a lot of people that we're not expecting that we would see this across the board and all of these different countries. I think a lot of people were expecting that we were going to see maybe a handful of additional countries added into this. And then what was really going to happen with China was the issue that was going to go with this. Well, when we see this sweeping thing happen, that's the shock and awe of all of this. But why would you ever be it. Why would shock and awe from this administration surprise anyone?

No, no. I mean, that's a form of. That's their form of the aircraft carrier.

Right?

So.

No, exactly. In that setting. But I think that's. That was the surprise. But I do want to tell you something about this. And it was.

Kevin, I don't know if you know the time, but.

Yeah, we got three minutes, huh? We've got a. Yep. So let me just. I'll close on this and then we can wind up and talk about what's next week. But I sent it to you. I don't think you have it handy, but basically we saw in the presentation I was in at the Industrial Supply association and people, if you're in the industrial space, be involved with your trade associations, not just your buying groups because buying groups, we go there for business, we get maybe a keynote speaker. Trade associations events is where you getting this deeper dive stuff on true views of the economy from world renowned economists, national association of Wholesalers, legislative analysts, being there and available to talk one on one afterwards. But in. In looking at this, Brian threw up a chart that had more than half of what we saw on the final list and said his assumption was we would see that list on this. The. Andy's got a great comment. Tom, if Kevin had missed this meeting, you had ended on time. That's good. Always as expected. Thank you, my friend. But his point was, right leading into it, that there was plenty of people in Washington that expected a big list. The rest of us just weren't thinking about it. So anyways, that's it. We got another meeting to go to. Tom, you want to close us out since this is your show today?

Yeah, I mean, thanks. Thanks for letting me run solo and no, I. And so obviously there's some other great articles in the newsletter. I'm. We're not going to be able to get to them today. Like I said, I'm. I'm hoping that we might be able to go live again before next Friday, next week, talk about some of these things a bit more. But we will be back next Friday with a normal. On, with more, with more certainty. We're going to put more certainty into this so we don't have all this uncertainty and confusion.

So that's the beauty. That's the beauty of this show. Unstructured and off we go. Right so. And all right. And my connection. Okay, we did all right. Right?

We did all right. You did a good job job. You made the show go on.

So thanks everybody for being with us.

Yeah, have a good weekend. We'll talk soon.