1 00:00:05,440 --> 00:00:08,080 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,400 --> 00:00:10,440 Sean Aylmer: This is a big week for global markets. With the 3 00:00:10,560 --> 00:00:13,440 Sean Aylmer: White House set to target a number of countries with 4 00:00:13,640 --> 00:00:17,799 Sean Aylmer: reciprocal tariffs. It's likely to create more turmoil for investors, 5 00:00:18,000 --> 00:00:20,480 Sean Aylmer: as we've seen in recent months. So how to investors 6 00:00:20,520 --> 00:00:23,480 Sean Aylmer: set up their portfolios to weather the storm and how 7 00:00:23,520 --> 00:00:25,720 Sean Aylmer: do you look through the noise to understand risk and 8 00:00:25,880 --> 00:00:30,440 Sean Aylmer: identify opportunities. After all, this may be the investing landscape 9 00:00:30,480 --> 00:00:32,760 Sean Aylmer: for the duration of the Trump presidency. Of course, the 10 00:00:32,760 --> 00:00:35,520 Sean Aylmer: information in this episode is general in nature. It doesn't 11 00:00:35,560 --> 00:00:38,559 Sean Aylmer: take into account your individual circumstances. You should always do 12 00:00:38,600 --> 00:00:42,040 Sean Aylmer: your own research and seek professional advice before making investment decisions. 13 00:00:42,040 --> 00:00:47,120 Sean Aylmer: Matthew ten is Senior Asset Allocation as Specialist at LGT Crestone. Matthew, 14 00:00:47,159 --> 00:00:48,120 Sean Aylmer: welcome to Fear and Greed. 15 00:00:48,560 --> 00:00:50,040 Matthew Tan: Thank you very much for having me. Sean. 16 00:00:50,600 --> 00:00:54,000 Sean Aylmer: So two months in, let's start big picture. Two months in, 17 00:00:54,760 --> 00:00:58,200 Sean Aylmer: how would you characterize financial markets and even the economy 18 00:00:58,520 --> 00:00:59,400 Sean Aylmer: under Donald Trump. 19 00:01:00,360 --> 00:01:05,640 Matthew Tan: Yeah, I think there's been an aspect of financial markets 20 00:01:05,680 --> 00:01:09,960 Matthew Tan: sort of waking up or adjusting to the reality of 21 00:01:10,680 --> 00:01:13,679 Matthew Tan: what Trump is actually trying to achieve. With this second 22 00:01:13,720 --> 00:01:18,360 Matthew Tan: administration and the way i'd actually think of categorizing it. 23 00:01:18,560 --> 00:01:21,560 Matthew Tan: And I know people have been talking about recession risks 24 00:01:21,600 --> 00:01:26,040 Matthew Tan: and stagflation risks, I'd almost call this an uncertainty shock. 25 00:01:26,680 --> 00:01:29,520 Matthew Tan: So if you think back to say nine to eleven 26 00:01:29,560 --> 00:01:32,920 Matthew Tan: as a recent historical example, something crazy has come out 27 00:01:32,920 --> 00:01:35,360 Matthew Tan: of the blue. We're not sure what exactly is going 28 00:01:35,400 --> 00:01:38,840 Matthew Tan: to happen following it. Businesses and consumers are uncertain, and 29 00:01:38,880 --> 00:01:41,920 Matthew Tan: in that sort of environment, the natural reaction is to 30 00:01:41,959 --> 00:01:45,360 Matthew Tan: freeze up. And that's what we're seeing. Consumers consuming, Sentiment 31 00:01:45,440 --> 00:01:48,440 Matthew Tan: is falling, consumers are freezing up, Businesses are freezing up, 32 00:01:48,600 --> 00:01:51,880 Matthew Tan: and we're all just waiting for the chips to fall 33 00:01:52,000 --> 00:01:54,600 Matthew Tan: to see what the landscape is going forward. And that's 34 00:01:55,000 --> 00:01:57,320 Matthew Tan: the kind of lens to which we are thinking about. 35 00:01:57,600 --> 00:02:00,720 Matthew Tan: I guess at least a short term out for markets 36 00:02:00,720 --> 00:02:01,120 Matthew Tan: from here. 37 00:02:01,800 --> 00:02:07,200 Sean Aylmer: Okay, do you think there is some underlying strategy plan 38 00:02:07,520 --> 00:02:12,520 Sean Aylmer: in the Trump administration around tariffs in some of the 39 00:02:12,560 --> 00:02:13,560 Sean Aylmer: decisions they're making. 40 00:02:14,600 --> 00:02:17,160 Matthew Tan: I do believe there is one. I'm not sure they 41 00:02:17,160 --> 00:02:22,080 Matthew Tan: I'd call it a genius master plan, but I will 42 00:02:22,120 --> 00:02:25,840 Matthew Tan: say that, you know, while it seems very important to 43 00:02:25,919 --> 00:02:28,760 Matthew Tan: keep track of every little tariff announcement that comes out 44 00:02:28,880 --> 00:02:31,920 Matthew Tan: on any given day. Investors who are too focused on 45 00:02:31,960 --> 00:02:36,440 Matthew Tan: this minutier risk missing the forest for the trees. We 46 00:02:36,560 --> 00:02:40,840 Matthew Tan: actually think that Trump's overall fiscal strategy is what's driving 47 00:02:40,880 --> 00:02:44,040 Matthew Tan: his tariff's strategy, not the other way around. And if 48 00:02:44,080 --> 00:02:45,880 Matthew Tan: you really want to get a handle on you know 49 00:02:45,960 --> 00:02:49,239 Matthew Tan: what is happening, why it's happening, and what could happen, 50 00:02:49,600 --> 00:02:51,760 Matthew Tan: you should really start with that fiscal picture. 51 00:02:52,480 --> 00:02:56,079 Sean Aylmer: So explain the fiscal picture under Trump two point zero. 52 00:02:57,000 --> 00:03:01,400 Matthew Tan: Ultimately, I think what Trump and Treasury Secretary Scott Vesont 53 00:03:01,440 --> 00:03:04,480 Matthew Tan: are trying to do is solve a giant diiscal puzzle. 54 00:03:05,000 --> 00:03:07,600 Matthew Tan: So Trump, in the near term wants to pass his 55 00:03:07,720 --> 00:03:11,480 Matthew Tan: twenty seventeen tax cut extension. That's a key election promise 56 00:03:11,520 --> 00:03:14,040 Matthew Tan: of his and it will be a key pillar of 57 00:03:14,080 --> 00:03:17,760 Matthew Tan: his twenty twenty six mid term election campaign for Congress, 58 00:03:18,240 --> 00:03:21,560 Matthew Tan: while Treasury Secretary Vessant I think has a longer term 59 00:03:21,600 --> 00:03:25,600 Matthew Tan: goal in mind around stabilizing the US debt and deficit. 60 00:03:26,160 --> 00:03:29,360 Matthew Tan: Now there are four big levers that they're currently using 61 00:03:29,400 --> 00:03:32,919 Matthew Tan: to try to solve. For this one, they're negotiating with 62 00:03:33,040 --> 00:03:36,160 Matthew Tan: Congress on the actual details of that tax cut package, 63 00:03:36,360 --> 00:03:39,800 Matthew Tan: which currently calls for two trillion dollars of physical savings 64 00:03:39,880 --> 00:03:43,360 Matthew Tan: to help partially fund that. Two they can raise revenue 65 00:03:43,400 --> 00:03:46,960 Matthew Tan: through arras. Three they can cut spending through the Department 66 00:03:47,040 --> 00:03:50,600 Matthew Tan: of Government Efficiency or DOGE. And four they can reduce 67 00:03:50,680 --> 00:03:55,440 Matthew Tan: the Treasury's interest expense via lower rates i e. FED cuts. 68 00:03:55,720 --> 00:03:58,320 Matthew Tan: And I think part of the seeming chaos that we've 69 00:03:58,320 --> 00:04:01,520 Matthew Tan: seen in recent weeks is they're basically pushing all of 70 00:04:01,560 --> 00:04:04,000 Matthew Tan: these buttons at once to kind of see what sticks 71 00:04:04,480 --> 00:04:07,160 Matthew Tan: and see what they can get through. And I think 72 00:04:07,400 --> 00:04:11,080 Matthew Tan: once we have a handle on that fiscal package, that 73 00:04:11,120 --> 00:04:14,320 Matthew Tan: twenty seventeen tax cut package, you can sort of work 74 00:04:14,400 --> 00:04:17,960 Matthew Tan: backwards from there. And our view is that the uncertainty, 75 00:04:18,400 --> 00:04:22,880 Matthew Tan: the chaos, the headline risks may start to ease once 76 00:04:22,880 --> 00:04:24,680 Matthew Tan: he has that number that he can work towards. 77 00:04:25,520 --> 00:04:28,800 Sean Aylmer: Okay, so if we take that so the DOGE, he 78 00:04:28,920 --> 00:04:33,560 Sean Aylmer: can manage, tariffs, he can manage he needs to get 79 00:04:33,800 --> 00:04:38,920 Sean Aylmer: tax changed through Congress, and we talking corporate end income 80 00:04:39,000 --> 00:04:40,320 Sean Aylmer: tax in this sense, Matthew. 81 00:04:40,720 --> 00:04:44,559 Matthew Tan: Let's say that would be the aspiration, but currently what's 82 00:04:44,800 --> 00:04:48,039 Matthew Tan: properly practical that he can pass through Congress is just 83 00:04:48,160 --> 00:04:50,839 Matthew Tan: the personal income tax cuts that is the core of 84 00:04:50,880 --> 00:04:54,280 Matthew Tan: his election promise, and so I think he will negotiate 85 00:04:54,320 --> 00:04:56,960 Matthew Tan: away the corporate tax cuts in order to get those 86 00:04:57,080 --> 00:04:58,680 Matthew Tan: personal income tax cuts. 87 00:04:58,400 --> 00:05:02,479 Sean Aylmer: Through oka fourth expect his rights, which is independent through 88 00:05:02,520 --> 00:05:07,240 Sean Aylmer: the federal reserve political pressure obviously, does that make sense 89 00:05:07,520 --> 00:05:12,440 Sean Aylmer: then to put those four aspects together and yep, we're 90 00:05:12,440 --> 00:05:13,800 Sean Aylmer: going to have a lot of turmoil in the next 91 00:05:13,839 --> 00:05:17,200 Sean Aylmer: year or two. But if he can, you know, cut spending, 92 00:05:17,279 --> 00:05:20,640 Sean Aylmer: if he can income tax, if you can raise revenue 93 00:05:20,720 --> 00:05:24,080 Sean Aylmer: via tariffs, and if interest rates can fall, can that 94 00:05:24,200 --> 00:05:26,560 Sean Aylmer: all fit together and be sensible policy. 95 00:05:27,160 --> 00:05:31,080 Matthew Tan: I think there's a chance that they could make this work. 96 00:05:31,560 --> 00:05:35,200 Matthew Tan: Now they're skating on pretty stain ice because that our 97 00:05:35,360 --> 00:05:38,000 Matthew Tan: word that we're sort of dancing around, the recession risk. 98 00:05:38,560 --> 00:05:41,720 Matthew Tan: It's a threat, and I think a negotiating tool that 99 00:05:41,800 --> 00:05:45,159 Matthew Tan: Trump and Vesson are currently using the try and force 100 00:05:45,279 --> 00:05:48,719 Matthew Tan: action from the Fed. So they're almost engaging in a 101 00:05:48,760 --> 00:05:51,799 Matthew Tan: giant game of economic chicken with j. Powell. At the moment, 102 00:05:51,839 --> 00:05:54,800 Matthew Tan: they're saying, we're not afraid of potentially causing a slow 103 00:05:55,080 --> 00:05:58,080 Matthew Tan: or a recession, you better cut get out of the way. 104 00:05:58,960 --> 00:06:04,200 Matthew Tan: In reality, neither the Fed nor Trump can afford an 105 00:06:04,279 --> 00:06:07,680 Matthew Tan: actual recession to occur, because obviously in a recession you 106 00:06:07,720 --> 00:06:11,159 Matthew Tan: get a deep fall outcome activity. It worsens the budget 107 00:06:11,160 --> 00:06:14,719 Matthew Tan: deficit significantly through those automatic stabilizers and the fall and 108 00:06:14,760 --> 00:06:19,080 Matthew Tan: tax revenue. So neither side wants a recession to occur, 109 00:06:19,600 --> 00:06:23,080 Matthew Tan: and what they're trying to do is dance around that 110 00:06:23,320 --> 00:06:27,840 Matthew Tan: risk while, like you said, balancing those four leavers around doge, 111 00:06:27,920 --> 00:06:31,039 Matthew Tan: around tariff and around potential FED cuts to try and 112 00:06:31,080 --> 00:06:32,520 Matthew Tan: get there high risk. 113 00:06:32,640 --> 00:06:34,160 Sean Aylmer: Say with me, Matthew, in a moment, I want to 114 00:06:34,200 --> 00:06:42,680 Sean Aylmer: come back and ask what this means for investors. My 115 00:06:42,720 --> 00:06:46,920 Sean Aylmer: guest this morning is Matthew ten from LGT Crestone. We've 116 00:06:46,960 --> 00:06:50,960 Sean Aylmer: talked about the potential strategy behind what's going on in 117 00:06:51,040 --> 00:06:54,280 Sean Aylmer: the US, whether that is the strategy or not, whether 118 00:06:54,320 --> 00:06:57,800 Sean Aylmer: it works or not. What about investors? How should they 119 00:06:57,880 --> 00:07:01,680 Sean Aylmer: be thinking about what's going on geopolitically and of course 120 00:07:01,720 --> 00:07:04,720 Sean Aylmer: locally around elections and all sorts of things in terms 121 00:07:04,760 --> 00:07:07,040 Sean Aylmer: of interest rates and all that here. How should investors 122 00:07:07,080 --> 00:07:07,839 Sean Aylmer: be playing. 123 00:07:08,080 --> 00:07:10,920 Matthew Tan: That's an excellent question. So there's a few things I 124 00:07:10,960 --> 00:07:13,920 Matthew Tan: think investors can do. So firstly, in terms of the 125 00:07:14,280 --> 00:07:17,080 Matthew Tan: short term what we call a tactical time frame, which 126 00:07:17,120 --> 00:07:20,480 Matthew Tan: is called it six to twelve months. I think investors 127 00:07:20,520 --> 00:07:24,040 Matthew Tan: should really focus on what actually matters, which is the 128 00:07:24,120 --> 00:07:29,040 Matthew Tan: underlying macro, and think through what are the most likely 129 00:07:29,120 --> 00:07:32,360 Matthew Tan: scenarios and kind of position for that. So from our perspective, 130 00:07:32,880 --> 00:07:35,560 Matthew Tan: our two key views, some of which are quite out 131 00:07:35,560 --> 00:07:39,200 Matthew Tan: of consensus, are we think that US fiscal policy is 132 00:07:39,240 --> 00:07:43,680 Matthew Tan: going to be contractionary relative to expectations relative to the 133 00:07:43,720 --> 00:07:46,040 Matthew Tan: rest of the world, and that feeds into that whole 134 00:07:46,040 --> 00:07:49,280 Matthew Tan: physical strategy physical puzzle that Trump investment are trying to 135 00:07:49,320 --> 00:07:52,360 Matthew Tan: solve for. And two, we also have a very high 136 00:07:52,400 --> 00:07:57,200 Matthew Tan: conviction view that tariffs are ultimately disinflationary, and because of that, 137 00:07:57,760 --> 00:08:01,040 Matthew Tan: we believe on a sort of six month base, this inflation, 138 00:08:01,640 --> 00:08:05,000 Matthew Tan: while it may appear scary, is actually not going to 139 00:08:05,040 --> 00:08:08,680 Matthew Tan: be an underlying problem for the United States, and therefore 140 00:08:08,760 --> 00:08:11,360 Matthew Tan: there is not much of a hurdle for the FED 141 00:08:11,520 --> 00:08:15,000 Matthew Tan: to cut if activity worsens from here. So if we 142 00:08:15,080 --> 00:08:17,560 Matthew Tan: have that framework in mind on a six to twelve 143 00:08:17,600 --> 00:08:21,120 Matthew Tan: month basis, we are actually quite constructive on equity markets. 144 00:08:21,120 --> 00:08:23,480 Matthew Tan: From here, I think it's six to twelve months equity 145 00:08:23,480 --> 00:08:26,080 Matthew Tan: markets will be higher than they are today. The road 146 00:08:26,120 --> 00:08:28,520 Matthew Tan: there may be bomping, so if you want to be 147 00:08:28,800 --> 00:08:31,240 Matthew Tan: a short term you might try and think about trading 148 00:08:31,280 --> 00:08:33,960 Matthew Tan: and going a bit underweight equities over the next few 149 00:08:34,000 --> 00:08:36,400 Matthew Tan: weeks and wait for par of announcelets, et cetera. But 150 00:08:36,760 --> 00:08:39,760 Matthew Tan: having a six to twelve month mind frame, we're happy 151 00:08:39,800 --> 00:08:43,480 Matthew Tan: to sort of ride through this incoming storm and just 152 00:08:43,520 --> 00:08:46,239 Matthew Tan: stay constructively position on equities. 153 00:08:46,440 --> 00:08:48,440 Sean Aylmer: So, just before we get into the medium to longer 154 00:08:48,559 --> 00:08:52,320 Sean Aylmer: term disinflationary, why do you think tariffs are disinflationary? 155 00:08:52,600 --> 00:08:55,560 Matthew Tan: Yeah, so there's a few reasons why. The first is, 156 00:08:56,240 --> 00:08:58,840 Matthew Tan: and I think everyone agrees in this, tariffs are ultimately 157 00:08:58,920 --> 00:09:02,400 Matthew Tan: attacks on the concer humor. Normally the analysis stops there. 158 00:09:03,160 --> 00:09:06,120 Matthew Tan: But we think if it's a tax, then like any 159 00:09:06,160 --> 00:09:09,760 Matthew Tan: other tax, if the government raises tax rates, it is 160 00:09:09,800 --> 00:09:12,079 Matthew Tan: sucking money out of the private side of the economy. 161 00:09:12,320 --> 00:09:15,840 Matthew Tan: By definition, that is contractionary and almost by definition that 162 00:09:15,960 --> 00:09:21,400 Matthew Tan: is disinflationary. In addition, as we're seeing today, the uncertainty 163 00:09:21,520 --> 00:09:26,680 Matthew Tan: around trade policy that tariff springs damages business and consumer sentiment, 164 00:09:27,240 --> 00:09:32,160 Matthew Tan: and following from that, it also weakens business and consumer activity. 165 00:09:32,280 --> 00:09:34,840 Matthew Tan: So if you have less activity again, people freeze up, 166 00:09:35,080 --> 00:09:38,120 Matthew Tan: they don't spend as much anymore. There's also by definition 167 00:09:38,280 --> 00:09:43,440 Matthew Tan: contractionery and disinflationary. So that's the economics theory behind it. 168 00:09:43,840 --> 00:09:46,480 Matthew Tan: I have two proof cases for you, and this data 169 00:09:46,559 --> 00:09:50,800 Matthew Tan: is publicly available from the US Statistics Agency. But if 170 00:09:50,840 --> 00:09:53,800 Matthew Tan: you look at what US inflation did in the aftermath 171 00:09:53,840 --> 00:09:57,240 Matthew Tan: of the nineteen thirty Smooth Holy tariffs, which keep in 172 00:09:57,280 --> 00:09:59,720 Matthew Tan: mind that was the global trade war that everyone is 173 00:09:59,720 --> 00:10:02,800 Matthew Tan: worried about, where people were putting tariffs on everybody else, 174 00:10:03,600 --> 00:10:08,760 Matthew Tan: you actually saw significant deflation because the economic damage from 175 00:10:08,800 --> 00:10:13,520 Matthew Tan: those global tariffs more than overwhelmed the price increase from 176 00:10:13,559 --> 00:10:16,360 Matthew Tan: the tariffs. And the second quick example will give you 177 00:10:16,760 --> 00:10:19,360 Matthew Tan: the Nixon tariffs in nineteen seventy one, which is the 178 00:10:19,400 --> 00:10:22,320 Matthew Tan: other example people are worried about at the moment. They 179 00:10:22,320 --> 00:10:25,079 Matthew Tan: were put on in August of that year, and they 180 00:10:25,160 --> 00:10:28,920 Matthew Tan: lasted for four months before the economic damage from the 181 00:10:29,000 --> 00:10:32,600 Matthew Tan: tariffs was so great that basically all of the US's 182 00:10:32,679 --> 00:10:36,120 Matthew Tan: trading partners had to come together and give Nixon what 183 00:10:36,200 --> 00:10:38,880 Matthew Tan: he wanted, which was US dollar depreciation. 184 00:10:39,760 --> 00:10:41,800 Sean Aylmer: Probably in the long term is actually what Trump wants 185 00:10:41,960 --> 00:10:44,920 Sean Aylmer: is US dollar appreciation. We're out of time, but very 186 00:10:45,000 --> 00:10:48,480 Sean Aylmer: quickly for investors the medium to long term, so the 187 00:10:48,800 --> 00:10:51,960 Sean Aylmer: six to twelve months might be a rough ride, maybe 188 00:10:52,040 --> 00:10:55,240 Sean Aylmer: trading opportunities medium to long term Matthew. 189 00:10:55,320 --> 00:10:57,880 Matthew Tan: Yeah, so medium to long term. We think we're in 190 00:10:57,880 --> 00:11:00,920 Matthew Tan: a multipolar world. It's not Cold War two point zero, 191 00:11:00,960 --> 00:11:03,840 Matthew Tan: so it's not the US versus China, because there is 192 00:11:03,880 --> 00:11:07,360 Matthew Tan: the EU, there is Russia, there is India, various other powers. 193 00:11:07,800 --> 00:11:11,040 Matthew Tan: What that means we think there's going to be more volatility. 194 00:11:11,280 --> 00:11:13,720 Matthew Tan: There will be a bit more dispersion between different countries, 195 00:11:13,760 --> 00:11:16,600 Matthew Tan: different sectors of the economy. There may be more inflation 196 00:11:16,679 --> 00:11:19,680 Matthew Tan: as well compared to the post GFC sort of experience. 197 00:11:20,360 --> 00:11:23,120 Matthew Tan: But importantly, and we like to stress this a lot, 198 00:11:23,280 --> 00:11:25,000 Matthew Tan: is that there will be a lot of growth in 199 00:11:25,040 --> 00:11:28,319 Matthew Tan: this new world. Companies and governments are going to be 200 00:11:28,400 --> 00:11:32,720 Matthew Tan: spending trillions of dollars to compete across AI, across defense, 201 00:11:32,800 --> 00:11:36,160 Matthew Tan: across high tech innovation areas, and you tend to see 202 00:11:36,200 --> 00:11:38,680 Matthew Tan: a lot of productivity and a lot of innovation come 203 00:11:38,720 --> 00:11:43,160 Matthew Tan: out of areas political competition like this. So what we're 204 00:11:43,160 --> 00:11:47,239 Matthew Tan: focusing on for our clients is building really robust, diversified 205 00:11:47,280 --> 00:11:50,600 Matthew Tan: pook earliers that can weather short term volatility that we're 206 00:11:50,600 --> 00:11:55,240 Matthew Tan: seeing now, but also leverage themselves to the profitable growth 207 00:11:55,280 --> 00:11:58,840 Matthew Tan: opportunities that we see over the next five, ten, fifteen years. 208 00:11:59,040 --> 00:12:01,240 Sean Aylmer: Matthew, thank you for talking Fear and Greed now we 209 00:12:01,400 --> 00:12:01,960 Sean Aylmer: thanks so much. 210 00:12:01,960 --> 00:12:02,240 Matthew Tan: Sean. 211 00:12:02,679 --> 00:12:07,040 Sean Aylmer: There was Matthew Tann, senior Asset Allocation specialist at LGT Krestine. 212 00:12:07,320 --> 00:12:09,640 Sean Aylmer: This is the Fear and Greed Business Interview. Remember this 213 00:12:09,720 --> 00:12:12,240 Sean Aylmer: is general information only and you should see professional advice 214 00:12:12,280 --> 00:12:15,360 Sean Aylmer: before making investment decisions. Join us every morning for the 215 00:12:15,400 --> 00:12:18,080 Sean Aylmer: full episode of Fear and Greed. Daily business news for 216 00:12:18,120 --> 00:12:21,440 Sean Aylmer: people who make their own decisions. I'm Sean Aylmer Enjoy 217 00:12:21,480 --> 00:12:22,080 Sean Aylmer: your day.