Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: The Job's Report came out just moments ago, and it
Speaker 2: came in like this, one fifty one, just a small
Speaker 2: downside surprise. We were looking for one sixty. Lots of
Speaker 2: numbers to talk about. El swear to do that right now,
Speaker 2: we can bring Mohammad al Aaron of Queen's College, Cambridge
Speaker 2: into the program. Mohammed, Welcome to the program, sir. Let's
Speaker 2: get to that Job's report. What's your interpretation of things?
Speaker 3: I think you captured it well when you said, you know,
Speaker 3: no big news here. The only one thing that I
Speaker 3: would be torturing is the labor force participation.
Speaker 1: But everything else came in as expected.
Speaker 3: And I think everybody's writing saying what's more important, what's
Speaker 3: ahead of us?
Speaker 1: Not this report?
Speaker 4: That said Muhammad, We've been talking a lot about the
Speaker 4: momentum in the US economy and the fact that it
Speaker 4: takes a long time to turn things around. Is there
Speaker 4: any part of this report that makes you concerned about
Speaker 4: the level of exceptionalism that we're coming off of into
Speaker 4: this period of certainty?
Speaker 3: Not in this report, Lisa, but in a lot of
Speaker 3: other data. There is, you know, the edge of the
Speaker 3: US has been predictability, has been transparency, and you're starting
Speaker 3: to see more and more business step back, not just
Speaker 3: on a short term basis, but really think how much
Speaker 3: longer do I need before I figure out what's my
Speaker 3: operating environment?
Speaker 1: And that builds on itself really quickly.
Speaker 3: So you know, the risk here is that below the
Speaker 3: economic exceptionalism, which is strong economic performance, strong acid price performance,
Speaker 3: has been this notion of the US edge, and.
Speaker 1: I worry that this edge is being eroded right now.
Speaker 4: So Mohammed, are you saying it's the death of US exceptionalism.
Speaker 1: I'm not.
Speaker 3: I'm saying it's under enormous pressure. We still have attributes
Speaker 3: that other countries, you know, would dream of. So you
Speaker 3: don't kill the US economic exceptionalism, but you could put
Speaker 3: it on pause as people try to figure out what
Speaker 3: the operating environment is.
Speaker 2: Muhammed's worth five six weeks into a new administration. Has
Speaker 2: that much changed that quickly in such a short amount
Speaker 2: of time, So I think.
Speaker 3: There's been lots of changes. Just go to Germany and
Speaker 3: see what's happening there. Look at the debate there. It's
Speaker 3: been a spotnik moment for Germany in terms of defense spending,
Speaker 3: infrastructure spending. John, all I can tell you is that
Speaker 3: all the consensus trades at the beginning of the year
Speaker 3: have been upended, every single one of them currency weights,
Speaker 3: relative US equity performance to the rest of the world.
Speaker 3: I can go across the board, every single consensus trade
Speaker 3: has been upended, and that tells you that there has
Speaker 3: been significant change, which.
Speaker 4: Raises a question about how much this is a trade
Speaker 4: and how much this is a fundamental shift that can
Speaker 4: actually get implemented in economic data. That takes time, and Stephanie,
Speaker 4: I would ask you that how long is the transmission
Speaker 4: mechanism for some of these things at a time when
Speaker 4: there are some fundamental policy shifts that will take time
Speaker 4: to implement, but it takes even longer time to ripple
Speaker 4: through the underlying data and the underlying sense of strengths.
Speaker 5: Yeah, to take a couple of months for us to
Speaker 5: start to see it reflect on the data. Of course,
Speaker 5: for example, today the February data looked just fine. The
Speaker 5: March data are going to start to reflect this, and
Speaker 5: I would expect in the next three months we'll start
Speaker 5: to see the real impact. So, for example, the impact
Speaker 5: from tariffs, it takes about three to six months to
Speaker 5: work its way into the CPI data, so that's when
Speaker 5: we start to see that. The payrolls numbers we're going
Speaker 5: to start to see in the next couple of months
Speaker 5: because the job a lot of the job cuts are
Speaker 5: fairly immediate, and then you'll see the government contractors as
Speaker 5: a result the fallout from that afterwards. So I would
Speaker 5: expect in six months time we'll see a lot more
Speaker 5: of this truly reflected in the data, but we'll start
Speaker 5: to see it in the next couple of prints.
Speaker 4: Kathy from an investment perspective and Muhammad was talking about
Speaker 4: how the policy shifts have been pretty dramatic and the
Speaker 4: market is trying to be a forward looking prognosticator.
Speaker 6: How do you make bold moves?
Speaker 1: Do you just hide out in cash?
Speaker 4: Do you keep your allocations? I'm serious, it's sort of
Speaker 4: such a volatile time with sort of the reality checks
Speaker 4: coming out where there isn't that much news in the
Speaker 4: economic data.
Speaker 6: Yeah, you know, I don't think cash is the solution
Speaker 6: because you know that it gives you some optionality. So
Speaker 6: building some liquidity I think is a good idea, and
Speaker 6: I think people undervalue liquidity in their asset allocation when
Speaker 6: things are good, and we've had this long stretch of
Speaker 6: everything's great and who needs liquidity? Now I think you
Speaker 6: do need liquidity, but we are also keeping our benchmark duration,
Speaker 6: like right at benchmark, we're not extending yet. We hope,
Speaker 6: we hope to see on opportunity, but there's too much
Speaker 6: noise right now to take that risk. And then we're
Speaker 6: saying up in credit quality because you just don't have
Speaker 6: enough excess return there to justify taking a lot of
Speaker 6: credit risk. And we don't know what industries are really
Speaker 6: going to get hit. Some industries are going to suffer,
Speaker 6: and we do expect some spreads to widen as a
Speaker 6: result of that.
Speaker 2: Europe's had a long stretch of everything's bad, and that's
Speaker 2: changed pretty quickly. Maham, it's come to you on that.
Speaker 2: I remember in early November, shortly after the election, you
Speaker 2: said to us on this program, that sucking sound you
Speaker 2: hear is capital coming in from the rest of the
Speaker 2: world into the United States. That sucking sound we heard
Speaker 2: this week was capital gun elsewhere. And we've heard that
Speaker 2: a lot throughout the year so far. Mohammed, what do
Speaker 2: you think about that reversal in flows that a lot
Speaker 2: of people have identified recently, and how sustainable do you
Speaker 2: think it is?
Speaker 3: So that reversal makes sense given what has happened over
Speaker 3: the last few weeks, is it sustainable?
Speaker 1: I don't know, John, You know.
Speaker 3: The jury still out as to whether Europe is going
Speaker 3: to be able to go from words to actions. It's
Speaker 3: not easy politically, it's not easy socially. They have governance issues.
Speaker 3: So I'm not sure that sucking, the reversal sucking sound,
Speaker 3: if you luck, is going to continue for a while.
Speaker 3: But I understand why, because there's been a shock to
Speaker 3: a lot of the conventional wisdom on the US and
Speaker 3: on Europe.
Speaker 4: Muhammed, has there been an end to the sucking sound
Speaker 4: from the United States?
Speaker 1: We'll see the data.
Speaker 3: I suspect you'll see that there's certainly less fewer influence
Speaker 3: coming into the US. But has it completely stopped. I doubt,
Speaker 3: I really doubted. The US has some attributes that are
Speaker 3: very difficult to mess up. So the US is still
Speaker 3: you know, whether you want to call it the cleaner,
Speaker 3: sturdy shirts or whatever, but it's simply not as clean
Speaker 3: for outsiders as it was a few weeks ago.
Speaker 4: But Muhammad, where was everyone the president was talking about
Speaker 4: these policies.
Speaker 5: For months leading up to the election, and then talking
Speaker 5: about these policies for months between the election and inauguration.
Speaker 5: Everyone knew what his plan was.
Speaker 4: Why is everyone shocked?
Speaker 3: Sequencing and you talked about it earlier today, So we
Speaker 3: know the five areas in which he's going to move
Speaker 3: to our unambiguously beneficial to the economy. Three have good
Speaker 3: and bad to them. There's a journey issue in those,
Speaker 3: and the hope and the market expected that the sequencing
Speaker 3: wouldn't be what it is now. What you're getting now
Speaker 3: is okay, we've got to get go through the detox,
Speaker 3: we've got to go through the disturbances, and then we
Speaker 3: will get the good. The market expected the good to
Speaker 3: come much earlier, therefore offsetting the bad, and that's not
Speaker 3: what has happened.
Speaker 2: It's definitely not in your head away. That's how it's speaken.
Speaker 5: You agree, absolutely, we were expecting tariff to become a
Speaker 5: bigger thing for later in the year to tie to TCJA.
Speaker 5: They're coming much earlier. This has a legitimate impact on
Speaker 5: the economy. And by the way, the uncertainty is even
Speaker 5: greater than anyone had anticipated. So to the point earlier
Speaker 5: on capex being sort of stalled out here. It's hard
Speaker 5: to make any investments when you don't even know what
Speaker 5: the tax rates are going to be from a tariff perspective,
Speaker 5: and then they change day to day.
Speaker 2: We'll reacting to the payroll report next week. Is the
Speaker 2: CPI number that comes on the twelfth on a Wednesday, Mouhammed,
Speaker 2: I want to come to you just on a final question,
Speaker 2: Secretary best in yesterday at the Economic Club in New York,
Speaker 2: SETI blin team Transit trade to get the band bank
Speaker 2: together at the Federal Reserve and look through any inflation
Speaker 2: pop coming off the back of the tariffs. I just
Speaker 2: wonder how you feel about Team Transitory getting the band
Speaker 2: back together, joh.
Speaker 3: I'll go back to what Stephanie said. There was price
Speaker 3: passed through from tariffs. Companies are much more agile in
Speaker 3: how they think about passing on prices than they were before.
Speaker 3: So I think, you know, if Team Transitor gets back together,
Speaker 3: I wouldn't have them commit to too long a playlist.
Speaker 1: It's a good way of putting it.
Speaker 2: Muhammad, We'll leave it there, thank you. Sir Muhammad al
Speaker 2: Aerian of Queen's College, Cambridge on the Federal reserve on
Speaker 2: the jobs data and this market as well. And a
Speaker 2: special thanks to Stephanie Roth WILLF Research and Kathy Judges
Speaker 2: at child Swap