WEBVTT - Hard to Price in Tarrifs: Michael Zezas 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.640 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Now 0:00:33.760 --> 0:00:36.960 is the right time to pressure China on its trade 0:00:37.000 --> 0:00:40.040 policy because the US economy is strong enough to handle it. 0:00:40.120 --> 0:00:44.239 This according to President Trump's Kevin Hassett, he is the 0:00:44.840 --> 0:00:48.680 White House Council of Economic Advisor's chairman. Meanwhile, the price 0:00:48.760 --> 0:00:52.440 of soybeans falling to the lowest levels since at one 0:00:52.440 --> 0:00:57.200 point since now a lot of the tariffs that China 0:00:57.320 --> 0:01:00.120 is planning to impose on US goods will hit the 0:01:00.160 --> 0:01:03.800 farm belt. Joining me now to discuss this is Tom Halverson. 0:01:03.880 --> 0:01:07.760 He's chief executive of co Bank, which extends loans and 0:01:08.160 --> 0:01:14.480 other banking services to farms and other other wholesale and 0:01:14.600 --> 0:01:18.600 livestock producers. Thank you so much for joining me today, Tom, Um. 0:01:18.640 --> 0:01:21.360 I want to start with the price of soybeans falling 0:01:21.560 --> 0:01:24.720 and some of the other kind of market responses to 0:01:24.959 --> 0:01:28.640 China's tariffs. It seems like people are expecting the farm 0:01:28.680 --> 0:01:31.399 belt to get hit pretty hard. What are you hearing 0:01:31.480 --> 0:01:36.119 directly from the farmers who you work with, Yes, good morning, Lisa. Well, 0:01:35.959 --> 0:01:39.240 what we're hearing both from the level of production agriculture 0:01:39.280 --> 0:01:43.640 as well as their their cooperatives and other agribusiness who aggregate, 0:01:43.720 --> 0:01:48.320 process and sell their their products is meaningful amount of 0:01:48.360 --> 0:01:52.320 concern because the market is already starting to respond to this. 0:01:52.440 --> 0:01:55.920 As you indicate, the price of soybeans is falling as 0:01:55.960 --> 0:01:59.960 our other commodity products. And given that we export almost 0:02:00.040 --> 0:02:03.520 fifty all of the soybeans produced in the United States, 0:02:03.640 --> 0:02:09.080 we are particularly susceptible to changes in foreign demand for 0:02:09.160 --> 0:02:14.239 our products. Given that we export approximately of all US 0:02:14.320 --> 0:02:18.280 agricultural products, particularly susceptible. Can you talk about what you 0:02:18.320 --> 0:02:23.119 expect the financial consequences to be in real terms? Well, 0:02:23.160 --> 0:02:27.040 I would. I would contextualize that by saying, since the 0:02:27.160 --> 0:02:31.560 United States Department of Agricultures assessment of net farm income 0:02:31.600 --> 0:02:35.080 in the United States, it's off fifty since when it 0:02:35.160 --> 0:02:39.359 was at it's high. So while while the rest of 0:02:39.400 --> 0:02:43.840 the macro economy is generally doing quite favorably, the real economy, 0:02:43.840 --> 0:02:47.600 and generally agricultural economy in particular, is doing much less 0:02:47.600 --> 0:02:51.480 well right now as a result of commodity prices already 0:02:51.520 --> 0:02:54.359 having fallen significantly off the highs that they had three 0:02:54.440 --> 0:02:57.960 or four years ago. And so what we're anticipating is 0:02:57.960 --> 0:03:01.000 is the market is going to respond on hereby further 0:03:01.120 --> 0:03:04.640 falls potentially in in prices UH, and a lot of 0:03:04.680 --> 0:03:07.959 the product that that that is already an inventory or 0:03:08.000 --> 0:03:10.480 has now been planted for this year and this year's 0:03:10.480 --> 0:03:15.080 season UH is going to create new challenges from a 0:03:15.120 --> 0:03:19.320 pricing perspective as we have to find alternative markets potentially 0:03:19.360 --> 0:03:23.040 for these products. If these terroffts and these changes in 0:03:23.120 --> 0:03:27.720 market behavior and the underlying UH disagreements that we have 0:03:28.040 --> 0:03:33.120 with China and other important agricultural export market governments can't 0:03:33.160 --> 0:03:37.440 be resolved amicably and swiftly, do you think that there 0:03:37.480 --> 0:03:41.520 will be more defaults just from the financial perspective as 0:03:41.560 --> 0:03:46.080 the price falls of a lot of these commodities. Well, 0:03:46.120 --> 0:03:49.240 I think that the pressure that's been building in in 0:03:49.360 --> 0:03:52.360 agricultural production in the United States over the last two, 0:03:52.480 --> 0:03:55.800 three or four years for the reasons I described, is 0:03:55.920 --> 0:03:59.720 likely to intensify. As I say, if these if these 0:03:59.720 --> 0:04:04.200 trade uh disagreements are not amicably and swiftly resolved, and 0:04:04.200 --> 0:04:07.240 and one consequence of that would of course be potentially, 0:04:07.720 --> 0:04:12.680 you know, more producers and other institutions involved in agricultural 0:04:12.720 --> 0:04:16.679 production and processing and the like falling into financial stress. 0:04:18.200 --> 0:04:24.479 I'm wondering whether people within the farming community view this 0:04:24.800 --> 0:04:29.600 as the US needing to capitulate or China needing to stop. 0:04:29.640 --> 0:04:31.640 I mean, are they viewing this in political terms or 0:04:31.680 --> 0:04:35.400 do they not really care? They just want the uncertainty 0:04:35.480 --> 0:04:37.960 to sort of end and allow things to get back 0:04:38.000 --> 0:04:40.160 to the way they used to be. Well, I think 0:04:40.480 --> 0:04:42.240 I think if you ask you know, ten or a 0:04:42.320 --> 0:04:45.360 hundred different people, you'll get ten or a hundred different opinions. 0:04:45.720 --> 0:04:48.960 All of them, I would suggest, would be very well informed. 0:04:49.040 --> 0:04:53.440 Because agricultural producers in the United States, being so significantly 0:04:53.480 --> 0:04:57.400 dependent on foreign export markets, are actually quite knowledgeable and 0:04:57.440 --> 0:05:02.320 sophisticated and understanding what's going on in places like China, Mexico, 0:05:02.360 --> 0:05:05.400 and Canada where a lot of their product is sold. 0:05:05.440 --> 0:05:07.920 And while they may have a thoughtful view about how 0:05:07.960 --> 0:05:10.440 best to resolve these issues, I think for the for 0:05:10.520 --> 0:05:13.280 the majority of people, what they want is for these 0:05:13.320 --> 0:05:16.040 issues to be resolved and for some certainty to come 0:05:16.080 --> 0:05:19.520 back into the marketplace, because they all know, as we do, 0:05:20.320 --> 0:05:22.920 that that this is not just an issue today. Over 0:05:22.960 --> 0:05:25.560 the next twenty years or twenty five years, we think 0:05:25.560 --> 0:05:27.479 there will be more than two billion more people on 0:05:27.520 --> 0:05:30.719 the earth, and of them will be in India, China, 0:05:30.760 --> 0:05:36.040 and Africa. And that is a substantial upside trade export 0:05:36.080 --> 0:05:40.040 opportunity for the United States, which has the world's most 0:05:40.040 --> 0:05:44.680 successful and efficient agricultural production complex uh and and for 0:05:44.800 --> 0:05:47.480 us to be able to capitalize on that opportunity over 0:05:47.520 --> 0:05:50.880 the next five, ten, fifteen, twenty years, we need certainty, 0:05:51.279 --> 0:05:53.680 and that certainty needs to be built on a foundation 0:05:53.760 --> 0:05:57.080 of access on a free, fair and equitable basis to 0:05:57.160 --> 0:06:01.000 foreign markets where people are going to need to buy 0:06:01.400 --> 0:06:04.320 our surpluses and they're gonna want to buy our surpluses 0:06:04.400 --> 0:06:07.200 because they're such high quality. Tom, just real quick here, 0:06:07.200 --> 0:06:09.920 we just have a better minute left. Which state do 0:06:09.960 --> 0:06:14.520 you think we'll get hit hardest by the tariffs? Uh? 0:06:14.560 --> 0:06:16.560 You know, it depends on how all of this plays out. 0:06:17.120 --> 0:06:19.440 And I can't tell you down to the down to 0:06:19.480 --> 0:06:21.560 the dime, but if you look at you know, you 0:06:21.600 --> 0:06:25.560 could answer that question almost specifically by commodity groups. So, 0:06:25.680 --> 0:06:29.440 for example, almost of the cotton produced the United States 0:06:29.520 --> 0:06:34.560 is is exported, right uh, Almost fifty of the soybeans 0:06:34.560 --> 0:06:38.159 are exported. A substantial portion of that goes to goes 0:06:38.200 --> 0:06:40.560 to China. While a lot of our soybeans come from 0:06:41.279 --> 0:06:45.680 the Midwest, including places like you know, Iowa, Illinois and 0:06:45.800 --> 0:06:48.800 other states. You know, it's the bread basket commodity producing 0:06:48.839 --> 0:06:53.760 states particularly that produce some of the highest volume products 0:06:54.520 --> 0:06:58.839 that may that may experience the most difficulties. Tom Haliverson, 0:06:58.920 --> 0:07:01.320 thank you so much for joining me today. Tom Halverson 0:07:01.440 --> 0:07:04.839 is President, chief executive officer of KO Bank, which extends 0:07:05.000 --> 0:07:09.640 loans and other banking services to farms and other agricultural 0:07:09.680 --> 0:07:27.440 producers across the US. It is hard to parse out 0:07:27.760 --> 0:07:31.680 the noise from what you really need to pay attention to. 0:07:31.960 --> 0:07:34.200 Right now, our next guest is going to talk about 0:07:34.840 --> 0:07:38.080 that process from an investment perspective. Aaron Kennon joins us now. 0:07:38.080 --> 0:07:40.720 He's co founder and chief executive officer of Clear Harbor 0:07:40.800 --> 0:07:44.520 Asset Management, which is based in New York. Aaron, thank 0:07:44.560 --> 0:07:46.840 you so much for being with me. And I just 0:07:46.880 --> 0:07:50.040 want to start with the idea that the top headlines 0:07:50.080 --> 0:07:55.720 today on this otherwise slow summer Monday has to do 0:07:56.080 --> 0:08:00.320 with children being taken from their families and immigrant Asian 0:08:00.400 --> 0:08:02.760 policy and who's to blame, and then you have a 0:08:02.760 --> 0:08:07.360 potential trade war with China and the US. This in 0:08:07.400 --> 0:08:11.040 the past few months has been noise for the markets 0:08:11.240 --> 0:08:14.120 that most people have tried to block out. What are 0:08:14.160 --> 0:08:18.960 you paying attention to right now? Well, thanks for having me, Lisa, 0:08:19.040 --> 0:08:21.760 And certainly we don't want to discount the importance of 0:08:22.040 --> 0:08:26.200 humanitarian concerns at the border, but we are keeping our 0:08:26.200 --> 0:08:29.080 eyes on the fundamentals of what's happening in the economy 0:08:29.200 --> 0:08:33.560 and trying to understand how that will impact various asset classes. So, 0:08:33.640 --> 0:08:36.199 for example, in the United States, we're we're still looking 0:08:36.240 --> 0:08:40.560 at a robust economic picture, both from the perspective of 0:08:40.640 --> 0:08:45.559 fundamental data like retail sales and consumption and sentiment, as 0:08:45.559 --> 0:08:48.000 well as frankly, that the underlying earnings, which as we 0:08:48.040 --> 0:08:50.559 know in Q one were really strong and we expect 0:08:50.720 --> 0:08:53.600 will be actually quite strong in Q two, based on 0:08:53.640 --> 0:08:56.720 a bunch of different data points that that we're looking at. 0:08:57.120 --> 0:09:00.760 I think that the story though on like two thousand 0:09:00.760 --> 0:09:04.280 and seventeen, Lisa, where we saw this sort of synchronized 0:09:04.480 --> 0:09:09.400 global growth story is that the Eurozone and even China 0:09:09.440 --> 0:09:12.240 to a great extent, they're hitting some speed bombs, and 0:09:12.320 --> 0:09:15.000 I think it's um It's it's not the tale of 0:09:15.000 --> 0:09:18.600 two stories because growth is still positive, but certainly UH 0:09:18.840 --> 0:09:22.000 there's much more to pass through at the moment. President 0:09:22.040 --> 0:09:27.160 Trump's UH top economic advisor today said that this is 0:09:27.200 --> 0:09:31.920 the time to start a trade skirmish with China because 0:09:31.960 --> 0:09:36.479 the US economy is strong enough to withstand any potential setback, 0:09:36.520 --> 0:09:40.000 even short term, given the fact that it's full speed 0:09:40.040 --> 0:09:44.520 ahead right now. Do you agree? I don't. I think 0:09:44.880 --> 0:09:48.000 the trade skirmishes are things that tend to happen in public, 0:09:48.160 --> 0:09:51.800 and I think very important policy matters, even with countries 0:09:51.840 --> 0:09:54.720 that are not our allies, but particularly countries that are 0:09:54.800 --> 0:09:57.360 and I'm not referring now to China, but countries like 0:09:57.559 --> 0:10:00.599 Canada and countries within the euro Zone. You deal with 0:10:00.600 --> 0:10:03.439 a lot of disagreements in private, because when you come 0:10:03.440 --> 0:10:05.680 to a conclusion, the other side is able to save 0:10:05.800 --> 0:10:08.559 face and move forward, and that has huge political benefits. 0:10:08.559 --> 0:10:10.720 So as much as I agree with some of the 0:10:10.720 --> 0:10:13.640 concerns that the current administration has with China and maybe 0:10:13.640 --> 0:10:17.280 even with some of our allies and reviewing things like NAFTA, 0:10:17.520 --> 0:10:19.920 I think the approach is somewhat flawed and that it's 0:10:19.960 --> 0:10:22.960 not allowing for them to achieve their own set objectives. 0:10:23.040 --> 0:10:27.640 So are you changing any of your trading strategies or 0:10:27.679 --> 0:10:32.000 your portfolios in response to some of these trade concerns 0:10:32.200 --> 0:10:36.839 or is that sort of all hypothetical at this point? Well, so, 0:10:36.960 --> 0:10:39.240 the real question on the trade war side is are 0:10:39.280 --> 0:10:41.920 we actually going to enter a trade war or is 0:10:41.960 --> 0:10:44.400 someone going to blank will be the US in the 0:10:44.440 --> 0:10:46.120 case of the U S and China? What could it 0:10:46.200 --> 0:10:49.120 be China. We don't know the outcome of that for sure, 0:10:49.559 --> 0:10:52.000 as it pertains to how we're thinking about clients and 0:10:52.000 --> 0:10:56.560 their portfolios. I mean, certainly one trend that's worth looking 0:10:56.600 --> 0:10:59.720 at that isn't specific to to trade wars, but its 0:11:00.000 --> 0:11:02.240 effect to a trend over the last six months is 0:11:02.280 --> 0:11:06.280 inflation versus growth. Inflation was a real concern as we 0:11:06.320 --> 0:11:08.600 sort of moved through the first quarter of this year. 0:11:08.920 --> 0:11:11.560 It seems to have subsided. The data suggests that that's 0:11:11.559 --> 0:11:15.280 warranted for it to be subsided um and now what 0:11:15.320 --> 0:11:18.200 we're seeing is a concern around growth, and so for 0:11:18.320 --> 0:11:21.240 the fixed income asset class. That's actually a bit of 0:11:21.240 --> 0:11:24.439 a positive thing, right, So if inflation were to go up, 0:11:24.640 --> 0:11:28.040 yields would probably trend higher, whereas if if growth were 0:11:28.040 --> 0:11:30.160 to slow down, yields were to trend lower. So that's 0:11:30.280 --> 0:11:32.760 sort of a roundabout wave me saying I don't mind 0:11:32.840 --> 0:11:36.880 nudging sort of fixed income average maturity or average duration 0:11:37.320 --> 0:11:39.960 towards a benchmark here, whereas the beginning of the year 0:11:40.280 --> 0:11:42.560 I had a tendency to be a little shorter duration. 0:11:42.640 --> 0:11:46.040 So we are making adjustments based on the economic fundamentals 0:11:46.040 --> 0:11:49.080 that are that are occurring before us, UM, but we 0:11:49.080 --> 0:11:51.760 were certainly not making predictions as to the likelihood of 0:11:51.880 --> 0:11:54.319 an all out trade war. So you've been lengthening the 0:11:54.400 --> 0:11:58.120 duration of your fixed income portfolio, Is that correct? Yeah? Yeah, 0:11:58.160 --> 0:12:00.760 we we've We've been willing to to to move it 0:12:00.840 --> 0:12:04.720 modestly outward as tenure treasuries have risen call it, fifty 0:12:04.760 --> 0:12:08.600 basis points uh this year, and as the paradigm has 0:12:08.640 --> 0:12:12.959 shifted from inflation to growth concerns. UM, we think that 0:12:13.000 --> 0:12:15.920 it's a prudent thing for for us to do to 0:12:16.000 --> 0:12:19.200 not make a huge bet by being a short duration 0:12:19.280 --> 0:12:22.760 here at the moment as it pertains to equities. You 0:12:22.800 --> 0:12:25.559 know what's interesting is earnings growth has been very robust 0:12:25.679 --> 0:12:28.840 li so, but multiples forward multiples have come down, so 0:12:28.880 --> 0:12:33.240 the markets cheaper even as corporate earnings have proven uh stronger. 0:12:33.360 --> 0:12:37.760 So again we're we're not super bullish per se because 0:12:37.800 --> 0:12:41.880 we've had a hugeage point running the United States, but 0:12:42.240 --> 0:12:44.920 but we're still constructive. And I would also say that 0:12:44.960 --> 0:12:48.480 when you look at the duration of this expansion since 0:12:48.840 --> 0:12:51.040 the bottom of the Great Recession, or since the last 0:12:51.080 --> 0:12:53.800 expansion every peak in the fall of two thousand and seven, 0:12:54.240 --> 0:12:58.319 the cumulative GDP that has occurred since that period is 0:12:58.360 --> 0:13:02.160 only about fifteen since so it's a very shallow expansion 0:13:02.200 --> 0:13:05.000 that we've had. Now some could view that as a negative. 0:13:05.000 --> 0:13:08.080 We view it as a positive, meaning that inventories haven't 0:13:08.120 --> 0:13:11.240 been able to overshoot and that the expansion may have 0:13:11.400 --> 0:13:14.440 many more months, many more quarters of legs here, unlike 0:13:14.480 --> 0:13:17.439 some of the other expansionary periods of the last hundred years. 0:13:17.440 --> 0:13:20.400 How concerned are you about the fact that non financial 0:13:20.440 --> 0:13:25.880 companies are increasingly levering up right now, especially given the 0:13:25.880 --> 0:13:28.760 fact that A. T and T and Comcast are poised 0:13:28.760 --> 0:13:33.760 to buy Time Warner and possibly the Fox assets and 0:13:34.040 --> 0:13:37.880 would end up with three hundred and fifty billion dollars 0:13:37.880 --> 0:13:40.480 of bonds and loans on their books. That's according to 0:13:40.600 --> 0:13:42.560 a study that was highlighted in the Wall Street Journal today. 0:13:42.600 --> 0:13:46.840 Does that worry you, I think on on in isolation, 0:13:46.920 --> 0:13:50.319 it doesn't worry us, or I should say in isolation, 0:13:50.320 --> 0:13:52.600 it could worry us. But when when when we look 0:13:52.679 --> 0:13:54.800 at the reality of where we are in the interst 0:13:54.840 --> 0:13:58.160 rate complex, where monetary authorities are around the world, it's 0:13:58.200 --> 0:14:02.480 just still a very easy money environment um with a 0:14:02.559 --> 0:14:05.280 lack of inflation, with the ECB still at the zero bound, 0:14:05.280 --> 0:14:09.520 and very devilish last week with Corona in Japan, very devish. 0:14:09.600 --> 0:14:12.760 And yes, the United States is a sort of ahead 0:14:12.760 --> 0:14:16.360 of the curve on on normalizing policy. We think that 0:14:16.400 --> 0:14:19.720 if global growth truly does decelerate meaningfully, they're going to 0:14:19.800 --> 0:14:22.400 hit the pause button. That's not our base case right now. 0:14:23.200 --> 0:14:25.640 We still think that one or two rate hikes this year, 0:14:25.680 --> 0:14:29.440 perhaps even two is possible. But M and A activity 0:14:29.480 --> 0:14:32.680 has been robust. The cost of money relative to historicals 0:14:33.160 --> 0:14:37.120 is still relatively inexpensive, so we're not particularly concerned about 0:14:37.160 --> 0:14:39.560 that at the moment. Thank you so much for being 0:14:39.560 --> 0:14:42.040 with me. Aaron Kennon is co founder and chief executive 0:14:42.080 --> 0:14:46.360 officer of Clear Harbor Asset Management, based in New York. 0:14:47.200 --> 0:14:50.680 Really interesting to hear this sort of on one hand 0:14:50.720 --> 0:14:53.040 and on the other we are getting to, uh, sort 0:14:53.080 --> 0:14:55.360 of the final innings, people say, although they've been saying 0:14:55.360 --> 0:14:58.160 that for years of a credit cycle. Yet earnings do 0:14:58.240 --> 0:15:18.320 look solid and expectations look solid going forward. We've entered 0:15:18.360 --> 0:15:22.880 an escalatory cycle of tit for tat trade dispute. UH. 0:15:22.920 --> 0:15:26.920 This is the conclusion to analysts led by Michael jesus 0:15:27.000 --> 0:15:29.960 over at Morgan Stanley, chief US public Policy and municipal 0:15:29.960 --> 0:15:33.720 strategist UH and Michael joins us. Now, Michael, thank you 0:15:33.760 --> 0:15:36.520 so much for being with me. So just let's start there. 0:15:36.720 --> 0:15:41.160 Why do you think that we're entering this cycle? Yeah, well, 0:15:41.880 --> 0:15:45.320 so basically, I think the pattern of behavior now has 0:15:45.440 --> 0:15:50.160 made it pretty clear that this isn't just a negotiation. UM, 0:15:50.280 --> 0:15:54.840 that the US and its allies have some irustrating partners 0:15:54.840 --> 0:15:58.200 to demonstrates some fundamentally different views of the payoffs of trade. 0:15:58.320 --> 0:16:01.040 So what do I mean by that? Is at um 0:16:01.120 --> 0:16:04.200 and when the US acts and the U responds, the 0:16:04.280 --> 0:16:07.200 you or and or China responds, you know, the US 0:16:07.280 --> 0:16:09.480 is acting in a way where it thinks it's leveling 0:16:09.520 --> 0:16:12.320 the playing field. Trading partners are responding in the way 0:16:12.360 --> 0:16:14.920 they think is leveling the playing field, and by definition 0:16:14.960 --> 0:16:17.440 that means that they view the playing field differently, and 0:16:17.480 --> 0:16:20.640 you continue to escalate. That's problem one, and then problem 0:16:20.680 --> 0:16:24.880 too is um both sides kind of disagree on how 0:16:24.960 --> 0:16:27.960 to kind of break the circuit right, and so negotiations 0:16:27.960 --> 0:16:30.960 would be one obvious way, and it would seem, for example, 0:16:31.080 --> 0:16:34.800 that the negotiations between the US and China, we're going 0:16:34.880 --> 0:16:37.960 to or or thwart the initiation of the tariffs that 0:16:38.000 --> 0:16:41.080 were announced on Friday. But that didn't necessarily happen. And 0:16:41.080 --> 0:16:43.080 I think we got some insight into why that didn't 0:16:43.120 --> 0:16:46.680 happen when wilb Ross told our European allies that he 0:16:46.720 --> 0:16:50.440 didn't think that we couldn't negotiate um even after we've 0:16:50.520 --> 0:16:54.000 instituted tariffs there, so that the institution of tariff shouldn't 0:16:54.000 --> 0:16:57.480 they get um the possibility of negotiations. So in the 0:16:57.480 --> 0:17:01.880 European Allies, Beer clear view it differently, so you don't 0:17:01.920 --> 0:17:04.920 have an obvious circuit breaker, and you've got a dynamic 0:17:05.000 --> 0:17:07.800 which is escalatory and so therefore we think markets are 0:17:07.800 --> 0:17:09.679 going now going to have to think a couple of 0:17:09.680 --> 0:17:12.119 steps ahead. It's not just about pricing what the Section 0:17:12.160 --> 0:17:14.040 three or one tariffs are going to do the g 0:17:14.119 --> 0:17:17.680 d P. You have to think about what the retaliation 0:17:17.800 --> 0:17:21.600 and then the re retaliation means and when it accumulates together. 0:17:21.760 --> 0:17:23.879 Our concern is that we think we are kind of 0:17:24.400 --> 0:17:28.000 very close to unit offsetting all of the economic boost 0:17:28.040 --> 0:17:30.600 that was created this year by ciscal policy, both the 0:17:30.680 --> 0:17:33.639 tax cuts and the spending increases that were implemented. All right, 0:17:33.680 --> 0:17:35.639 so let's go down the rabbit hole. Okay, what comes 0:17:35.680 --> 0:17:40.359 next after the largely farm focused tariffs that China has 0:17:40.359 --> 0:17:46.960 already announced. So those tariffs are if if the US 0:17:47.040 --> 0:17:49.000 kind of follows what it's already said it would do 0:17:49.760 --> 0:17:53.600 there in the middle of investigating and UM its news 0:17:53.640 --> 0:17:56.840 is to be believed close to announcing, so perhaps sometime 0:17:56.880 --> 0:17:59.200 in the next few weeks and intention to teariff another 0:17:59.240 --> 0:18:03.119 one hundred billion dollars worth of UM Chinese imports, and 0:18:03.240 --> 0:18:05.520 if China holds true to what it's stated it would do, 0:18:05.560 --> 0:18:10.200 it would respond in kind, which would require another round 0:18:10.240 --> 0:18:13.200 of tariffs on inside. Now, one of the interesting things 0:18:13.200 --> 0:18:15.960 here is that UM China only imports about a hundred 0:18:15.960 --> 0:18:18.920 and thirty billion dollars worth of good so UM how 0:18:18.960 --> 0:18:21.720 it responds is a little bit murky, which is to say, 0:18:21.760 --> 0:18:24.280 perhaps it's gonna have to just further increase its tariffs 0:18:24.280 --> 0:18:27.520 to equate the economic damage, or well have to take 0:18:27.560 --> 0:18:31.200 some other retaliatory actions. But that's kind of the next 0:18:31.280 --> 0:18:32.919 level we think you have to count for there. And 0:18:32.920 --> 0:18:37.040 then in terms of UM Europe, the response on the 0:18:37.080 --> 0:18:41.679 steel aluminum tariffs, the US is flag that UM tariffing 0:18:42.080 --> 0:18:44.840 foreign imports of autos is probably the next step there 0:18:44.880 --> 0:18:47.119 that we have to account for. So those are the 0:18:47.160 --> 0:18:49.520 two things we're watching out for now. Hundred billion dollars 0:18:49.520 --> 0:18:52.480 on tariffs, hundred billion tariffs dre billion dollars with the 0:18:52.560 --> 0:18:55.640 Chinese imports, and then foreign auto tariffs. Do you think 0:18:55.760 --> 0:19:00.359 that the market is taking this seriously, this risk of 0:19:00.400 --> 0:19:04.040 sort of a t for tat escalation. Yeah, I do. 0:19:05.080 --> 0:19:07.760 I think it's very hard to price in exactly how 0:19:07.800 --> 0:19:12.480 far this cycle goes before cooler heads prevail. So I 0:19:12.520 --> 0:19:15.199 think what you've seen in you know, the equity markets, 0:19:15.240 --> 0:19:18.760 for example, is I think it kind of healthy respect 0:19:18.800 --> 0:19:21.119 for the unknown of this dynamic, it kind of sinks 0:19:21.160 --> 0:19:24.240 with the view of our US equity strategy team, which 0:19:24.320 --> 0:19:26.879 is that we're gonna be kind of range bound for 0:19:26.880 --> 0:19:29.840 the balance of the year fifty price target and the 0:19:29.920 --> 0:19:32.800 SMP with a range between twenty and twenty nine because 0:19:33.160 --> 0:19:35.399 you know, ultimately we priced in at the end of 0:19:35.480 --> 0:19:38.800 last year all the sort of benefits of the U. S. 0:19:38.840 --> 0:19:42.280 Public policy agenda, i e. The fiscal impulse that we 0:19:42.440 --> 0:19:46.480 got and you know, pe multiples peaked basically the day 0:19:46.520 --> 0:19:51.040 that Senate the Senate passed UH tax reform, and now 0:19:51.040 --> 0:19:53.720 we're in the middle of frightening in kind of the uh, 0:19:53.760 --> 0:19:56.040 you know, the the less desirable parts of the U S. 0:19:56.080 --> 0:19:59.639 Public policy agenda, and that means that we uh, you know, 0:19:59.720 --> 0:20:02.679 we of a road the benefits that were priced in 0:20:02.760 --> 0:20:04.719 at the end of the last year. So having kind 0:20:04.760 --> 0:20:07.280 of a range bound, choppy and ultimately you know, kind 0:20:07.280 --> 0:20:10.400 of a flattish market for the year makes sense to us. 0:20:10.840 --> 0:20:12.720 We think these things are perhaps less than the price 0:20:12.720 --> 0:20:14.360 if you look at the credit markets, which are still 0:20:14.359 --> 0:20:17.560 hovering around all time tights, and I think the rates 0:20:17.600 --> 0:20:19.119 markets over the course that you're going to show this 0:20:19.200 --> 0:20:22.119 more through even flatter curves and ultimately a lower tenure 0:20:22.520 --> 0:20:24.760 yield by the end of the year. Michael Jesus, thank 0:20:24.800 --> 0:20:26.840 you so much for being with me. Your report was 0:20:26.880 --> 0:20:30.840 fascinating and really illuminating, a really interesting way to look 0:20:30.880 --> 0:20:33.359 at the fact that there isn't really a circuit breaker, 0:20:33.480 --> 0:20:37.679 in your words, to change this cycle of the US 0:20:37.800 --> 0:20:41.560 threatening tariffs, imposing them, and then the European Union in 0:20:41.640 --> 0:20:45.520 China retaliating in kind. Michael Jesus is chief US Public 0:20:45.520 --> 0:20:53.080 Policy and municipal strategist for Morgan Stanley in New York. 0:21:02.800 --> 0:21:06.760 The new era of advertising is really interesting because it's 0:21:06.760 --> 0:21:09.879 hard to know how companies should really be measuring the 0:21:09.920 --> 0:21:15.119 efficacy of their advertisements on platforms such as Twitter and 0:21:15.320 --> 0:21:20.040 Instagram and Facebook. Well. Jamie Gilpin focuses on this in 0:21:20.160 --> 0:21:24.800 part as her role as chief marketing officer at Sprout Social. 0:21:25.080 --> 0:21:28.440 She joins us, Now, Jamie, uh, your company just put 0:21:28.480 --> 0:21:32.639 out a fascinating study taking a look at just how 0:21:32.960 --> 0:21:36.200 companies are using social media, the fact that Facebook is 0:21:36.240 --> 0:21:40.320 still the key the key social media platform that they use, 0:21:40.840 --> 0:21:43.719 and the efficacy of some of these ads. Can we 0:21:43.760 --> 0:21:47.960 just start with Facebook? Why does Facebook have such sticking 0:21:48.040 --> 0:21:52.320 power as the influencer sure, and thanks for having me 0:21:52.359 --> 0:21:54.760 really excited to talk about this. UM. There's so much 0:21:54.840 --> 0:21:57.720 data in this report, UM, and you're right, we really 0:21:57.760 --> 0:22:00.119 did focus on UM or actually the day to have 0:22:00.240 --> 0:22:02.720 really brought to light UM the focus on our o 0:22:02.880 --> 0:22:05.440 I and how marketers UM, all of us are thinking 0:22:05.520 --> 0:22:09.399 differently about the social channels and and ultimately the value 0:22:09.440 --> 0:22:13.280 they provide UM to our overall business strategy, not just marketing. UM. 0:22:13.320 --> 0:22:16.240 And so you asked about Facebook, UM. You know, it's interesting. 0:22:16.520 --> 0:22:18.680 We talked about this a lot internally. You know, Facebook 0:22:18.760 --> 0:22:20.960 was in a lot of ways sort of the first 0:22:21.000 --> 0:22:24.560 social UM, the first social channel or platform or network, 0:22:24.920 --> 0:22:27.159 and so it's still because of that, you know, the 0:22:27.240 --> 0:22:29.959 Kleenex if you will, UM, it's still has you know, 0:22:30.040 --> 0:22:34.400 the the lion share of both usage from a consumer perspective, UM. 0:22:34.440 --> 0:22:38.320 You've seen the report, it's it's upward of consumers use Facebook. UM. 0:22:38.400 --> 0:22:42.040 But also on the marketer side, so marketers using UM 0:22:42.040 --> 0:22:45.000 Facebook as one of their their major platforms. But what 0:22:45.080 --> 0:22:47.840 I asked those thought was really interesting, UM, because the 0:22:47.920 --> 0:22:51.120 data also shows the usage and so while it's still 0:22:51.160 --> 0:22:54.640 one of the most popular networks from both a consumer 0:22:54.680 --> 0:22:57.280 and from a marketer's point, of view. UM. Consumers are 0:22:57.280 --> 0:23:00.200 starting to tell us that we're they're using Facebook, lass 0:23:00.320 --> 0:23:02.800 and they're starting to use Instagram more right, they're starting 0:23:02.840 --> 0:23:06.000 to use UM, YouTube, some of these other platforms more 0:23:06.480 --> 0:23:09.720 UM than than perhaps the Facebook and some of the 0:23:10.240 --> 0:23:13.199 early entrance. So just let's take a step back for 0:23:13.240 --> 0:23:17.200 a second, and when a company decides how to engage 0:23:17.320 --> 0:23:21.719 on social media with potential customers, how do they determine 0:23:21.880 --> 0:23:26.320 whether their messages getting across effectively? Sure, and a lot 0:23:26.320 --> 0:23:29.240 of this comes back to UM sort of the traditional 0:23:29.520 --> 0:23:33.520 use cases of UM of listening or analytics UM. You know, 0:23:33.560 --> 0:23:37.040 they've been around for a while. Actually, most organizations have 0:23:37.040 --> 0:23:40.760 have been invested or investing in in these types of 0:23:40.960 --> 0:23:43.879 UM sort of tools to help them here just actually 0:23:43.920 --> 0:23:47.119 get insight into your exact question, UM, are we the 0:23:47.160 --> 0:23:49.280 messages that we're putting out there, are they resonating with 0:23:49.320 --> 0:23:52.199 our target audience? Because we we also hear a lot 0:23:52.240 --> 0:23:55.399 of from brands UM, you know, just meeting with several 0:23:55.480 --> 0:23:58.200 over the last few weeks, UM around. You know, the 0:23:59.160 --> 0:24:02.600 audience on my social channels are for sure the kid 0:24:02.800 --> 0:24:05.400