WEBVTT - Bloomberg Surveillance TV: March 7, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.240 Terminal and the Bloomberg Business app. Let's stick with the economy. 0:00:37.240 --> 0:00:39.720 Francis Donald of RBC right in the following. Whereas the 0:00:39.760 --> 0:00:43.360 Trump administration was initially celebrated for its emphasis on deregulation 0:00:43.479 --> 0:00:46.360 and tax cards, it is now facing tariff centric policy 0:00:46.640 --> 0:00:51.320 and fiscal pullbacks, which is not reflationary but stagflationary. Joining 0:00:51.360 --> 0:00:53.680 us now two of the very best, Francis Donald and 0:00:53.720 --> 0:00:56.960 Al Selinos. Francis here in New York, Alsa over in London. 0:00:57.040 --> 0:00:59.400 I just think the perfect pairing for this morning, because 0:00:59.440 --> 0:01:02.160 we're talking at the end of US exceptionalism and that 0:01:02.240 --> 0:01:04.280 has a big effects impact that we can talk about 0:01:04.319 --> 0:01:06.200 with Alsa shortly Francis, I want to begin with you, 0:01:06.720 --> 0:01:08.360 what's changed in the past month. 0:01:08.880 --> 0:01:11.440 Well, when we talked about US exceptionalism, let's remember that 0:01:11.520 --> 0:01:14.320 it was generally a call on the structure of the economy, 0:01:14.360 --> 0:01:17.960 which was really being supported by fiscal chips at AI, 0:01:18.560 --> 0:01:22.520 a good underlying fundamentals, and the cyclical acceleration. I don't 0:01:22.520 --> 0:01:25.160 think the structural story for the United States has changed 0:01:25.160 --> 0:01:28.400 too much here, but that cyclical optimism is what is 0:01:28.480 --> 0:01:31.200 fading at this point, and we are seeing we are 0:01:31.240 --> 0:01:35.160 seeing the damage from tariff uncertainty creep into the sentiment surveys, 0:01:35.200 --> 0:01:37.520 creep into soft data. What we need to see now 0:01:37.600 --> 0:01:39.679 is does the soft data bleed into the hard data, 0:01:39.880 --> 0:01:43.000 especially with this K shaped economy where the ultra wealthy 0:01:43.040 --> 0:01:45.800 have been supporting the whole And what concerns me most 0:01:45.840 --> 0:01:48.200 as well. We heard from President Trump, we heard from 0:01:48.200 --> 0:01:50.800 Secretary be said that they're not watching the stock market anymore. 0:01:51.200 --> 0:01:53.520 Maybe if they're watching the economy, they need to be 0:01:53.560 --> 0:01:56.720 aware of that wealth effect flowing through. The Other component 0:01:56.760 --> 0:01:59.760 of this, which is hugely important, is just how inflationary 0:02:00.120 --> 0:02:03.120 those tariffs turn out to be. Strongly depends on the 0:02:03.120 --> 0:02:05.360 path of the US dollar. That's why Elsa's views are 0:02:05.400 --> 0:02:08.560 so critical to the economy. Now, it's not just economy 0:02:08.560 --> 0:02:10.960 to effects, it's how effects will change the shape of 0:02:10.960 --> 0:02:12.880 tariffs and just how stagulationary they are. 0:02:12.800 --> 0:02:14.680 Which also is the reason why a lot of people 0:02:14.720 --> 0:02:19.040 expected that a strong dollar would offset the inflationary aspects 0:02:19.160 --> 0:02:21.920 of those tariffs, exactly to Francis's point, and yet what 0:02:21.919 --> 0:02:24.240 we've gotten is that exactly the opposite. And it's part 0:02:24.320 --> 0:02:26.880 of what's going on with growth fears in the US, 0:02:26.919 --> 0:02:28.639 but it also has to do a lot with what's 0:02:28.680 --> 0:02:31.920 going on in Europe. How far can that dollar weakness 0:02:32.000 --> 0:02:32.320 really go? 0:02:34.120 --> 0:02:37.960 Yeah, absolutely right. It's been an absolute momentous week for Europe. 0:02:38.000 --> 0:02:42.480 I mean, the scale of integration and large scale announcements 0:02:42.520 --> 0:02:46.400 we've heard this week just Pelsantine significance compared to anything 0:02:46.400 --> 0:02:48.760 we've heard over recent years. So I think there are 0:02:48.760 --> 0:02:50.600 a number of cross currents. As you said, there are 0:02:50.600 --> 0:02:53.040 a number of people saying, well, actually a stronger dollar 0:02:53.320 --> 0:02:56.239 could offset the impact of tariffs. I disagree with that. 0:02:56.240 --> 0:03:00.360 The large majority of US imports are actually denominated in 0:03:00.480 --> 0:03:03.680 US dollars, so a lot of that effect would actually 0:03:03.680 --> 0:03:07.239 accrue to exporters in terms of profit margins, but thinking 0:03:07.240 --> 0:03:09.960 more generally about where the dollar goes from here. As 0:03:09.960 --> 0:03:11.920 I said, we have a number of cross currents because 0:03:11.960 --> 0:03:14.600 it wasn't just the fiscal announcement coming out of Europe 0:03:14.639 --> 0:03:16.760 this week. There's also the fact that we already had 0:03:16.800 --> 0:03:19.200 better European data. We saw that again this morning with 0:03:19.280 --> 0:03:22.600 the upgrade to Q four GDP. Actually the economy did 0:03:22.639 --> 0:03:25.839 reasonably well from initial reading that was point zero five, 0:03:25.960 --> 0:03:28.720 fairly better than flat up to point two two now, 0:03:28.760 --> 0:03:31.600 with a lot of that coming from domestic demand. And 0:03:31.639 --> 0:03:34.800 so I think it's that challenge which has caught people off. God, 0:03:35.200 --> 0:03:37.720 how much further can the dollar on? I mean, you know, 0:03:37.800 --> 0:03:40.240 we've been nying up one twelve as a decent verse 0:03:40.320 --> 0:03:42.800 resistance level, just because that's the level we got to 0:03:43.040 --> 0:03:45.280 in September of last year, when again there was that 0:03:45.360 --> 0:03:47.240 pessimism about us exceptionalism. 0:03:47.480 --> 0:03:50.160 I miss the days when we're talking about gross differentials 0:03:50.200 --> 0:03:52.520 and inflation differentials and we could just focus on that. 0:03:52.880 --> 0:03:56.240 Now there's tariffs, now, there's questions about spending. Now, there 0:03:56.240 --> 0:03:59.280 are questions all of this, Just to for instance, the 0:03:59.280 --> 0:04:01.480 point if you tried to strip it down, which is 0:04:01.680 --> 0:04:05.160 kind of the goal right now, its just growth and inflation, 0:04:05.640 --> 0:04:08.360 which is the biggest lever to pay attention to when 0:04:08.360 --> 0:04:10.560 it comes to the US rates outlook. When it comes 0:04:10.640 --> 0:04:13.640 to just how much these tariffs could really affect the 0:04:13.760 --> 0:04:14.840 US economy, well. 0:04:14.680 --> 0:04:16.640 It's a great question, and I'm glad you qualified for 0:04:16.760 --> 0:04:19.520 the United States because it did really differs depending on 0:04:19.560 --> 0:04:22.160 which country you're looking at. In the United States, they 0:04:22.200 --> 0:04:24.760 have some growth margin. We were looking at two percent 0:04:24.800 --> 0:04:27.480 growth for twenty twenty five. If we have to downgrade 0:04:27.520 --> 0:04:30.760 till even one percent, I mean, it's not a great development. 0:04:30.800 --> 0:04:33.440 You have to have a rerating across many asset classes, 0:04:33.560 --> 0:04:35.720 but it's not going to break the US economy. Where 0:04:35.760 --> 0:04:38.440 there is very little room is on the inflation side. 0:04:38.560 --> 0:04:41.080 And if we do see these twenty five percent tariffs 0:04:41.080 --> 0:04:43.760 come through one month from now, we could be seeing 0:04:43.800 --> 0:04:47.039 three percent cour inflation by year. And combine that with 0:04:47.120 --> 0:04:50.359 a structurally tight labor market, it's not a great position 0:04:50.440 --> 0:04:53.200 to be in for the Federal Reserve. High inflation is 0:04:53.240 --> 0:04:55.520 going to be what it becomes more problematic for the 0:04:55.520 --> 0:04:59.400 American psyche right now, especially because let's not forget prices 0:04:59.400 --> 0:05:02.080 are up twenty nine percent since Trump's first day in 0:05:02.120 --> 0:05:06.320 office back in twenty eighteen. The appetite among households, businesses, 0:05:06.320 --> 0:05:08.520 and the market for the inflation side of the picture 0:05:08.800 --> 0:05:11.440 is very different now than I suspect the growth side. 0:05:11.480 --> 0:05:13.640 You were at the Economic Club last night, Francis, and 0:05:13.680 --> 0:05:15.839 you heard what Scott Besson had to say. He says, 0:05:15.880 --> 0:05:18.720 this one price shock is transitory. 0:05:19.000 --> 0:05:20.720 Do you think it's transitory? Do you think this will 0:05:20.760 --> 0:05:22.039 bleed through for months to come? 0:05:22.160 --> 0:05:25.640 Well, economists and those who like to say that tariffs 0:05:25.640 --> 0:05:28.040 will not be problematic for the American people will say 0:05:28.120 --> 0:05:30.200 it's transitory, and what they mean by that is there's 0:05:30.200 --> 0:05:33.080 a one time price level adjustment and one year later 0:05:33.120 --> 0:05:35.039 it drops out of the year over year. But I 0:05:35.160 --> 0:05:38.840 like to say tariff price level increases are also permanent, 0:05:39.160 --> 0:05:41.520 so the price increases, but then it stays at that 0:05:41.640 --> 0:05:44.320 level for an extended period of time. What came out 0:05:44.320 --> 0:05:46.560 of me from that speech was that, you know, Secretary 0:05:46.600 --> 0:05:50.280 Ofscent described a nice economy, one where we've deleveraged from 0:05:50.320 --> 0:05:53.080 the public sector over to the private sector, one where 0:05:53.120 --> 0:05:56.720 trade is recalibrated for the American people. It actually sounds 0:05:56.760 --> 0:05:59.320 like a great economy that many economists would check the 0:05:59.360 --> 0:06:01.680 box on. But you have to build the bridge to 0:06:01.720 --> 0:06:04.520 the other side. And from my perspective, what this market 0:06:04.560 --> 0:06:06.960 is coming to recognize is that that bridge to the 0:06:07.320 --> 0:06:10.560 economy that's being described is not seamless, and it may 0:06:10.560 --> 0:06:11.440 not be guaranteed. 0:06:11.520 --> 0:06:13.400 I might do a lot of damage in between. We 0:06:13.480 --> 0:06:15.520 started this year and I talked about it repeatedly. We 0:06:15.560 --> 0:06:17.680 all did that the policy makes would attract a lot 0:06:17.680 --> 0:06:19.960 of capital from the rest of the world. It's the 0:06:19.960 --> 0:06:21.920 policy mix stying to push it away. Is it too 0:06:21.960 --> 0:06:22.520 early to tell? 0:06:22.800 --> 0:06:26.560 It's a sequencing issue, So we're not getting the juicy, 0:06:26.760 --> 0:06:31.240 high quality invest in American exceptionalism content. First. Some of 0:06:31.240 --> 0:06:33.560 that may be just having to fund some of the 0:06:33.600 --> 0:06:35.960 better things. But there's some story that you kind of 0:06:35.960 --> 0:06:38.520 have to eat your vegetables before you get your dessert. 0:06:38.920 --> 0:06:40.360 Maybe that's a little bit of the mix that we're 0:06:40.360 --> 0:06:40.960 getting right now. 0:06:41.000 --> 0:06:43.280 And also, this is exactly the point behind a lot 0:06:43.279 --> 0:06:46.039 of the really bold calls behind euro strength. Given the 0:06:46.080 --> 0:06:48.600 fact that people are seeing suddenly the sucking sound away 0:06:48.640 --> 0:06:51.880 from the United States toward Europe, how much are you 0:06:52.000 --> 0:06:54.919 actually seeing evidence of that that Euros are flooding in 0:06:54.960 --> 0:06:58.640 with what we just saw the biggest weekly inflow into 0:06:58.720 --> 0:07:01.800 European stocks going twenty twenty two. I mean, you've just 0:07:01.839 --> 0:07:03.440 seen this groundswell. 0:07:04.600 --> 0:07:07.200 So we're certainly seeing a huge shift in the short 0:07:07.279 --> 0:07:09.880 term positioning, and actually on our short term positioning monitors. 0:07:10.120 --> 0:07:12.480 Markets already actually turned long ear a dollar, having been 0:07:12.560 --> 0:07:16.160 quite consistently short. But it's interesting, you know, I've seen 0:07:16.200 --> 0:07:19.080 some calls out there for this kind of continued euro's strength, 0:07:19.160 --> 0:07:21.400 kind of pacing it gently throughout the course of the 0:07:21.480 --> 0:07:24.040 next twelve months. I actually think it could look pretty different. 0:07:24.200 --> 0:07:26.679 I mean, there's this initial move, which is very likely. 0:07:27.040 --> 0:07:29.360 It feels like it's going to get into overshoot territory 0:07:29.400 --> 0:07:31.760 because it happens so quickly and people are somewhat chasing 0:07:31.800 --> 0:07:34.080 the move. On top of that, you've got that equity 0:07:34.120 --> 0:07:37.160 angle that I feel is really underappreciated the impact that 0:07:37.200 --> 0:07:39.680 has on the currency market, because we're seeing a structural 0:07:39.720 --> 0:07:43.280 reallocation out of US equities back into European equities, and 0:07:43.320 --> 0:07:45.880 there's a currency component to that as well. But once 0:07:45.920 --> 0:07:47.760 all that washes out, you know, the point France has 0:07:47.800 --> 0:07:50.200 made is absolutely critical. Is this going to be an 0:07:50.280 --> 0:07:53.320 environment where the Fed can cut rates aggressively or is 0:07:53.360 --> 0:07:56.040 the inflationary backdrop going to prevent them from doing that. 0:07:56.440 --> 0:07:59.040 And if you don't have those aggressive FED cuts, then 0:07:59.080 --> 0:08:01.280 those kind of calls are one twenty one twenty five 0:08:01.440 --> 0:08:03.680 that you know we got to back in twenty twenty one, 0:08:04.000 --> 0:08:06.760 that one twenty three fifty high that looks much harder 0:08:06.800 --> 0:08:09.720 to achieve without that convergence in frontend rate differentials. 0:08:09.880 --> 0:08:11.680 So there's one piece of this story over in Europe 0:08:11.680 --> 0:08:13.320 that I'm trying to make sense of, and perhaps you 0:08:13.320 --> 0:08:15.320 can help me. We've had a massive week for the 0:08:15.360 --> 0:08:18.000 Europe I know that off the back of the plans 0:08:18.040 --> 0:08:21.640 to boost infrastructure spending. But this all started when President 0:08:21.640 --> 0:08:23.720 Donald Trump made a more aggressive push to end the 0:08:23.720 --> 0:08:26.920 war in Ukraine. That's when the euro started to move 0:08:27.320 --> 0:08:30.160 started to find a flaw. And also, I wonder if 0:08:30.200 --> 0:08:32.760 Germany is going about rearmic and the whole of the 0:08:32.760 --> 0:08:36.400 continent goes about rearming, does that make war more or 0:08:36.480 --> 0:08:39.120 less likely, because that's going to have quite an impact 0:08:39.120 --> 0:08:41.120 on the continent and financial markets. 0:08:42.880 --> 0:08:45.520 It's a great question, John, and I think one which 0:08:45.559 --> 0:08:47.280 people have in the back of their minds. You know, 0:08:47.320 --> 0:08:50.280 our spot trader here in London was mentioning that this morning, 0:08:50.520 --> 0:08:53.920 you know, is it necessarily great for Europe if we're 0:08:53.960 --> 0:08:57.120 having to rearm ourselves with the risk right on our 0:08:57.160 --> 0:09:00.400 eastern borders. I don't think that's the story that people 0:09:00.400 --> 0:09:02.720 are focusing sing on today. I think they're far more 0:09:02.760 --> 0:09:05.600 focused on that kind of n WUS exceptionalism and the 0:09:05.640 --> 0:09:08.320 swing and capital away from the US back to Europe. 0:09:08.600 --> 0:09:10.360 But that's certainly a risk premium that's going to be 0:09:10.360 --> 0:09:12.080 baked into the back of people's minds too. 0:09:12.120 --> 0:09:15.280 With the very best stan Selnya SASABC Francis Donald here 0:09:15.280 --> 0:09:26.959 in New York. So that both of you thank you breaking 0:09:27.000 --> 0:09:29.360 down the jobs report. We can continue the conversation now 0:09:29.360 --> 0:09:32.000 around the table with definitely Wrath of Wolf research Kathy 0:09:32.080 --> 0:09:34.040 Jones of Charles Swap to the turf. You welcome to 0:09:34.080 --> 0:09:36.000 the program. Stephanie's just first to you to talk about 0:09:36.000 --> 0:09:37.800 the economy. First look, first take. 0:09:38.280 --> 0:09:41.800 Yeah, not expected, and as you alluded, the headlines are 0:09:41.880 --> 0:09:43.680 very different from what we saw in the data. Big 0:09:43.720 --> 0:09:46.240 reason is just a timing miss match. Right the survey 0:09:46.280 --> 0:09:50.280 we fell just before all the significant layoffs hit the net. 0:09:50.400 --> 0:09:51.880 The next payrolls print is going to look a lot 0:09:51.960 --> 0:09:54.720 uglier than this one. So yes, we can't really have 0:09:54.880 --> 0:09:56.719 a sigh of relief as a result of today's data, 0:09:56.760 --> 0:09:59.000 because we're gonna start getting hit pretty significantly on the 0:09:59.000 --> 0:10:01.199 perils print. We're gonna start the apparels prints that are 0:10:01.240 --> 0:10:03.040 around one hundred thousand, if not slightly below. 0:10:03.240 --> 0:10:04.679 Kathy, is that how you see things? 0:10:05.080 --> 0:10:08.480 Yeah, I think they slow down is taking place, and 0:10:08.600 --> 0:10:11.080 we will see more of it. It'll snowball as things 0:10:11.120 --> 0:10:13.440 go forward. You know, one of the things when you 0:10:13.559 --> 0:10:16.600 have fewer hours worked and you have less aggregate income, 0:10:16.920 --> 0:10:19.480 and that means less spending power for the consumer. So 0:10:19.600 --> 0:10:22.080 that's going to ripple through and then you have this 0:10:22.200 --> 0:10:25.359 level of uncertainty where every day is a new policy 0:10:25.760 --> 0:10:29.600 and if you're trying to plan business activity going forward, 0:10:29.840 --> 0:10:32.840 I'll forget the consumer. Do I have a job or not? 0:10:32.960 --> 0:10:36.320 But think about businesses. What's my labor force look like? 0:10:36.720 --> 0:10:39.200 What are my materials cost? Can I get my hands 0:10:39.200 --> 0:10:41.960 on those materials? What's the demand going to look like? 0:10:42.240 --> 0:10:44.400 I mean, all those are big questions that make people 0:10:44.480 --> 0:10:47.199 freeze and say I'm just not doing anything to li 0:10:47.240 --> 0:10:48.439 havee some clarity, which. 0:10:48.240 --> 0:10:50.199 Is the reason why and Stephanie, a number of people 0:10:50.240 --> 0:10:52.920 have raised this point. People are trying to understand the 0:10:52.960 --> 0:10:56.520 momentum heading into this period to understand the resilience, the 0:10:56.559 --> 0:10:59.640 potential resilience for the US economy to deal with that 0:10:59.720 --> 0:11:03.120 kind of uncertainty. One hundred and fifty one thousand isn't bad. 0:11:03.360 --> 0:11:06.240 It actually is a pretty solid labor market. So how 0:11:06.320 --> 0:11:09.520 much give do we really have in this labor market? 0:11:09.720 --> 0:11:10.800 Yeah, and it's fair. 0:11:10.840 --> 0:11:12.720 But now all of a sudden, we had a sudden 0:11:12.720 --> 0:11:16.000 surprise to activity, and I don't think folks were expecting 0:11:16.000 --> 0:11:18.240 the extent of the government layoffs that are going to 0:11:18.240 --> 0:11:21.160 play out the contractors that are tied to them. And then, 0:11:21.160 --> 0:11:23.480 by the way, the immigration stuff he cut off on 0:11:23.559 --> 0:11:26.560 January twentieth, that was adding for much of last year 0:11:26.600 --> 0:11:29.640 on seventy five thousand workers to the workforce that's cut off, 0:11:29.640 --> 0:11:31.520 and the reasons are going to start expiring throughout the 0:11:31.520 --> 0:11:32.760 course of the next two years. 0:11:32.960 --> 0:11:35.640 But do you think the end destination is still possible 0:11:35.640 --> 0:11:38.880 because what they're talking about is moving from a public 0:11:39.120 --> 0:11:41.280 policy to more private sector jobs. 0:11:41.480 --> 0:11:43.160 Yeah, and that's totally fair, but it's just going to 0:11:43.160 --> 0:11:45.280 take a while and it's a painful process along the way. 0:11:45.360 --> 0:11:47.640 So the endgame might ultimately result in a sort of 0:11:47.720 --> 0:11:50.079 a rebalanced economy, but that doesn't mean it's going to 0:11:50.120 --> 0:11:50.560 feel good. 0:11:50.480 --> 0:11:52.120 For the next six months. OK, Kathy, this sounds very 0:11:52.160 --> 0:11:53.520 Billy for Bonts, is it. 0:11:54.160 --> 0:11:54.439 Yeah. 0:11:54.520 --> 0:11:57.480 You know, we're still in the camp that says the 0:11:57.480 --> 0:11:59.560 Fed's on hold for a while because they have to 0:11:59.600 --> 0:12:03.119 sort out all these cross currents and the inflation potential 0:12:03.240 --> 0:12:06.000 coming from terraffs, so they can't do anything. So we're 0:12:06.520 --> 0:12:10.680 in the long end. You have you have probably the slowdown, 0:12:10.720 --> 0:12:13.240 which will bring yields back down probably ten year, around 0:12:13.240 --> 0:12:16.320 three eighty or so, but not until we actually see 0:12:16.320 --> 0:12:19.360 that data, because your offsetting is you have potential inflation 0:12:19.440 --> 0:12:22.800 from tariffs. So right now we're just bouncing around in 0:12:22.840 --> 0:12:25.920 this range waiting to see which plays out first. The 0:12:26.000 --> 0:12:28.920 inflation plays out first or the slowdown plays out first. 0:12:29.000 --> 0:12:30.960 Right now, it looks like the slowdown might play out 0:12:31.000 --> 0:12:33.880 before the inflation, but you know, we don't know day 0:12:33.920 --> 0:12:34.400 to day what. 0:12:34.440 --> 0:12:35.160 Teriffs look like. 0:12:35.240 --> 0:12:37.040 If you are just joining us, welcome to the program. 0:12:37.080 --> 0:12:39.840 The Job's report came out just moments ago, nine minutes ago, 0:12:40.080 --> 0:12:42.160 and it came in like this, one fifty one, just 0:12:42.200 --> 0:12:44.840 a small downside surprise. We've been looking for one sixty 0:12:45.120 --> 0:12:47.200 lots of numbers to talk about our swear to do that. 0:12:47.320 --> 0:12:49.559 Right now, we can bring Mohammad Aaron of Queen's College, 0:12:49.559 --> 0:12:52.360 Cambridge into the program. Mohammed, welcome to the program, sir. 0:12:52.440 --> 0:12:55.480 Let's get to that job's report. What's your interpretation of things? 0:12:55.840 --> 0:12:59.000 I think you captured it well when you said, you know, 0:12:59.280 --> 0:13:02.760 no big news here. The only thing that I will 0:13:02.840 --> 0:13:06.400 be torturing is the labor force participation. But everything else 0:13:06.480 --> 0:13:11.200 came in as expected. And I think everybody's right in 0:13:11.240 --> 0:13:14.840 saying what's more important, what's ahead of us? Not this report? 0:13:15.520 --> 0:13:18.120 That said Mohammad, We've been talking a lot about the 0:13:18.160 --> 0:13:20.680 momentum in the US economy and the fact that it 0:13:20.720 --> 0:13:23.640 takes a long time to turn things around. Is there 0:13:23.679 --> 0:13:26.800 any part of this report that makes you concerned about 0:13:26.840 --> 0:13:29.480 the level of exceptionalism that we're coming off of into 0:13:29.559 --> 0:13:30.840 this period of uncertainty? 0:13:32.520 --> 0:13:34.400 Not in this report, Lisa, but in a lot of 0:13:34.480 --> 0:13:37.600 other data there is. You know, the edge of the 0:13:37.720 --> 0:13:42.920 US has been predictability, has been transparency, and you're starting 0:13:42.960 --> 0:13:46.040 to see more and more business step back, not just 0:13:46.080 --> 0:13:50.360 on a short term basis, but really think how much 0:13:50.559 --> 0:13:53.400 longer do I need before I figure out what's my 0:13:53.559 --> 0:13:58.320 operating environment, and that builds on itself really quickly. So 0:13:58.559 --> 0:14:02.800 you know, the risk here is that below the economic exceptionalism, 0:14:02.840 --> 0:14:06.720 which is strong economic performance, strong acid price performance, has 0:14:06.760 --> 0:14:10.720 been this notion of the US edge, and I'm worry 0:14:10.720 --> 0:14:12.720 that this edge is being eroded right now. 0:14:12.840 --> 0:14:16.680 So Mohammed, are you saying it's the death of US exceptionalism. 0:14:16.960 --> 0:14:20.680 I'm not. I'm saying it's under enormous pressure. We still 0:14:20.800 --> 0:14:24.400 have attributes that other countries, you know, would dream of. 0:14:25.240 --> 0:14:28.920 So you don't kill the US economic exceptionalism, but you 0:14:28.920 --> 0:14:31.640 could put it on pause as people try to figure 0:14:31.680 --> 0:14:33.400 out what the operating environment is. 0:14:43.600 --> 0:14:46.560 Mohammed Worth five six weeks into a new administration. Has 0:14:46.600 --> 0:14:49.120 that much changed that quickly in such a short amount 0:14:49.120 --> 0:14:51.920 of time, So I. 0:14:51.880 --> 0:14:54.760 Think there's been lots of changes. Just go to Germany 0:14:55.400 --> 0:14:57.760 and see what's happening there. Look at the debate there. 0:14:57.800 --> 0:15:00.840 It's been a Sputnik moment for Germany in terms of 0:15:00.920 --> 0:15:04.720 defense spending, infrastructure spending. John, all I can tell you 0:15:04.960 --> 0:15:08.680 is that all the consensus trades at the beginning of 0:15:08.680 --> 0:15:11.320 the year have been upended, every single one of them. 0:15:11.720 --> 0:15:16.400 Currency waits relative US equity performance to the rest of 0:15:16.400 --> 0:15:19.400 the world. I can go across the board every single 0:15:19.440 --> 0:15:22.840 consensus trade has been upended, and that tells you that 0:15:22.880 --> 0:15:24.560 there has been significant. 0:15:24.000 --> 0:15:26.600 Change, which race is a question about how much this 0:15:26.680 --> 0:15:28.960 is a trade and how much this is a fundamental 0:15:29.040 --> 0:15:31.480 shift that can actually get implemented in economic data. That 0:15:31.520 --> 0:15:34.120 takes time, and Stephanie, I would ask you that how 0:15:34.200 --> 0:15:37.040 long is the transmission mechanism for some of these things 0:15:37.040 --> 0:15:41.280 at a time when there are some fundamental policy shifts 0:15:41.520 --> 0:15:43.400 that will take time to implement, but it takes even 0:15:43.440 --> 0:15:46.840 longer time to ripple through the underlying data and the 0:15:46.920 --> 0:15:48.440 underlying sense of strengths. 0:15:48.560 --> 0:15:50.160 Yeah, it should take a couple of months for us 0:15:50.200 --> 0:15:51.840 to start to see it reflect on the data. Of course, 0:15:52.000 --> 0:15:55.040 for example, today the February data look just fine. The 0:15:55.080 --> 0:15:56.800 March data are going to start to reflect this, and 0:15:56.800 --> 0:15:58.560 I would expect in the next three months will start 0:15:58.560 --> 0:16:01.440 to see the real impact. For example, the impacts from tariffs. 0:16:01.480 --> 0:16:03.440 It takes about three to six months to work its 0:16:03.440 --> 0:16:05.800 way into the CPI data, so that's when we'd start 0:16:05.840 --> 0:16:08.800 to see that. The payrolls numbers we're going to start 0:16:08.800 --> 0:16:10.200 to see in the next couple of months. Because the 0:16:10.280 --> 0:16:12.160 job a lot of the job cuts are fairly immediate, 0:16:12.200 --> 0:16:14.400 and then you'll see the government contractors as a result 0:16:14.920 --> 0:16:18.000 the fallout from that afterwards. So I would expect in 0:16:18.280 --> 0:16:20.200 six months time we'll see a lot more of this 0:16:20.560 --> 0:16:22.560 truly reflected in the data, but we'll start to see 0:16:22.560 --> 0:16:24.000 it in the next couple of prints. 0:16:24.080 --> 0:16:27.120 Kathy from an investment perspective, and Muhammad was talking about 0:16:27.160 --> 0:16:29.240 how the policy shifts have been pretty traumatic and the 0:16:29.280 --> 0:16:32.040 market is trying to be a forward looking prognosticator. 0:16:32.680 --> 0:16:34.000 How do you make bold moves? 0:16:34.040 --> 0:16:35.960 Do you just hide out in cash? Do you keep 0:16:36.000 --> 0:16:39.320 your allocations? I'm serious, it's sort of such a volatile 0:16:39.400 --> 0:16:41.800 time with sort of the reality checks coming out where 0:16:41.920 --> 0:16:44.000 there isn't that much news in the economic data. 0:16:44.840 --> 0:16:47.360 Yeah, you know, I don't think cash is the solution 0:16:48.800 --> 0:16:52.520 because you know that it gives you some optionality. So 0:16:52.600 --> 0:16:55.280 building some liquidity I think is a good idea, and 0:16:55.360 --> 0:16:59.600 I think people undervalue liquidity in their asset allocation when 0:16:59.680 --> 0:17:02.480 things good and we've had this long stretch of everything's 0:17:02.520 --> 0:17:05.439 great and who needs liquidity? Now, I think you do 0:17:05.520 --> 0:17:09.960 need liquidity, But we are also keeping our benchmark duration 0:17:10.440 --> 0:17:12.639 right at benchmark, we're not extending yet. 0:17:12.720 --> 0:17:13.280 We hope. 0:17:13.600 --> 0:17:17.160 We hope to see an opportunity, but there's too much 0:17:17.240 --> 0:17:19.880 noise right now to take that risk. And then we're 0:17:19.880 --> 0:17:22.560 saying up in credit quality because you just don't have 0:17:22.760 --> 0:17:27.439 enough excess return there to justify taking a lot of 0:17:27.480 --> 0:17:29.640 credit risk. And we don't know what industries are really 0:17:29.640 --> 0:17:31.720 going to get hit. Some industries are going to suffer, 0:17:32.200 --> 0:17:34.480 and we do expect some spreads to widen as a 0:17:34.520 --> 0:17:35.040 result of that. 0:17:35.200 --> 0:17:37.680 Europe's had a long stretch of everything's bad, and that's 0:17:37.760 --> 0:17:40.240 changed pretty quickly. Mahamedz comes to you on that. I 0:17:40.240 --> 0:17:43.160 remember in early November, shortly after the election, you said 0:17:43.200 --> 0:17:45.360 to us on this program, that sucking sounds you hear 0:17:45.800 --> 0:17:47.600 is capital coming in from the rest of the world 0:17:47.920 --> 0:17:50.639 into the United States. That sucking sound we heard this 0:17:50.680 --> 0:17:53.000 week was capital, gun I swear, and we've heard that 0:17:53.040 --> 0:17:55.680 a lot throughout the year so far. Mahammed, what do 0:17:55.720 --> 0:17:58.399 you think about that reversal inflows that a lot of 0:17:58.440 --> 0:18:01.520 people have identified recently, and how sustainable do you think 0:18:01.560 --> 0:18:01.880 it is? 0:18:03.400 --> 0:18:06.159 So that reversal makes sense given what has happened over 0:18:06.160 --> 0:18:08.760 the last few weeks, is it sustainable? I don't know, John, 0:18:10.160 --> 0:18:12.159 you know, the jury is still out as to whether 0:18:12.359 --> 0:18:14.199 Europe is going to be able to go from words 0:18:14.240 --> 0:18:18.200 to actions. It's not easy politically, it's not easy socially. 0:18:19.480 --> 0:18:22.919 They have governance issues. So I'm not sure that sucking, 0:18:23.080 --> 0:18:25.359 the reversal sucking sound, if you luck, is going to 0:18:25.440 --> 0:18:29.560 continue for a while. But I understand why, because there's 0:18:29.600 --> 0:18:33.120 been a shock to a lot of the conventional wisdom 0:18:33.480 --> 0:18:34.840 on the US and on Europe. 0:18:35.800 --> 0:18:37.880 Muhammed, has there been an end to the sucking sound 0:18:37.880 --> 0:18:38.880 from the United States? 0:18:41.960 --> 0:18:44.920 We'll see the data. I suspect you'll see that there's 0:18:44.960 --> 0:18:50.880 certainly less fewer influence coming into the US. But has 0:18:50.920 --> 0:18:53.880 it completely stopped. I doubt, I really doubted. The US 0:18:53.960 --> 0:18:58.720 has some attributes that are very difficult to mess up. 0:18:59.640 --> 0:19:03.560 So the US is still you know, whether you want 0:19:03.600 --> 0:19:05.840 to call it the cleaner, sturdy shirts or whatever, but 0:19:05.880 --> 0:19:09.439