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Speaker 2: We are advantaged at Bloomberg with a gentleman who's done
Speaker 2: a tour of duty in government at the White House,
Speaker 2: directly at the White House in Bloomberg Economics, and then
Speaker 2: up ten years ago, somebody said let's put Brendan Murray
Speaker 2: in charge of trade, and he has begun absolutely definitive
Speaker 2: for not only the usual show up and throw up
Speaker 2: verbiage on trade, but anecdote, an actual what's going on
Speaker 2: on the ground. Brendan Murray from a cornfield in Iowa
Speaker 2: and he's a Queen Victoria Street in London and joins
Speaker 2: us this morning. Brendan, you got a great article about
Speaker 2: Republican farmers in Iowa going what in God's.
Speaker 3: Name is going on?
Speaker 2: What did you learn in your reporting on Iowa corn
Speaker 2: and their future?
Speaker 4: Well, yeah, you know, Tom, there's going to be a
Speaker 4: lot of focus today and the nudey's ahead on the
Speaker 4: automobile industry, on electronics and energy and food and a
Speaker 4: lot of these major products that move back and forth
Speaker 4: between Canada, Mexico and the US. But if you look
Speaker 4: at in the heartland of the US, at American farmers,
Speaker 4: one of their key products was something that China retaliated
Speaker 4: against today, and that's soybeans. And the soybeans are you know,
Speaker 4: kind of a pretty basic sort of commodity. You can
Speaker 4: grow them in Brazil just the same way you can
Speaker 4: grow them in Iowa. And the farmers in the Midwest
Speaker 4: and now went in particular in large blocks blows voted
Speaker 4: for Trump. But at this meeting that that that that
Speaker 4: we've that we've seen some reporting on they're not happy
Speaker 4: about this trade war that Trump is starting, and they
Speaker 4: if you alienate China as one of their main customers,
Speaker 4: that's not good for them. And of course prices fell today.
Speaker 4: So in the in the in the grand scheme of things,
Speaker 4: you know, autos and electronics are much more you know,
Speaker 4: economically important, but politically the president needs to hold that base.
Speaker 4: You know, how loudly are Republican farm State senator is
Speaker 4: going to applaud tonight when he says.
Speaker 3: You know, let's combine the Brendan Murray magic. Here.
Speaker 2: There's a guy named Grassley who's one hundred and fourteen
Speaker 2: years old. I adore the guy. He sounds like my
Speaker 2: grandfather out of Ames, Iowa. No excuse me, Iowa City,
Speaker 2: Iowa years ago. Brendan Murray, what is Senator Grassley going
Speaker 2: to do to sit the President of the United States?
Speaker 2: Grassley sitting there at the desk with Kevin Hassett with
Speaker 2: a Pennsylvania PhD. What do they tell the president?
Speaker 4: He's going to say? You know, he he himself would say, look,
Speaker 4: I'm in the I'm in the minority on this position,
Speaker 4: on this free The Republicans used to be the party
Speaker 4: of free trade, opening markets abroad and that kind of thing.
Speaker 4: And he'd be the first to admit that he's now
Speaker 4: in the minority in that with that view. So my
Speaker 4: guess is he would talk to the President about some
Speaker 4: sort of farm bill, some sort of assistance to give
Speaker 4: farmers the way they farmers got the help during the
Speaker 4: Trump's first term to offset this loss of income that
Speaker 4: they're looking at. You know, the it's not just it's
Speaker 4: just it's not just the you know, sales to China
Speaker 4: that are going to be affected. It's farmer's import you know,
Speaker 4: this thing called potash, and it's for fertilizer and they're
Speaker 4: going to have to pay more for it now. So
Speaker 4: planning sees it, you know, so it just kind of
Speaker 4: it kind of hits them on both sides. So Rashley
Speaker 4: is going to say, you know you're going to go
Speaker 4: if you're go go this route, then we need then
Speaker 4: we need some you know, we need farmers need some
Speaker 4: you know, welfare essentially.
Speaker 2: Okay, Brendan's a city guy, and he's talking about this
Speaker 2: thing called potash, right just his wind potash.
Speaker 3: You got a question in here to Brendan Murray.
Speaker 5: Well, because Brendan, you were just talking about how when
Speaker 5: it comes to tariffs impacting more electronics and autos, But
Speaker 5: at what point do you think and how long before
Speaker 5: we could see changes when it comes to the price
Speaker 5: of consumer goods at the grocery store.
Speaker 4: I mean it was just the the you know, targets.
Speaker 4: Target's CEO was on there on the airwaves today saying
Speaker 4: that that they customers could see price hikes within days.
Speaker 4: And he's talking about strawberries, avocados, bananas, you know, vegetables,
Speaker 4: the kinds of things that you know, the US depends
Speaker 4: a lot on Mexico for so you know, they flipped
Speaker 4: the switch to turn the tariffs on, and you know,
Speaker 4: companies say, I'm suddenly paying twenty five percent more and
Speaker 4: they just passed that on to consumers. So I don't
Speaker 4: know how you stockpile tomatoes because they don't exactly last
Speaker 4: that long, but you know you got to figure that
Speaker 4: the tomatoes are going to be twenty five percent more
Speaker 4: expensive next week.
Speaker 2: Brendon, keep writing with your team these anecdotal, real articles
Speaker 2: about real people and not people in boat eyes.
Speaker 3: Going to three decimals.
Speaker 2: By the way, Brendan, if you go to Michael Barr's refrigerator,
Speaker 2: you will find age tomatoes and they.
Speaker 3: Won't find chicken pauls. You're going to find chicken feet.
Speaker 3: Brendan Murray, thank you.
Speaker 2: So much driving all of our trade coverage one of
Speaker 2: the jewels of Bloomberg News.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 2: With substantial acclaim, Barbara Reinhart, CIO and Voya Investment Management
Speaker 2: whatever you know.
Speaker 3: You wrote your usual.
Speaker 2: Ten thousand words. I'm kidding, it's all like all brevity here.
Speaker 2: Let me quote, folks the single sentence from young Reinhard.
Speaker 3: I'd be buying equities.
Speaker 2: Is it by the dip or is it more sophisticated
Speaker 2: than that?
Speaker 6: Well, I think there's two things, Tom, that are really
Speaker 6: important for everyone to know. Number One, positioning is much less,
Speaker 6: is more on sides at this point. So coming into
Speaker 6: the year, you had big positioning. Everybody was running equity
Speaker 6: overweights big year last year. A lot of that positioning
Speaker 6: has been taken out of the market right now. So
Speaker 6: that's number one. Number two sentiment, short term sentiment indicators
Speaker 6: are very over sold. Those are contraring indicators. S and
Speaker 6: P versus AG is down over six percent at this point,
Speaker 6: and you're seeing some fear into the market, which is
Speaker 6: generally when it's a better time to start adding to equities.
Speaker 5: That's interesting too, because Tom and I were talking earlier
Speaker 5: about how Emma wu at GP Morgan actually in video
Speaker 5: was contributing to the buy the dip inflows when it
Speaker 5: came to retail investors, but they did see them actually
Speaker 5: selling names when it came to Tesla and Apple. So
Speaker 5: we were talking about sentiment at extremes. I mean, the
Speaker 5: bull bear spread last week for Aii was the lowest
Speaker 5: it's been since twenty twenty two. And however, you're on
Speaker 5: those lows since two thousand and ninths. Are your clients
Speaker 5: going in and asking to puyah?
Speaker 6: I think it's short term indicat short term sentiment indicators
Speaker 6: are definitely over sold. The medium term ones are hanging
Speaker 6: a little bit more towards neutral. But unless you're going
Speaker 6: to have a recession, your short term indicators generally give
Speaker 6: you a very good risk reward opportunity. About legging into
Speaker 6: the market, it could be that you go lower over
Speaker 6: the course of March and then some seasonality really starts
Speaker 6: to pick up into April, but we think that it's
Speaker 6: difficult to time it, and when you've got weakness, it's
Speaker 6: good to buy in unless you think there's going to
Speaker 6: be recession.
Speaker 3: I love the.
Speaker 2: Phrase legging into the market. I have no idea what
Speaker 2: that means.
Speaker 6: That means buying across the dips.
Speaker 3: Being brave here futures and negative.
Speaker 2: My eyes are failing here negative forty on the S
Speaker 2: and P futures right now, so we have to readjust
Speaker 2: we have to recalibrate, and it's not a day for
Speaker 2: simplistic equity at questions, are you factor choosing this morning?
Speaker 2: Are you like securities analysis Graham, Dot and Coddle choosing?
Speaker 2: What's the method to make the marginal acquisition?
Speaker 6: I think it's difficult to step in front of momentum
Speaker 6: at this point. Right momentums had a massive run. After
Speaker 6: you've had big runs like this, it's difficult to see
Speaker 6: that would be able to do a three peet of
Speaker 6: it and have it three years in a row. I'd
Speaker 6: be more inclined to buy things that are more value oriented.
Speaker 6: Not internationally, I think that Europe is way over at
Speaker 6: SKIS at this point. For Europe to continue to outperform,
Speaker 6: you would need to see earning speed outpacing the US
Speaker 6: like they did in twenty seventeen. That won't be the case,
Speaker 6: or at least we don't think it will. So I'd
Speaker 6: be buying things that were much more of value oriented.
Speaker 6: If you really want to go bondom picking, look in
Speaker 6: the small cap universe. It's down over twelve percent at
Speaker 6: this point. So it's really gotten quite hammered, even though
Speaker 6: the fundamentals don't look to be quite that bad.
Speaker 5: It's such a tough space because that's the ongoing debate
Speaker 5: for years when you think about whether it's the Russell
Speaker 5: two thousand or the S and P six hundred, and
Speaker 5: especially the two thousand, just given the amount of zombie
Speaker 5: company's close to all time highs and it so, I mean,
Speaker 5: at what point is that really going to be more
Speaker 5: of a longer term buy than something that you just
Speaker 5: step in and buy on the shorter term.
Speaker 6: Yeah, the longer term the key to buying small caps,
Speaker 6: and it's usually generally in the S and P six
Speaker 6: hundred if you're coming out of a recession. So if
Speaker 6: you're halfway through a recession, isms have bottomed, you're starting
Speaker 6: to see the uptick from something akin to you know,
Speaker 6: forty to forty.
Speaker 7: Five on the on isms.
Speaker 6: That's generally when you want to when you want to
Speaker 6: buy the junkie stuff. That was the twenty twenty small
Speaker 6: cap rally. It was really led by the junkie stuff.
Speaker 2: I haven't even brought this up yet today because as
Speaker 2: you know, folks have death in the dots. I'm death
Speaker 2: in the parlor game of the FED. But you know,
Speaker 2: Jason Furman's on fire this morning out on Twitter, and
Speaker 2: there has to be a FED rea except the question,
Speaker 2: Barbara reinhard. Are their hands tied?
Speaker 6: It's going to feel stagflationary for a little while. You're
Speaker 6: going through the markets. Right now, they're going through a
Speaker 6: proper growth scare. Tariffs are only going to exacerbate that
Speaker 6: to the downside. And when there's a lot of uncertainty
Speaker 6: what a corporate CEOs and treasurers do. They start to pause,
Speaker 6: They put out decisions. They make the say, we're going
Speaker 6: to decide on hiring later this year. So that could
Speaker 6: get us GDP growth down to sub two percent, but
Speaker 6: you would need a significant shock to get it below
Speaker 6: one percent, which would really kind of start skating along
Speaker 6: the lines of recession.
Speaker 7: The Fat's hands may be tied.
Speaker 6: For maybe a meeting or two, but they will react
Speaker 6: if they start to see weakness in the labor market.
Speaker 2: Will they react that they start to see weakness in
Speaker 2: the stock market. Alan Greenspan used to say, the stock
Speaker 2: market is an important barometer.
Speaker 7: It is an important barometer.
Speaker 6: I think they have a little ways to go because
Speaker 6: of the very big back to back gains that you had.
Speaker 7: Over twenty two and twenty four or twenty three twenty foe.
Speaker 5: Is there a specific level all the S and P
Speaker 5: five hundred or percent draw down that you would need
Speaker 5: to see?
Speaker 6: Gosh it, we don't necessarily do things kind of unapplied levels.
Speaker 6: I mean, two hundred day moving average is what everyone
Speaker 6: looks at, but that could be a big moving target.
Speaker 6: I think it's more a culmination of a lot of
Speaker 6: our indicators. So we have, you know, sentiment indicators, valuation indicators,
Speaker 6: and also fundamental. The fundamental deterioration that you've seen in
Speaker 6: the market is really due to this uncertainty. It will
Speaker 6: get worse if these tariffs are they are going to
Speaker 6: be imposed, if they continue for a prolonged period of time.
Speaker 5: Talk to us about the difference between the markets set
Speaker 5: up when Trump first took office in twenty seventeen versus now.
Speaker 5: Because even if you're looking at asset manager positioning exposure
Speaker 5: to those equity futures, I mean, that's tracking above the
Speaker 5: fortieth percentile coming into this year. Back in twenty seventeen,
Speaker 5: it was below the tenth percentile.
Speaker 6: Right, Just that's such a good question I'm so glad
Speaker 6: you brought it out. In twenty seventeen, it was a
Speaker 6: very different setup. So the US was kind of still
Speaker 6: plodding along, having a great deal of difficulty after China
Speaker 6: devalued its currency in late twenty fifteen and into sixteen,
Speaker 6: there was a big draw down, almost twenty percent decline
Speaker 6: in equities, and it was struggling to kind of shake
Speaker 6: off some.
Speaker 7: Of that malaise.
Speaker 6: Europe actually was growing faster than the US, so that
Speaker 6: setup is not what you have right now. Right equity
Speaker 6: markets have been on fire over the past five years,
Speaker 6: even after looking at the twenty twenty two draw down,
Speaker 6: and valuations are much higher. But I would also say
Speaker 6: the companies in the SMP five hundred that are generating
Speaker 6: these big free cash flow, they are not terribly cyclically
Speaker 6: sensitive to the economy. However, you know, I would say
Speaker 6: that most investors, retail and institutional investors, were very much
Speaker 6: longer equities than they were in twenty seventeen. But this
Speaker 6: is a good, proper shakeout, and I think a growth
Speaker 6: scare which we didn't have in seventeen.
Speaker 5: When we're seeing the rotation more globally into European and
Speaker 5: equities in China, and specifically, how long do you think
Speaker 5: that'll hold for because a lot of portfolio managers just
Speaker 5: maxed out their allocation towards the US stock. So is
Speaker 5: this something you think is going to be more temporary
Speaker 5: or something that would hold.
Speaker 6: I think it is temporary as sure as night follows day.
Speaker 6: Europe will tend to have these kind of an etha
Speaker 6: in general, so developed international they tend to go through
Speaker 6: these fits and starts where they have, you know, twenty
Speaker 6: percent counter trend rallies. They can go out anywhere from
Speaker 6: one to six months. They draw a lot of investors in.
Speaker 6: You start hearing the cry to Europe is going to
Speaker 6: outpace the US.
Speaker 7: I wouldn't buy that.
Speaker 6: The valuation gap between Europe and the US is actually
Speaker 6: closed at this point. Europe is no longer cheap because
Speaker 6: everyone's piled into it. So my sense is that Europe
Speaker 6: would not be a place where I'd be allocating capital
Speaker 6: at this point.
Speaker 7: I'd be still sticking to the US.
Speaker 3: We say good morning to all of you across the nation.
Speaker 2: Here with futures negative thirty nine down futures negative one
Speaker 2: sixty six, A vixed deteriorates twenty four point two one
Speaker 2: up one point four to three points.
Speaker 3: This morning, Barbara Ryan Or.
Speaker 2: With us, Lavoya Abby Joseph Cohen will be with us
Speaker 2: next year on confidence to be in equity markets. Part
Speaker 2: of confidence is a five percent money market funt I
Speaker 2: believe it's price up, yields down across the bond landscape.
Speaker 2: What does cash do when they don't enjoy five percent?
Speaker 6: Well, you know, I think bond yield starting to drop
Speaker 6: is actually going to be somewhat stimulative, but it kind
Speaker 6: of buttresses a little bit of the tariff, probably uncertainty
Speaker 6: in the markets. It won't be able to overcome all
Speaker 6: of it. You know, five percent is really competitive when
Speaker 6: you've got a four. When you've got a ten year
Speaker 6: treasury it close to four fifteen, four, eighteen, four twenty.
Speaker 6: So cash looks like a really good thing. But I
Speaker 6: would say cash is a paradox. It is difficult to
Speaker 6: it's difficult to get out of it because you become
Speaker 6: so enamored with it usually, and you know that is.
Speaker 7: The worst thing you can do for your portfolio over
Speaker 7: the long run.
Speaker 2: Is it difficult to get out of mag seven when
Speaker 2: you're so enamored with it.
Speaker 7: That's a good question.
Speaker 6: I think the enamoring of the MAG seven is probably
Speaker 6: the real The shine is off that penny at this point.
Speaker 6: But do I think that the US has better earnings power,
Speaker 6: better shareholder practices, better underlying fundamentals than the rest of
Speaker 6: the world.
Speaker 7: Absolutely the issue here.
Speaker 3: Come on, we're talking soybeans and laws.
Speaker 2: Maybe we're talking, you know, cars, and Michael Barr's on
Speaker 2: a ladder about the.
Speaker 3: Windsor Detroit Bridge. It's got nothing to do with Nvidio, right.
Speaker 7: It doesn't. It doesn't.
Speaker 6: But I do think that the overall landscape of tariffs
Speaker 6: will cause enough corporate CEOs to pause and to say,
Speaker 6: maybe we don't need to do that property, plant and
Speaker 6: equipment build out. Maybe we should postpone hiring for the
Speaker 6: near term, just because the visibility is low. When you
Speaker 6: don't have much visibility and you're driving a car, what
Speaker 6: do you do? You slow down? And that's exactly what
Speaker 6: we're concerned about.
Speaker 5: Tom Keane bringing up those MAGS seven names, I wanted
Speaker 5: to point out since there was so much talk last
Speaker 5: week about the MAGS seven, the index, and the terminal
Speaker 5: entering a correction, but most of those losses were driven
Speaker 5: more so by Tesla I mean, that's a down by
Speaker 5: more than a third in that span, and then Meta's
Speaker 5: actually hire since then if you go back to mid December.
Speaker 5: So how much more pain do you think in more
Speaker 5: individual stocks? Because also there's a lot of technicals for
Speaker 5: certain ones, whether you're looking at in video where people
Speaker 5: are going to step in and by the lows. Because
Speaker 5: even if you look at in VideA the last twelve months,
Speaker 5: I mean, it's still been kind of in a narrow
Speaker 5: trading ring.
Speaker 7: You see these.
Speaker 5: Bounces to all time highs and then drawdowns again.
Speaker 6: I think the big issue is you've got a lot
Speaker 6: of concentration in the US equity market. When there's concentration,
Speaker 6: it's difficult to kind of differentiate.
Speaker 7: But there are.
Speaker 6: Many as to a portfolio manager ands I know that
Speaker 6: are have a very good view on other parts of
Speaker 6: the mag seven rather than Tesla. So it's difficult to
Speaker 6: make the case that Tesla can have a really big
Speaker 6: bounce at this point, simply because I think all autos
Speaker 6: are going to kind of get washed out together with
Speaker 6: this potential tariff issue with Canada and Mexico. So I
Speaker 6: think that they're not moving in unison and that creates
Speaker 6: more opportunity for active management.
Speaker 2: Just mentioned the Trump put. I have no idea what
Speaker 2: that is, the Trump call or the Trump put. But
Speaker 2: let's all agree, including Trump supporters and detractors, that this
Speaker 2: president can change the script at any moment. Come out
Speaker 2: Gilda Radner.
Speaker 3: At the speech tonight and goes, never mind what happens.
Speaker 6: Barbara, I think that's a credibility issue. My sense is
Speaker 6: that he's relatively serious on this one.
Speaker 7: Yeah, but there's going to be economic pain.
Speaker 6: I mean, you're talking about throwing Canada and Mexico, your
Speaker 6: north and southern neighbors, into a severe recession that will
Speaker 6: be felt in the US. And there's there's certain things
Speaker 6: on his tariff list that there are no substitution effects for.
Speaker 7: So that's going to cause, you know, some issues. And
Speaker 7: I think that.
Speaker 6: But the issues are it's difficult to get the US
Speaker 6: to into a recession at this point. The economic strength
Speaker 6: is coming off of oil. I'd be more I'd be
Speaker 6: more focused on a FED put than I would on
Speaker 6: a Trump Put's strongly.
Speaker 2: I agree, that's strongly, Barbara Reinhert. This has been brilliant
Speaker 2: and a great effort into Abbie Joseph Cohn Barber rhinhert
Speaker 2: Is with Voyagen.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Atto with the Bloomberg Business. You can also listen live
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Speaker 2: We're gonna go NonStop with a person you want to
Speaker 2: listen to. Abby Joseph Cohen has an earned career through
Speaker 2: the thick and thin of the American landscape like no
Speaker 2: one else. At Columbia Business School now off of Gold
Speaker 2: and Sacks. We're thrilled that the Professor of Business could
Speaker 2: join us this morning. Abby, We've been here, but we haven't.
Speaker 2: Kevin Gordon over Schwab says, these are proposed tariffs and
Speaker 2: reciprocity that go back at least to the nineteen forties.
Speaker 2: What does the future look like if we affect these tariffs?
Speaker 8: Good morning Tom, Good morning Jessica.
Speaker 9: Gee.
Speaker 8: That's a simple question, Tom.
Speaker 3: That's what we're doing.
Speaker 8: Yeah, you know what, I would disagree a little bit.
Speaker 8: It's not going back to the nineteen thirties, it's going
Speaker 8: back to the nine teenth century. Tariff based economy is
Speaker 8: something that didn't work then didn't work in the nineteen thirties,
Speaker 8: and I think it's very dangerous. You know, you have
Speaker 8: had other guests on who have talked about quantifying the impact,
Speaker 8: which will be very substantial if in fact these tariffs hold.
Speaker 8: And it's not just the US tariffs on our best
Speaker 8: neighbors and best trading partners, but also what they decide
Speaker 8: to do. I'll use the word to reciprocate, but this
Speaker 8: is a very difficult situation. Obviously. The thing that is
Speaker 8: somewhat odd about this and different from what was seen
Speaker 8: in previous periods of history, is these are tariffs being
Speaker 8: levied on our friends, and the blowback, the damage economically
Speaker 8: can actually be extremely severe on our own economy, even
Speaker 8: without the so called you know, pushback and reciprocal nature to.
Speaker 2: The nineteenth century, and folks, you've heard me talk about
Speaker 2: this of a new gilded age. Maurice Sobsfield, who Abby,
Speaker 2: Joseph Cohen and I worship iconict with Roguolf and Opsfeld
Speaker 2: and crudmen in International Economics, writes in the Ft This
Speaker 2: Morning and says it's simple there is an inequality in
Speaker 2: America the Genie coefficient, which is fancy math is completely
Speaker 2: out of whack, Abby Joseph Cohen, how does Senator Grassley
Speaker 2: of Iowa or Marquis of the Commonwealth of Massachusetts, how
Speaker 2: do they get us away from the gilded age so
Speaker 2: that we don't affect these harmful tariffs.
Speaker 8: You have combined two very important topics. Tom One is
Speaker 8: the inequality, which clearly is there and has worsened in
Speaker 8: recent years. We typically look at inequality based on punt income,
Speaker 8: but also on wealth, and we have seen that the
Speaker 8: inequality related to wealth has actually become even more pronounced
Speaker 8: than that related to income. But what you also need
Speaker 8: to think about is how do we adjust our economy
Speaker 8: to reflect this and the power that is being wielded
Speaker 8: by those in the corporate arena but also being assisted
Speaker 8: by the government. And you're right to say, what can
Speaker 8: the Congress do about this? And one of the things
Speaker 8: that is troubling, of course at this point, and I'm
Speaker 8: an economic analyst, I'm a markets analyst, I'm not a
Speaker 8: political analyst, is that we don't really see the Congress
Speaker 8: getting involved in a lot of the discussions about what
Speaker 8: is happening right now. As I see it. Bottom line
Speaker 8: is many of these changes, especially on tariffs, are extraordinarily
Speaker 8: painful and will be more hurtful for people at the
Speaker 8: lower end of the income and wealth spectrum.
Speaker 5: Abby of course, there has been ongoing debate that Trump
Speaker 5: wants to raise revenues to finance tax cuts potentially. How
Speaker 5: do you view that and what are the repercussions with
Speaker 5: tariffs being so severe? As you mentioned on our Trading Partners.
Speaker 8: Yeah, again, I have not done the calculations myself, but
Speaker 8: looking at those people and firms that have done the calculations,
Speaker 8: there's a mismatch. The sort of revenue that would be
Speaker 8: raised from these tariffs may in fact not be all
Speaker 8: that significant and certainly were pale in comparison with some
Speaker 8: of the tax cuts that are being discussed, So there
Speaker 8: seems to be a mismatch. The other thing to keep
Speaker 8: in mind is that when you analyze tariffs, it's a
Speaker 8: dynamic process. It's not just look at a certain percentage
Speaker 8: in this case, twenty five percent against Mexico and Canada
Speaker 8: and then use that number against what the imports have been.
Speaker 8: You also need to think about what will happen to
Speaker 8: those imports, What will happen to aggregate demand, and I
Speaker 8: would say that most economists would agree at this point
Speaker 8: that the sort of tariffs that are being discussed will
Speaker 8: negatively impact aggregate growth in the United States. And again
Speaker 8: that pain will be felt most significantly by middle income
Speaker 8: and lower middle income workers in the United States.
Speaker 2: Abby Joseph Cohen with us for an extended moment here
Speaker 2: this morning.
Speaker 3: Abby, I was at a.
Speaker 2: Wonderful store, Dangerous Provisions on Madison Avenue, where they've raised
Speaker 2: the price of their egg sandwich, and next to me
Speaker 2: with as a student with the Blue Patagonia Columbia Business School,
Speaker 2: how are you teaching tariff economics in the market impact
Speaker 2: to the students of Columbia Business School.
Speaker 8: Once again, Tom a very important question, and I think
Speaker 8: that we need to keep in mind that many of
Speaker 8: the students at Columbia, and they are wonderful students. About
Speaker 8: half of the people in my class were from outside
Speaker 8: the United States, and I have to say that the
Speaker 8: discussion about tariffs puzzles them just the way it puzzles
Speaker 8: many of us here in the United States. Many of them,
Speaker 8: for example, hail from countries that are quite friendly to
Speaker 8: the United States, nations that are military allies of the
Speaker 8: United States, and to use tariffs against your friends seems
Speaker 8: a little bit odd. Now, let's keep in mind that
Speaker 8: there can be an appropriate use of tariff. For example,
Speaker 8: in cases where there's dumping, where a nation is dramatically
Speaker 8: overproducing and perhaps is selling that item in the United
Speaker 8: States or another country for below the cost of production,
Speaker 8: that might be a good reason to impose a tariff. Similarly,
Speaker 8: if you're looking to protect a particular industry for national
Speaker 8: security reasons, that might be yet another reason to impose
Speaker 8: a tariff. But these widespread across the board, tariffs on
Speaker 8: all items coming into particular country, especially a country that's
Speaker 8: friendly to us. There doesn't really seem to be economic
Speaker 8: rationale behind it.
Speaker 2: Abby, you're too young to remember this, but at the
Speaker 2: clearest memory of October of nineteen eighty seven, and over
Speaker 2: a series of days, we enjoyed down thirty one percent,
Speaker 2: we're down six percent, and we're pretty much hysterical. Have
Speaker 2: we forgotten what a correction is in the stock market?
Speaker 8: Tom, Yes, I do remember that day. And one of
Speaker 8: the big differences between October of that year is that
Speaker 8: that big decline had to do with internal mechanic within
Speaker 8: the stock market. I think that one of the reasons
Speaker 8: people are so concerned right now is not just the
Speaker 8: dollar amount or the percentage amount, or the rise in
Speaker 8: the VICS. It's the economic uncertainty. Back in nineteen eighty seven,
Speaker 8: there was no economic change that had triggered that particular decline,
Speaker 8: and so it was quickly reversed. I think what people
Speaker 8: are concerned about now is that there is true uncertainty
Speaker 8: with regard to economic policy, and there doesn't really seem
Speaker 8: to be a clear rationale economic rationale behind the numbers
Speaker 8: that had been thrown out vis a v A twenty
Speaker 8: five percent increase in tariff. In addition, we're facing uncertainty
Speaker 8: with regard to whether the continuing resolution that has kept
Speaker 8: the federal government working it will expire March fourteenth. We
Speaker 8: do not yet have a new budget in place, so
Speaker 8: that's another area of uncertain Indeed, one of the things, however,
Speaker 8: that I'm looking at very closely, are not some of
Speaker 8: these things right on the news flow, but rather the
Speaker 8: long term issues. And something that I don't think is
Speaker 8: getting enough attention is that decisions made by the Trump
Speaker 8: administration are damaging the long term status of the United
Speaker 8: States as a scientific and technological leader. We're basically cutting
Speaker 8: off at the knees a lot of the work that's
Speaker 8: being done by leading scientists in the US government and
Speaker 8: also in US universities.
Speaker 3: I look, aby where we are.
Speaker 2: I got to be quick here because just met once
Speaker 2: again and we're going to have headlines out of Mexico here.
Speaker 2: President Steinbaum is speaking right now and announcing quote countermeasures
Speaker 2: on a Sunday. How do you be comfortable long term investment?
Speaker 2: Abbey owning securities here? I don't you want you to
Speaker 2: redo what David Costin's working with this morning at your
Speaker 2: Goldman said always your golden sechs, But just in general,
Speaker 2: how do we have comfort with equities as a long
Speaker 2: term opportunity.
Speaker 8: Right now? I think we need to kind of sit
Speaker 8: back and see which way policy is moving, and then
Speaker 8: of course we can apply the models. As you well know,
Speaker 8: the long term benefit of investing in the United States
Speaker 8: has been related to the strength of our economy, including
Speaker 8: the long term investment that is made by companies in
Speaker 8: cap X, also the investment that's made in information, whether
Speaker 8: that's education at the K through twelve level or at
Speaker 8: the university level. But also, as I mentioned before, our
Speaker 8: willingness is a nation to invest in the future by
Speaker 8: funding places like NIH and the National Science Foundation and
Speaker 8: NOAH and CDC, And I think that many investors ought
Speaker 8: to be paying attention to whether Prump administration will reduce
Speaker 8: those cutbacks and in fact, I hope reverse them because
Speaker 8: they make no economic sense.
Speaker 5: What else potentially could be coming from the White House
Speaker 5: when it comes to trade policy, Because you're mentioning that
Speaker 5: March fourteenth deadline for the government to avert a shutdown,
Speaker 5: but then on March twelfth, just next week as well,
Speaker 5: twenty five percent tariffs on all steel and aluminum imports
Speaker 5: are also set to come.
Speaker 8: Yeah. Now, one thing that I don't know again I'm
Speaker 8: an economic analyst, a markets analyst, not a political analyst,
Speaker 8: is I don't know what the game theory is behind this.
Speaker 8: There are some people who are postulating that the twenty
Speaker 8: five percent numbers that were picked out for tariffs were
Speaker 8: designed basically to be an opening bid, if you will,
Speaker 8: for negotiations with various countries. So where we end up,
Speaker 8: I don't know, but I think to kind of throw
Speaker 8: the gauntlet down in front of nations that have been
Speaker 8: cooperative with us over the years that have their own
Speaker 8: economies intertwined with hours. You know this is not a
Speaker 8: mechanicalist economy. We are highly dependent upon these inter relationships
Speaker 8: that we have, and many of these tariffs will adjust
Speaker 8: very significantly.
Speaker 2: I mean the time we got left, I got to
Speaker 2: interrupt you. I mean, you're working a hard fifteen hour
Speaker 2: week up at Columbia Business School. Let's be honest to
Speaker 2: Abby Joseph Cohen. You could slide right over to be
Speaker 2: vice chairman of the FED, or dare I say chairman
Speaker 2: of the FED?
Speaker 3: In a heartbeat?
Speaker 2: Given the moment, the politics of the nation, how should
Speaker 2: your own Powell respond to this moment?
Speaker 8: I think mister Powell and the other members of the
Speaker 8: FOMC need to be doing what they have been doing,
Speaker 8: and that is to focus on the data and to
Speaker 8: keep in mind the dual mandate of inflation but also employment.
Speaker 8: And one of the things that has been terrific throughout
Speaker 8: the Biden administration has been ongoing creation of jobs and
Speaker 8: then the increase in the average wage adjusted for inflation
Speaker 8: for the American American family. They will be watching at
Speaker 8: the FED whether that good news continues. If we see
Speaker 8: an erosion in the labor markets, if we see an
Speaker 8: erosion in wages adjusted for inflation. I think at that
Speaker 8: point they're going to need to adjust the policy and
Speaker 8: provide some stimulus to basically offset some of these policy
Speaker 8: decisions coming out of the White House.
Speaker 3: Interesting and of.
Speaker 2: Course, folks, that's the first we've heard this morning, and
Speaker 2: always what you hear from Abby Joseph Cohen about wages,
Speaker 2: both wages and real wages given rising inflation is being
Speaker 2: part of the Fed calculus. She is a Columbia Business
Speaker 2: School of course forever with Gulb and Sachs. Abby Joseph Cohen,
Speaker 2: thank you so much extended comments this morning.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
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Speaker 3: With our question.
Speaker 2: This is our conversation of the day. Jehan Beovan is
Speaker 2: out of university to Montreal and Princeton University. He is
Speaker 2: definitive on his Canada and their economics. He is the
Speaker 2: head of Blackrock Investment Institute.
Speaker 3: But today is different.
Speaker 2: We speak to John Belevan about what is occurring between
Speaker 2: Detroit and Windsor, Ontario.
Speaker 3: Jehan, you know the landscape better than anyone.
Speaker 2: If I look at reciprocity across St Bridge between Windsor
Speaker 2: and Detroit, what's Doug Ford gonna do, mister Trudeau, the future,
Speaker 2: mister Trudeau, what are they going to do on a
Speaker 2: reciprocal basis against what mister Trump is doing?
Speaker 9: Well, good morning, Tom, Just it's a pleasure to be here. Yeah.
Speaker 10: I think, well, we've already started to see reprocessing, reprocessing
Speaker 10: processes at play today, and I think there is uh,
Speaker 10: from what we what we have been they've been saying
Speaker 10: pretty clearly, there will be uh.
Speaker 11: There'll be responding in kind I guess over the as
Speaker 11: things go. So that's the first thing I don't know.
Speaker 11: I mean, I think we're all learning as we go
Speaker 11: here what's going to be the extent of these things.
Speaker 9: But in terms of the intent of responding, I think.
Speaker 11: There's no there's no doubt that this is the current
Speaker 11: stance there, uh, And so we'll see what happens in
Speaker 11: response in the US after that as well.
Speaker 2: Jean Beave, we studied very carefully Ken Rogoff and of
Speaker 2: course Maurice Absfield out at Berkeley. Professor Absfield writes an
Speaker 2: absolutely blistering up ed released about four hours ago in
Speaker 2: the Financial Times. It's like Berkeley, one oh one, John,
Speaker 2: you can appreciate that you're a freshman at Princeton and
Speaker 2: it's like, oh, it's complicated. Professor abs makes clear the
Speaker 2: simplicity of the Trump administration has no academic grounding. Where
Speaker 2: is the part where President Trump is being too simplistic?
Speaker 11: Well, I think, uh, I'll confess I didn't have a
Speaker 11: chance yet to of course I will. But the I
Speaker 11: think the it is a fact that when it comes
Speaker 11: to trade, we have like very good models to think about,
Speaker 11: like you know, more static uh, you know, trained pattern
Speaker 11: and like you know, we go back to Ricardo and
Speaker 11: but the reality is a lot more complex with trade
Speaker 11: and what's going to be the ultimate macro effect on growth,
Speaker 11: for instance, I think is a is a bit difficult
Speaker 11: to uh, for academics to agree. I think the inflation
Speaker 11: impact is pretty clear. I think you're gonna get find
Speaker 11: you know, consensus there. But more broadly than that, I
Speaker 11: think it's a it's harder, uh, And I think you know,
Speaker 11: it all depends also on what is the objective of
Speaker 11: these of these tariffs. I mean it always statistical revenue
Speaker 11: generation could be an objective.
Speaker 9: Are we talking about trade balances?
Speaker 11: I think one thing that is not fully appreciated is
Speaker 11: that these two objectives work against each other. If you
Speaker 11: really are trying to maximize that's revenues, you're gonna have
Speaker 11: to live with a wider trade balance.
Speaker 9: So I think you more than what the academic confusion
Speaker 9: would be.
Speaker 11: I think is the lack of clear understanding of what
Speaker 11: are we doing here that I think creates a certain
Speaker 11: you know, I used to a huge amount of uncertainty.
Speaker 2: Interfering this out just Manton, the Atlanta GDP is a
Speaker 2: as a headline making negative two point eight percent, and
Speaker 2: a lot of people, including hot SIUs and the team
Speaker 2: over at Gold and Sachs, are saying it's actually still diminished,
Speaker 2: but somewhere in the zero even up as high as
Speaker 2: positive one point six. So there's a real argument about
Speaker 2: the growth dynamic.
Speaker 5: Right in the volatility that we see. So Sean, I mean,
Speaker 5: you were actually previously appointed as Deputy Governor of the
Speaker 5: Bank of Canada, and of course we're looking at how
Speaker 5: Canada retaliated tariffs one hundred and seven billion dollars of
Speaker 5: US products. So your view when it comes to the
Speaker 5: Bank of Canada and when it comes to the direction
Speaker 5: of interest rates, we're looking at overnight swaps increasing those
Speaker 5: bets that the Bank of Canada will cut rates by
Speaker 5: twenty five basis points that it's more twelve meetings. So
Speaker 5: how do you view this when it comes to central
Speaker 5: bank policy?
Speaker 11: Yeah, so I think the starting point here is that
Speaker 11: this is not what the market is currently pricing. But
Speaker 11: we I strongly believe that this is a stackflationary shock.
Speaker 12: Right.
Speaker 11: I'm not saying we have stackflation, but I think the
Speaker 11: shock itself, these kinds of measures are stackflationary.
Speaker 9: They're pushing grown down and they're pushing up, and I think.
Speaker 11: That makes it triggy because from the US perspective, like
Speaker 11: the yields are falling. We had like fifty basis points
Speaker 11: of decline in ten years over the last month, and
Speaker 11: I think that has been interprented mostly as a growth shock.
Speaker 9: I think what's going to be the wake.
Speaker 11: Up call over the next two weeks is that like
Speaker 11: inflation is going to be the other part of the
Speaker 11: other leg of that story, and that's going to complicate
Speaker 11: the rate kind of landscape.
Speaker 9: So I think on the side, it's.
Speaker 11: Not clear that to us that there's going to be
Speaker 11: much to cut rates for Canada. The complication is that
Speaker 11: there is like now a week Canadian daughter dynamic, a
Speaker 11: week loony which is which is like a massive issue
Speaker 11: for the for the Central Bank. So I mean, as
Speaker 11: long as this or they will fit that, as long
Speaker 11: as it's orderly, there's no gapping and currencies, you know,
Speaker 11: that's not the objective.
Speaker 9: But I think like once you get to the level
Speaker 9: we're saying right now, it's going to be an additional concern.
Speaker 11: So even though it's a stagflationary shock, on top of that,
Speaker 11: you have a week dollar.
Speaker 9: So I think the knee jerk.
Speaker 11: Reaction will be to cut, but I think that's going
Speaker 11: to be much more messy and predicated, and I think
Speaker 11: it's a given that we have an easy cycle coming
Speaker 11: out of this in Canada.
Speaker 2: Bloomberg surveillance this morning across the nation across Canada as well.
Speaker 2: Thank you for listening on Apple, car play, Android auto
Speaker 2: on YouTube. Subscribe to Bloomberg Podcast growing each in every day.
Speaker 2: Major shout out to David Weston in his conversation on
Speaker 2: Friday with the Treasury Secretary of the United States that
Speaker 2: had over three million downloads on our digital platform. In
Speaker 2: a matter of ours, just a final question please to
Speaker 2: doctor Boven.
Speaker 5: As far as when it comes to the economy, what
Speaker 5: do you think is the biggest risk when obviously we're
Speaker 5: continuing to talk about tariffs, but what's the follow through here?
Speaker 12: Yeah, so I think this is this is this is
Speaker 12: an environment with you know, I don't think I've ever
Speaker 12: seen an environment where there's so many moving parts over
Speaker 12: which you have as wide a range of views from
Speaker 12: the commentators on how they're going to play out.
Speaker 9: So I think this is very unusual to me. The
Speaker 9: most important thing.
Speaker 11: To watch is that, as I said, I think this
Speaker 11: is mostly a stagflationary shock where the tariff piece inflation
Speaker 11: was not a resolved issue from our perspective, so it's
Speaker 11: adding a layer to something that was already a problem.
Speaker 9: And then we're going to have the fiscal side of
Speaker 9: things that's going.
Speaker 11: To play out over the next week, right, so we're
Speaker 11: going to have the discussion government shutdown potentially. So the
Speaker 11: waking up of this is stickflationery nature plus a fiscal story,
Speaker 11: and I think will be expansionary those two things where
Speaker 11: and when you see the yields at four thirteen on
Speaker 11: the ten year, I think that raises questions and Jimine as.
Speaker 2: The much Jean, thank you so much here and shorting
Speaker 2: us really really appreciate your attendance today.
Speaker 3: He is with Blackrock. We hope to get doctor.
Speaker 2: Beavener's studios for an extended conversation here in the coming week.
Speaker 3: Shamblevent is with Blackrock.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: Just say Alexa Play Bloomberg. Eleven thirty.
Speaker 2: We're looking at the three month correlation of no eggs
Speaker 2: at Costco with our newspaper report this morning Lisa Matteo, Oh, Lisa,
Speaker 2: are there eggs at Aisle six?
Speaker 13: There are eggs, but paying more as usual. And speaking
Speaker 13: of paying more, this is kind of a look into
Speaker 13: what products are going to be You're going to be
Speaker 13: paying more. And the Wall Street Journal, i mean the
Speaker 13: Washington Post did this analysis. It was like international trade
Speaker 13: data from the Census Bureau. So this is a breakdown.
Speaker 13: Stick with me because there's some numbers here. So we
Speaker 13: start with China, right, the main source of imported consumer
Speaker 13: goods spending, sending about two hundred and ten billion dollars
Speaker 13: worth of everyday household to the US in twenty twenty three.
Speaker 7: So what does that mean.
Speaker 13: It means electronics, clothing like cotton shirt, shoes, kids, toys,
Speaker 13: things like that. Then you get to the grocery aisle.
Speaker 13: You know about nine point nine billion dollars worth of vegetables,
Speaker 13: more than eleven billion worth of fruit and frozen juices
Speaker 13: come from Mexico in twenty twenty three.
Speaker 5: What about the beer?
Speaker 13: And then yes, then you have back up avocados, right,
Speaker 13: the beer, tequila. You can't forget the tequila just and
Speaker 13: then we talked about cars, right, We've been talking about
Speaker 13: cars Canada and Mexico. The US also imported ninety three
Speaker 13: billion dollars worth of crude oil from Canada and twenty
Speaker 13: twenty three. So it's kind of this good breakdown of
Speaker 13: what you can possibly pay more for it's going to be, I.
Speaker 3: Think it's unknown. The uncertainty here is off the chart.
Speaker 2: Some of the research notes. I mentioned George Sarahvellis at
Speaker 2: Deutsche Bank with a blistering note like ten minutes ago
Speaker 2: and we'll get more in futures. De tiorate now new
Speaker 2: Low's negative thirty seven. Another story, Lisa, Yes.
Speaker 13: So Tom, you always sees me about looking for a
Speaker 13: gluten free products, right, so how about tariff free products?
Speaker 3: Well?
Speaker 7: What tariff free?
Speaker 3: Oh? Tariff free?
Speaker 13: Yes, so this is these are the signs.
Speaker 9: Yes with a T.
Speaker 13: It's happening that this housewares trade show in Chicago, the
Speaker 13: Inspired Home Show. So a lot of the booths are
Speaker 13: posting these signs that say tariff free because they're trying
Speaker 13: to attract new customers. One company did it. He said
Speaker 13: that they actually helped him land new customers. He started
Speaker 13: changing up some of the things he does with this company.
Speaker 13: But he says that is starting to help. So you
Speaker 13: might start seeing some of these signs you know as
Speaker 13: it is.
Speaker 3: Yes, I mean you know you're the Texas girl here.
Speaker 3: I mean Texas is booming. Let's all agree on that.
Speaker 2: What does the Mexican border slow down? Do now to Texas?
Speaker 3: So the answers is ginormous.
Speaker 5: Well, it is ginormous. I grew up in South Texas,
Speaker 5: so especially when it comes to a lot of the hospitality,
Speaker 5: construction jobs as well as landscaping. That's a big question
Speaker 5: mark is what it means for some of these smaller
Speaker 5: businesses that depend on some of that labor and what
Speaker 5: it means for if it's not as cheap as far
Speaker 5: as how that feeds into their businesses as well as
Speaker 5: wage infleetion can get.
Speaker 13: Yeah one more so, we heard about Target right the
Speaker 13: CEO saying that he was going to start having to
Speaker 13: increase prices, especially fruits, vegetables, things like that. But the
Speaker 13: CEO of Chipoli actually told NBC Nightly News that they
Speaker 13: are going to fit the bill for any cost increases
Speaker 13: from tariffs. He said, for now, that's what they intend
Speaker 13: to do because their economic model can withstand it. But
Speaker 13: he did add that pricing changes could eventually come if
Speaker 13: those costs become a quote significant headwind. And when we
Speaker 13: were talking about the avocados, they actually get fifty percent
Speaker 13: of their avocados from Mexico, but they also have the
Speaker 13: rest coming from Columbia, Peru, Dominican Republic too, so that
Speaker 13: might help out. But he estimated the cost of goods
Speaker 13: increasing six ten percent on a rolling basis from tariffs,
Speaker 13: but he says right now they're not going to pass
Speaker 13: that on to the consumer.
Speaker 2: Lisa Mateo, thank you so much on the newspapers.
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