Speaker 1: Hey, Odd Loots listeners, We're coming to DC.
Speaker 2: We're finally doing it, Joe. It's going to be our
Speaker 2: first live show in Washington, DC, our nation's capital. It's
Speaker 2: also finally going to be the time where we actually
Speaker 2: talk about the Jones Act.
Speaker 1: Listen talk about doing the Jones Act episode of Odd
Speaker 1: Lots for a long time, and it's become this recurring
Speaker 1: joke that we've never done on But we're going to
Speaker 1: do it in grand style because we're going to be
Speaker 1: doing it live in DC and it's actually going to
Speaker 1: be a debate.
Speaker 2: Yeah. So we have Sarah Fuentes from the Transportation Institute.
Speaker 2: She's going to be taking the pro side, and we
Speaker 2: also have Colin graybou of the Cato Institute. He'll be
Speaker 2: taking the against side. It's going to be really interesting
Speaker 2: to see how all of that shakes out.
Speaker 1: In addition to that, we're going to be speaking with
Speaker 1: Blair Levin, who was around during the telecom bubble, and
Speaker 1: we have Andrew Ferguson, the new head of the FTC,
Speaker 1: the one who's replaced Lina Kong. We're going to be
Speaker 1: talking about mergers and acquisitions and all that stuff. So
Speaker 1: it should be a really fun night.
Speaker 2: If you want to come and join us for that evening,
Speaker 2: it's going to be on March twelfth at the Miracle Theater.
Speaker 2: Go to Bloomberg dot com forward slash odd Lots and
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Speaker 3: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Tracy Alloway and I'm Joe wysent Thal. Joe, do
Speaker 2: me a favor and pull up a chart of the
Speaker 2: ten year German Bund.
Speaker 1: Oh yeah, okay, let's see German generic ten year bond.
Speaker 2: You don't know the ticker, you haven't memorized.
Speaker 1: Oh, but we have the beautiful auto of it. Wow,
Speaker 1: that is a chart. So you know, back in the
Speaker 1: beginning of December, the yield was about two percent. It's
Speaker 1: been climbing. It was about two point four percent at
Speaker 1: end of February, and in the last two days it's
Speaker 1: rocketed up. It's close to two point nine percent. And
Speaker 1: I saw a headline yesterday. We're recording this March sixth.
Speaker 1: Yesterday's move was the largest one day move since basically
Speaker 1: around the time the Berlin will.
Speaker 2: Yeah, it's a line that goes straight up. Yes, it's
Speaker 2: a pretty big move. As you mentioned, the euro is
Speaker 2: also up against the dollar. European defense stocks have been soaring.
Speaker 2: There are lots of lines going straight up charts out
Speaker 2: there relating to Europe.
Speaker 1: European financials doing really well too. It's like, you know,
Speaker 1: everyone was so down on everything Europe and then Trump
Speaker 1: was expected to make those lines go down further and
Speaker 1: they've just been rocketing up.
Speaker 2: Yeah. And the argument that seems to be happening here
Speaker 2: is the idea that the possibility of tariffs from the
Speaker 2: Trump administration and the loss of the US security umbrella, yeah,
Speaker 2: are so bad for Europe that they could turn out
Speaker 2: to be good in the sense that Europe has to
Speaker 2: spend lots of money to interact them. Maybe they integrate
Speaker 2: some more and maybe that'll boost growth. And if you
Speaker 2: think about all the military equipment that they'll need to buy,
Speaker 2: or maybe the possibility that long suffering German carmakers are
Speaker 2: going to pivot into defense or something like that, it
Speaker 2: kind of makes sense.
Speaker 1: Well, I'm gonna say what I'm about to say. You
Speaker 1: just pull up a chart of the decks.
Speaker 2: Oh yeah, it's pretty another line going straight up.
Speaker 1: You know, there's two elements here. I mean, I joked
Speaker 1: yesterday that the history of finance Twitter is essentially fifteen
Speaker 1: years of waiting for Germany to pull out the fiscal bazooka,
Speaker 1: to sort of pull back from its obsession with balanced budgets.
Speaker 1: The Schwartz, the schwartznul. Did I say that, Okay, Schwartznul,
Speaker 1: Schwartz snul. Yeah. So there's two things though. There's one,
Speaker 1: there's the realization that perhaps more money should be spent,
Speaker 1: and then two there can you get the political stars
Speaker 1: to align to act on that realization. And one thing
Speaker 1: people seem to be thinking is and this is a
Speaker 1: very complicated problem for all kinds of structure architectural reasons
Speaker 1: within the EU or the Eurozone. And there seems to
Speaker 1: be a belief and more than a belief that the
Speaker 1: sort of actions of the Trump administration over the last
Speaker 1: several weeks may be solving both of these problems at once.
Speaker 2: Right in the sense that maybe you need a common
Speaker 2: enemy to galvanize some action. And I will just say
Speaker 2: specifically what we've seen this week. So we saw talk
Speaker 2: of a five hundred billion euro infrastructure fund. We saw
Speaker 2: Germany saying that defense above one percent of GDP could
Speaker 2: be exempt from the debt break. This is the famous
Speaker 2: schulden Blenza. And they also said German states can now
Speaker 2: borrow up to zero point three five percent of GDP,
Speaker 2: that is up from zero. So change there. And so
Speaker 2: I guess in conclusion, there is a lot going on
Speaker 2: in Europe and we should definitely talk about it. And
Speaker 2: I do, in fact have the perfect guest for you.
Speaker 2: It's someone who I used to talk to you all
Speaker 2: the time time about European developments, specifically when we had
Speaker 2: the euro crisis back in sort of twenty eleven to
Speaker 2: twenty thirteen. We're going to be speaking with George Sarah Valos.
Speaker 2: Here's the head of FX research at Deutsche Bank. George,
Speaker 2: thank you so much for coming on the show.
Speaker 4: Thank you very much for having me. It's a great pleasure.
Speaker 2: All right. So I've seen a few people call this
Speaker 2: a watershed moment. I've seen people call it whatever it
Speaker 2: takes two point zero. Barclays is calling it whatever it costs.
Speaker 2: Ralph Preuser over at Bank of America is calling it
Speaker 2: a paradigm shift in the sense that Europe is no
Speaker 2: longer funding the US fiscal expansion. Instead, it's funding its
Speaker 2: own and you yourself have called it history in the making.
Speaker 2: Walk us through how significant this is and why sure.
Speaker 5: I would tend to agree with all of these characterizations.
Speaker 5: I would say it's not just the size, and I
Speaker 5: can help walk through the size and provide some context,
Speaker 5: but also the speed that is remarkable. You have to remember,
Speaker 5: just a few weeks ago we're having the German election.
Speaker 5: The centrist parties lost the two thirds majorities, and the
Speaker 5: centrist parties as well, especially the leading centrist part of
Speaker 5: the CDU, was not campaigning on any sort of fiscal
Speaker 5: expansion compared to what we're seeing now. So I'd say
Speaker 5: it's both the size and the speed that's taken markets
Speaker 5: by surprise. But just to go back to the size,
Speaker 5: and you went through the changes infrastructure, we think will
Speaker 5: be at least one a bit more than one percent
Speaker 5: of GDP a year the state level, easing the reform
Speaker 5: to the debt break that's another point three to five.
Speaker 5: There's gaps that are being freed up on defense because
Speaker 5: now anything above one percent of GDP can be excluded,
Speaker 5: but Germany's already spending one and a half, so you
Speaker 5: have a half a percentage gap that's released immediately, and
Speaker 5: then any extra defense you want to do on top,
Speaker 5: and we think Germany would potentially target between three to
Speaker 5: three and a half percent of GDP defense spending. If
Speaker 5: you add all of these things up, we're talking about
Speaker 5: a swing in the deficit of somewhere between three to
Speaker 5: three and a half percent. Now, to contextualize that, the
Speaker 5: current German deficit is two and a half So if
Speaker 5: you add that on top, we're somewhere between five and
Speaker 5: a half and six percent fiscal deficit. Now that is
Speaker 5: extremely high.
Speaker 4: It's approaching US levels, and we know how wide the
Speaker 4: US deficit is.
Speaker 2: Oh, we know how the US feels about its deficit
Speaker 2: as well.
Speaker 4: Exactly, and critically, I would say this is not a
Speaker 4: one off in the sense that the COVID support was
Speaker 4: a one off. We are talking about a sustained increase
Speaker 4: in deficits of this order for multiple years, at least
Speaker 4: three four five. But for context, the Infrastructure Fund is
Speaker 4: a ten year fund. The closest proxy I think is
Speaker 4: German reunification. But even if you go back then and
Speaker 4: you look at the numbers, these are actually even bigger wow.
Speaker 4: So if you try and contextualize it, there were two
Speaker 4: big rounds of fiscal easing during the German reunification. The
Speaker 4: first one was nineteen ninety and that was a de
Speaker 4: facto helicopter drop of money into Eastern Germany. That was
Speaker 4: when the Eastern deutsch Mark and the Western dotsche Mark
Speaker 4: were equated one for one. It was effectively a fiscal
Speaker 4: transfer to Eastern Germany. We calculate that to be eight
Speaker 4: percent of GDP. So that was nineteen ninety and then
Speaker 4: in nineteen ninety five you had another fiscal expansion, a
Speaker 4: one off fiscal expansion of roughly another eight percent. Now
Speaker 4: we're talking here six percent deficits, but for many more years.
Speaker 4: So if you add up the numbers, arguably this is
Speaker 4: even bigger than German reunification.
Speaker 1: You put out a note on March four, and it's
Speaker 1: filled with, you know, dramatic language. You say it's hard
Speaker 1: to overestimate the scale of change taking place in global
Speaker 1: economic and geopolitical relations. You say that this is the
Speaker 1: biggest shift in trade relations since the collapse of Bretton Woods.
Speaker 1: And I think it's very interesting that you mentioned, even
Speaker 1: just a few weeks ago, when Germany was having its
Speaker 1: national election. There wasn't much talk about this. What specifically
Speaker 1: from the Trump administration, whether it's on trade or defense,
Speaker 1: has caused such a dramatic about phase.
Speaker 4: So I would say it's been building, it's been building
Speaker 4: for months, it's been building for weeks. But the watershed
Speaker 4: moment was really the Munich Security Conference. And we are
Speaker 4: Dutch back, we're based in Germany. We get the vibe
Speaker 4: so to speak. Yeah, but the political vibes domestically in
Speaker 4: Germany dramatically shifted after the Munich Security Conference, the speech
Speaker 4: that was given by the Vice president, the broader body
Speaker 4: language around that, I'd be relocked in to say that
Speaker 4: was the single thing that caused everything. But most certainly
Speaker 4: it was a trigger for a change in mindset. And
Speaker 4: this change in mindset we identified as soon as the
Speaker 4: election was over in terms of the negotiations beginning. It
Speaker 4: culminated this week with the announcements. Say the announcements, even
Speaker 4: we were expecting something, but even for us it was
Speaker 4: at the very top end of expectations.
Speaker 2: Can you talk about the corporate vibes, maybe our companies
Speaker 2: are management getting excited about extra fiscal stimulus or are
Speaker 2: they still very nervous about both the security situation and
Speaker 2: the potential incoming tariffs.
Speaker 4: So the geopolitical backdrop has been a challenge. Trade uncertainty
Speaker 4: is clearly huge, and we saw it with the ECB
Speaker 4: meeting earlier today. But what I would say is this
Speaker 4: has been present in the back around now for months,
Speaker 4: and you can see in policy uncertainty, in disease in
Speaker 4: Germany and in broader Europe, which have been very high
Speaker 4: for a long time over the last couple of quarters.
Speaker 4: So in a sense, what is really genuinely new over
Speaker 4: the last few weeks is this positive shock, and I
Speaker 4: think what is most interesting is to give you an example,
Speaker 4: we had a large investor round table just last week
Speaker 4: in Germany. This is after the negotiations had begun, and
Speaker 4: around that roundtable we had a large number of real
Speaker 4: money investors domestically based in Germany allocating their money to
Speaker 4: European fixed income. And while everyone expected announcements around defense,
Speaker 4: no one really expected anything big on infrastructure. No one
Speaker 4: expected the reform of the debt break up front. So
Speaker 4: I would say this is just a biggert surprise internationally,
Speaker 4: as it is domestically, at least from the investor fe
Speaker 4: feedback and the corporate feedback I've experienced.
Speaker 1: We've seen this big spike in the euro over the
Speaker 1: last couple of days, but you know, it's still fairly low,
Speaker 1: and it's not even back to where it was in
Speaker 1: the beginning of December. It's actually it's still below pre
Speaker 1: election levels. Could this dramatically change the trajectory over the
Speaker 1: coming months and years of the exchange rate?
Speaker 4: So I think to answer that question, you have to
Speaker 4: look at both sides of the Atlantic. So you have
Speaker 4: to question what is going on with the US administration,
Speaker 4: what's happening in Europe. A very good starting point is
Speaker 4: to think about relative neutral rates or what's known as
Speaker 4: relative are star now in kind of high frequency, short
Speaker 4: term On a short term basis, of course, these things
Speaker 4: are very hard to estimate, but if you take a
Speaker 4: step back, relative neutral has been a pretty good guide
Speaker 4: in the broader dollar trends over the last few decades. Now,
Speaker 4: what's interesting is, and I use this re unification analogy,
Speaker 4: if you go back to them, that period saw the
Speaker 4: relative our star between Europe and the US go from
Speaker 4: around minus two hundred during the mid nineteen eighties to
Speaker 4: zero in the early nineteen nineties. This was a period
Speaker 4: where the European neutral rate was rising. As Eastern Germany
Speaker 4: was being unified with Western Germany, you had the big
Speaker 4: increase in fiscal expenditure. So to answer your question, if
Speaker 4: this big infrastructure shift defense shift goes ahead, if it's
Speaker 4: able to push trend growth higher, productivity higher, by extension
Speaker 4: ECB rates higher, I think it certainly has potential to
Speaker 4: be materially positive for the Europe. Now how positive also
Speaker 4: depends on what's going on on the other side of
Speaker 4: the Atlantic and what are the policies pursued there. So
Speaker 4: maybe that's something to discuss in our conversation. But I
Speaker 4: would say how much trend growth is being affected and
Speaker 4: the ECBs is at the core of how much it's
Speaker 4: going to affect the Europe.
Speaker 2: Okay, I'm going to take debate and ask the really
Speaker 2: simple question, which is what happens to a country's currency
Speaker 2: when they enact tariffs so the US, and the reason
Speaker 2: I ask it is because people seem to have different opinions.
Speaker 2: On the one hand, some people think it slows down
Speaker 2: growth and therefore currency will come down. Other people think
Speaker 2: maybe it'll speed it up. Currency goes up real rates
Speaker 2: go up, et cetera. Where do you sit in that debate?
Speaker 4: So it's it sounds like a very simple question, but
Speaker 4: I think as we've seen, it ends up being an
Speaker 4: extremely complicated one. I would say it depends on two things.
Speaker 4: How the tariff's being enacted and to whom are the
Speaker 4: tariffs being enacted. Now, if you're talking about a situation
Speaker 4: of bilateral tariffs, so for example, under the first Trump administration,
Speaker 4: where it's just against China, the US clearly has an advantage.
Speaker 4: It's running a trade deficits, so extension, if it applies
Speaker 4: a tariff, that tariff is going to be more damaging
Speaker 4: to the country it's running a deficit with, because it's
Speaker 4: just a larger portion of that good of that country's goods. Now,
Speaker 4: I think when we're thinking about Trump policy under the
Speaker 4: second administration, we're applying the same logic. The US has
Speaker 4: a trade deficit with the rest of the world. But
Speaker 4: there are two key differences, and this has also taken
Speaker 4: me by surprise compared to the start of the year.
Speaker 4: The first one is how tariff policy is being applied.
Speaker 4: And I think the danger it's presenting to the US
Speaker 4: economy is it's being done in a very haphazard, inconsistent way,
Speaker 4: where the and businesses are struggling to understand both the
Speaker 4: path and the endpoint. And I mentioned that because if
Speaker 4: you look at the key transmission channel of tariffs into
Speaker 4: the economy, it's uncertainty. That was certainly the case during
Speaker 4: the first administration. Certainly the case now and the pattern
Speaker 4: we're seeing ever since January is US uncertainty is now
Speaker 4: going up faster than it is in the rest of
Speaker 4: the world. Now, partly that's because the rest of the
Speaker 4: world's already been worried about tarifs for a long time,
Speaker 4: but I think it's also the way the policy is
Speaker 4: being executed that there is very little clarity and there
Speaker 4: is a constant back and forth. I'd say that's the first.
Speaker 1: Yeah, I'm just gonna say, even since we've been talking
Speaker 1: on this, Trump likely to defer tariffs on goods and
Speaker 1: services under us MCA. I guess by a month. It's unclear.
Speaker 1: And this is from Howard Lutnex speaking on CNBC. So
Speaker 1: there are changes of foot even to the sort of
Speaker 1: North American trade relationship. It's changing by the day. The
Speaker 1: exact nature of this anyway, keep going.
Speaker 4: I think that's exactly it. It's the constant back and
Speaker 4: forth which at the end of the day makes it
Speaker 4: extremely difficult to plan. And remember, the starting point of
Speaker 4: expectation was a very positive one that this would be
Speaker 4: a very business friendly administration. So I'd say that's one part.
Speaker 4: The second part relates to who you are tariffing, and
Speaker 4: if you are tariffing a country where the bilateral trade
Speaker 4: relationship is extremely strong, is less imbalanced, is more codependent,
Speaker 4: and here I'm referencing Mexico, but even more importantly Canada.
Speaker 4: If you're tariffing such a country, the economic impact is
Speaker 4: going to be much bigger than if you're applying the
Speaker 4: same thing to Europe or China. Effectively, I think of
Speaker 4: the economy in the US as part of a broader
Speaker 4: North American economy. You have integrated supply chains that have
Speaker 4: been building for decades, and therefore a tariff policy which
Speaker 4: essentially unwinds that and unwinds an international agreement which you've signed,
Speaker 4: I think is much more damaging than if we were
Speaker 4: thinking about the same for Europe and China. So it's
Speaker 4: taken me by surprise that the whole policy started with
Speaker 4: Canada and is taking place in such a haphazard way,
Speaker 4: and I think that's at the core of why the
Speaker 4: dollar is not strengthened.
Speaker 1: So one of the things that I mentioned in the
Speaker 1: beginning is that in order to get to a point
Speaker 1: where Europe really pivots or reforms or in some way
Speaker 1: or it does something big, you really need two things
Speaker 1: to happen, which is, you need the recognition that it
Speaker 1: should be done, and then you need the political stars
Speaker 1: to align. And that's very trick within the Eurozone for
Speaker 1: various reasons, you know, setting aside German physical expansion, capital markets,
Speaker 1: deepening capital markets, integration, other things like that, progress on
Speaker 1: areas like that has been really slow, etc.
Speaker 2: You know.
Speaker 1: One of the things that we've seen, very interestingly enough,
Speaker 1: is that Donald Trump breathed new life into the Liberal
Speaker 1: Party in Canada. They were basically left for dead about
Speaker 1: a month ago, the party of Trudeau, who's not in
Speaker 1: the running to be the next prime minister. And now
Speaker 1: suddenly their poles are surging. Like when you look at
Speaker 1: the European political landscape, do the sort of center right
Speaker 1: or center liberal parties do they seem to have new
Speaker 1: signs of life in this environment.
Speaker 4: I think it's too early to tell because a lot
Speaker 4: of the major interventions in Europe have only happened over
Speaker 4: the last few weeks in reference to the Munich Security
Speaker 4: Conference in particular. But what I would certainly agree with
Speaker 4: you is that the threatened withdrawal of the security guarantee
Speaker 4: is providing, if I could call it, a guiding star
Speaker 4: to Europe in terms of something everyone can coordinate around with,
Speaker 4: which is defense. And the one point to make is,
Speaker 4: of course, when you start Europe as a very low
Speaker 4: industrial defense base, it will need to build that out.
Speaker 4: But that's precisely the reason why that could serve as
Speaker 4: a new growth engine. And we have to think about
Speaker 4: broader spillovers of defense. For example, just over the last
Speaker 4: two days we've seen negotiations between Italy and Turkey to
Speaker 4: develop drone technology. We're seeing a potential shift away from
Speaker 4: Starlink to European satellite company for Ukraine and all these things.
Speaker 4: The initial trigger might be a military reason, but there's
Speaker 4: broader technological spillovers and growth spillovers. And the last point
Speaker 4: is we have to remember the starting point of Germany
Speaker 4: is solo. Germany has not grown for the last two
Speaker 4: or three years. Germany has engineering expertise, has access capacity.
Speaker 4: The economy is actually fairly well placed to benefit from
Speaker 4: using defense as a new industrial strategy, so to speak.
Speaker 4: Germany is a third of Europe, so if Germany's moving,
Speaker 4: even if no one else is moving, it can be
Speaker 4: quite material, especially given that Germany has been the drag
Speaker 4: in the first place.
Speaker 1: And Tracy, you know something that George mentioned defense as
Speaker 1: a potential true engine of growth with spillovers. I mean,
Speaker 1: this is the story, right that we've been talking about
Speaker 1: in American industrial policy history. It really is always defense,
Speaker 1: and then defense gave us eventually the iPhone. But this
Speaker 1: is really always seems to be how it happens. In
Speaker 1: anxiety about existential security, I.
Speaker 2: Look forward to the German iPhone. Okay, I'm going to
Speaker 2: ask a sort of bigger question, just going back to
Speaker 2: the scope and the significance of all of this, I
Speaker 2: have to ask what happens to US treasuries here and
Speaker 2: the US dollar in the sense that you know, I
Speaker 2: mentioned earlier that one way of looking at this is
Speaker 2: that Europe is no longer funding the US fiscal expansion.
Speaker 2: Instead they're funding their own. Germany has in fact been
Speaker 2: a really important buyer of US treasuries in recent years,
Speaker 2: and Europe's also a big buyer of US corporate bonds,
Speaker 2: and you know, US treasury purchases kind of go hand
Speaker 2: in hand with the dollars special status in the financial
Speaker 2: system as the reserve currency. Does this change that equation? Perhaps?
Speaker 2: Is the dollar at risk of losing its special status?
Speaker 4: Well? I think you raise a very important question, and
Speaker 4: there's different ways of looking at it, but my starting
Speaker 4: point would be that you're absolutely correct in Europe being
Speaker 4: the marginal buyer of treasuries. There's been a lot of
Speaker 4: discussion recently around the Mara Lago Accord and the role
Speaker 4: of reserve managers central banks of not being buyers of
Speaker 4: debt for the last ten years. In fact, the share
Speaker 4: of reserves has been declining in terms of global GDP,
Speaker 4: So the marginal buyer has been the private sector. It's
Speaker 4: been primarily Europeans, potentially Japanese as you alluded to. Does
Speaker 4: that create a problem for the US, I would say
Speaker 4: depends on what's going on with the US policy stance.
Speaker 4: If the idea is the US fiscal stance is shrinking
Speaker 4: at the same time because the US is consolidating, it's
Speaker 4: going to be okay if the US is sticking with
Speaker 4: these deficits of six seven percent, and I think critically
Speaker 4: when we're thinking about the funding of the so called
Speaker 4: twin deficit, it's not just about the magnitude, but it's
Speaker 4: about the context. Is the US outperforming in terms of growth?
Speaker 4: Is the US respecting property rights so to speak? Is
Speaker 4: the dollar a high yielder? If Europe is improving. But
Speaker 4: at the same time, all of these properties are highlighted
Speaker 4: at being undermined. For example, tariff policy slowing down US growth.
Speaker 4: It's causing the Fed to cut rates. The dollars no
Speaker 4: longer a high yielder. The Trump administration is making references
Speaker 4: to Greenland at risk of slightly oversimplifying that is a
Speaker 4: property ownership reference, which at the margin is eroding some
Speaker 4: of the attractiveness of the dollar as a safe haven.
Speaker 4: If all of these are happening at the same time,
Speaker 4: I would say it does put into question the dollar
Speaker 4: safe haven role at the core of it. If I
Speaker 4: look at the US, the US needs to pursue sound
Speaker 4: economic policy, and then it will be okay. If that
Speaker 4: doesn't happen, the threshold for the twin deficits to matter goes.
Speaker 2: Down all right, George, Sarahvelos from Deutsche Bank, thank you
Speaker 2: so much for coming on all lots. It was good
Speaker 2: to catch up with you after many, many years. Thanks
Speaker 2: so much.
Speaker 1: Yeah, that was fantastic, George, truly the perfect game.
Speaker 4: Thank you. It was a great pleasure. Joe.
Speaker 2: I'm so glad we did that episode because, as we
Speaker 2: pointed out in the beginning, there is a lot going on,
Speaker 2: certainly here in the US. The focus tends to be
Speaker 2: on what the Trump administration is doing, and there's been
Speaker 2: less focused certainly on the impacts in other countries. So
Speaker 2: it's good to catch up on all of that. And
Speaker 2: I think probably the most striking thing in all of
Speaker 2: this is the possibility of Europe really coming together and integrating,
Speaker 2: because if you think about the struggles the Eurozone had
Speaker 2: in the past, it was mostly around integration and political discord.
Speaker 2: Even up until a month or two ago, as George
Speaker 2: was saying, we had some political difficulties in Germany and
Speaker 2: the coalition government and things like that. It is very
Speaker 2: striking to see people coming together just a month.
Speaker 1: Yeah, you know, there is a sense that I played
Speaker 1: Devil's advocate for a second, that what is going on
Speaker 1: right now sounds very similar to what Jim Bianco told
Speaker 1: us a couple of weeks ago about what a sort
Speaker 1: of defactoed mar Lago accord would look like, which is
Speaker 1: Europe picking up a much larger share of the defense budget,
Speaker 1: the euro arising, the dollar weakening, et cetera. I mean,
Speaker 1: that's what Trump browbeaded European leader is about in the
Speaker 1: first administration that they weren't living up to their NATO
Speaker 1: obligations and so forth.
Speaker 2: You know.
Speaker 1: So there's a sense that part of what we're seeing
Speaker 1: is something that Trump has wanted to see for a
Speaker 1: long time. But it's really striking to me the two
Speaker 1: things sort of like this scale of whether it's in
Speaker 1: North America or Europe, leaders not feeling that the US
Speaker 1: is a reliable signatory to various agreements. And then also
Speaker 1: the fact that from a macro perspective, and I'd include
Speaker 1: China here too, we are seeing fiscal expansion in much
Speaker 1: of the world at this same time the US is
Speaker 1: kind of going into austerity mode at least visibly, like
Speaker 1: throughout Doge and so forth. And so that is a
Speaker 1: very that's a notable macro shift.
Speaker 2: Well, you say that this is what Trump wants, but
Speaker 2: Trump also wants the dollar to maintain its special status,
Speaker 2: right And in this scenario, again going to the fiscal
Speaker 2: expansion idea, is Germany going to have enough money to
Speaker 2: finance both the US and itself if it's pouring you know,
Speaker 2: billions of euros into its defense sector and things like that.
Speaker 2: I doubt it. I think that balance is certainly shifting.
Speaker 4: Now.
Speaker 2: That doesn't mean that there aren't going to be any
Speaker 2: buyers for US treasures. We talked with Jim about the
Speaker 2: idea that well, you know, the US can always make
Speaker 2: its banks, for instance, buy more US bonds, so there's
Speaker 2: that possibility. But I think this is something worth thinking about.
Speaker 1: Yeah, no, totally. I mean, look, I think that what
Speaker 1: I would say is we're in uncharted territory. And I
Speaker 1: just think about like all of the business leaders that
Speaker 1: I've heard over the years, it's like, oh, we just
Speaker 1: want certainty. We you know, we're okay with regulation, we
Speaker 1: just and it's usually something that they say during democratic administrations,
Speaker 1: like we just want certainty. We just want to know
Speaker 1: what the rules are going to be and so forth,
Speaker 1: and businesses love certain all this stuff. And then really
Speaker 1: in the last few weeks. It feels like we've gotten
Speaker 1: the mother of all sort of uncertainty shocks. As a
Speaker 1: result of all this, we.
Speaker 2: Got to figure out an uncertainty trade that's not just
Speaker 2: by the vics. It should be a good one.
Speaker 1: Yeah, yeah, but goal's done really well.
Speaker 2: Yeah, that's true. All right. Shall we leave it there.
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1: And I'm Joe Wisenthal. You can follow me at the Stalwart.
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Speaker 4: In