1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,040 Speaker 2: Terminal and the Bloomberg Business app. Let's bring it back 10 00:00:37,080 --> 00:00:39,199 Speaker 2: to the United States and turn to the US consumer 11 00:00:39,280 --> 00:00:42,120 Speaker 2: Retail sales due at a thirty Eastern time. The report, 12 00:00:42,159 --> 00:00:45,600 Speaker 2: coming after a disappointing new mitched consumer sentiment survey, dropped 13 00:00:45,640 --> 00:00:47,960 Speaker 2: going into the weekend. Airlines are leading the way as 14 00:00:48,000 --> 00:00:51,280 Speaker 2: corporate start a lower guidance, Delta American and Southwest slashing 15 00:00:51,320 --> 00:00:54,680 Speaker 2: their outlooks citing weaker than expected demand. Stephen Trent of 16 00:00:54,720 --> 00:00:57,440 Speaker 2: City still op domestic common sector, writing the main risk 17 00:00:57,480 --> 00:00:59,560 Speaker 2: seems to be top down, when and how do we 18 00:00:59,560 --> 00:01:02,120 Speaker 2: get cloud see on the government's plans on tariff, trade 19 00:01:02,400 --> 00:01:05,240 Speaker 2: and foreign relations. Steven joined US now for more. Stephen Goomring, 20 00:01:05,280 --> 00:01:07,080 Speaker 2: good to see you same, thank you for having me. 21 00:01:07,160 --> 00:01:08,840 Speaker 2: I think we've got to start with the downgrades to 22 00:01:08,880 --> 00:01:10,560 Speaker 2: the outlook for the first quarter that came from some 23 00:01:10,600 --> 00:01:12,319 Speaker 2: of the airlines, and it was kicked off by Delta 24 00:01:12,480 --> 00:01:14,760 Speaker 2: just last week at Bastin used the tea word, the 25 00:01:14,760 --> 00:01:18,479 Speaker 2: tea words a scary word on this program. Transitory transitory. 26 00:01:18,600 --> 00:01:20,200 Speaker 2: Just how transitory? Might this be? 27 00:01:21,160 --> 00:01:23,720 Speaker 3: Great question, and I think it's too early to say. 28 00:01:23,880 --> 00:01:26,840 Speaker 3: So you did have a lot of noise in one queue, certainly, 29 00:01:26,840 --> 00:01:31,560 Speaker 3: as you guys said, the airlines really disliked this uncertainty. 30 00:01:31,920 --> 00:01:34,520 Speaker 3: So when are we going to get clarity on tariffs, 31 00:01:34,720 --> 00:01:37,440 Speaker 3: on dodge cuts and what does all of this mean 32 00:01:37,520 --> 00:01:40,880 Speaker 3: for demand? I think that's too early to say during 33 00:01:40,920 --> 00:01:43,679 Speaker 3: the quarter at least so far. As well, you did, 34 00:01:43,760 --> 00:01:48,600 Speaker 3: unfortunately have several high profile aviation accidents, all but one 35 00:01:48,640 --> 00:01:52,320 Speaker 3: of them were fatal. That is also something that you 36 00:01:52,400 --> 00:01:56,360 Speaker 3: can ignore in these short term moves. But I think, overall, 37 00:01:57,120 --> 00:01:59,640 Speaker 3: what confidence do we have six months? So now? I 38 00:01:59,680 --> 00:02:04,120 Speaker 3: think it way too early to tell, and the underlying 39 00:02:04,200 --> 00:02:05,720 Speaker 3: fundamentals still look positive. 40 00:02:05,840 --> 00:02:08,600 Speaker 4: So let's go check ourselves, because before we get carried 41 00:02:08,600 --> 00:02:10,680 Speaker 4: away with too much negativity, not that I would ever 42 00:02:10,680 --> 00:02:13,160 Speaker 4: be accused of that. I am wondering if it really 43 00:02:13,240 --> 00:02:15,880 Speaker 4: was all that bad what some of these airline executives 44 00:02:15,919 --> 00:02:16,519 Speaker 4: are projecting. 45 00:02:17,800 --> 00:02:21,160 Speaker 3: Yeah, so look, I think if you look to your point, 46 00:02:21,720 --> 00:02:24,440 Speaker 3: nobody so far has changed their full air guide. I 47 00:02:24,440 --> 00:02:27,920 Speaker 3: think they're also in a wait and see mode to 48 00:02:28,000 --> 00:02:32,000 Speaker 3: some extent where things go. Are we going to wake 49 00:02:32,080 --> 00:02:34,680 Speaker 3: up a month from now and we'll have a little 50 00:02:34,720 --> 00:02:40,239 Speaker 3: bit more clarity after this April second bogie that mister 51 00:02:40,360 --> 00:02:42,799 Speaker 3: Wessemmer mentioned. Are we going to wake up and have 52 00:02:42,919 --> 00:02:45,799 Speaker 3: some wild headline about Greenland and nobody wants to travel? 53 00:02:45,840 --> 00:02:48,600 Speaker 3: I think it's too early to say, and it's a 54 00:02:48,600 --> 00:02:52,040 Speaker 3: little too hard to put meth on that today. But 55 00:02:52,160 --> 00:02:55,720 Speaker 3: the underlying fundamentals still look positive, and I think the 56 00:02:55,720 --> 00:02:58,200 Speaker 3: airlines telegraph that by not making any cut to the 57 00:02:58,200 --> 00:02:58,880 Speaker 3: full year guides. 58 00:02:59,040 --> 00:03:00,600 Speaker 4: There was a real question about how much of this 59 00:03:00,720 --> 00:03:03,640 Speaker 4: was driven by consumer discretionary spending, people who might be 60 00:03:03,639 --> 00:03:07,320 Speaker 4: worried about losing their job, versus companies really pulling back 61 00:03:07,639 --> 00:03:10,440 Speaker 4: saying hunker down, study, you've got nothing to tell any 62 00:03:10,480 --> 00:03:11,040 Speaker 4: of the clients. 63 00:03:11,919 --> 00:03:16,120 Speaker 3: Yeah. Look, I think those are all potentially legitimate drivers 64 00:03:16,280 --> 00:03:19,240 Speaker 3: I would add to that what's happened on the government level, 65 00:03:19,240 --> 00:03:23,240 Speaker 3: which is not the largest piece of travel, but with 66 00:03:23,480 --> 00:03:27,520 Speaker 3: doors kicking in less government employment, I would imagine they're 67 00:03:27,560 --> 00:03:30,920 Speaker 3: also being stricter about who's allowed to go on business 68 00:03:30,919 --> 00:03:34,320 Speaker 3: trips from these various agencies. So I think all of 69 00:03:34,320 --> 00:03:35,280 Speaker 3: that stuff is relevant. 70 00:03:35,440 --> 00:03:37,800 Speaker 1: They certainly are, I hear that anecdotally. But also we 71 00:03:37,840 --> 00:03:41,040 Speaker 1: saw it with United, who is most vulnerable to that 72 00:03:41,120 --> 00:03:43,280 Speaker 1: those government contracts, those government flights. 73 00:03:44,240 --> 00:03:50,280 Speaker 3: Yeah, certainly United had not a massive number, but American 74 00:03:50,480 --> 00:03:54,760 Speaker 3: United sort of talked about having a smallish percent of 75 00:03:54,840 --> 00:03:58,760 Speaker 3: revenue associated with US government travels. So I don't remember 76 00:03:58,800 --> 00:04:01,400 Speaker 3: exactly at the top of my head, but very low 77 00:04:01,480 --> 00:04:04,000 Speaker 3: single digits I think in in the highest case. 78 00:04:03,880 --> 00:04:05,280 Speaker 2: So not enough to pull roots. 79 00:04:06,360 --> 00:04:11,160 Speaker 3: No, no, But you also have to also, uh consider 80 00:04:11,760 --> 00:04:15,640 Speaker 3: some of these markets uh where the government serves, so Washington, 81 00:04:15,720 --> 00:04:18,120 Speaker 3: Reagan of course, where we just had one of those 82 00:04:18,160 --> 00:04:22,239 Speaker 3: awful accidents. Uh. You know, the FAA has had actually 83 00:04:22,640 --> 00:04:25,840 Speaker 3: added a little bit of flights uh into that carrictor recently. 84 00:04:25,960 --> 00:04:29,200 Speaker 3: So you have a difference in terms of how much 85 00:04:29,279 --> 00:04:33,360 Speaker 3: flow you get from some of these uh government employees, 86 00:04:33,800 --> 00:04:37,599 Speaker 3: and uh, what kind of economics you get on them. So, uh, 87 00:04:37,640 --> 00:04:40,880 Speaker 3: they were small numbers, but I think the question is 88 00:04:42,080 --> 00:04:44,640 Speaker 3: at when the dust clears in all of this, how 89 00:04:44,640 --> 00:04:46,680 Speaker 3: big are they gonna be? We we don't really know yet. 90 00:04:46,839 --> 00:04:49,160 Speaker 1: You also mentioned fuel prices in your note. A lot 91 00:04:49,160 --> 00:04:52,280 Speaker 1: of banks are now cutting their forecast to BRND. How 92 00:04:52,360 --> 00:04:54,720 Speaker 1: much is that going to be very helpful right now 93 00:04:54,760 --> 00:04:55,520 Speaker 1: for the airlines? 94 00:04:56,480 --> 00:04:59,640 Speaker 3: Yeah, so I think, uh, lower fuel prices are helpful, 95 00:04:59,680 --> 00:05:01,960 Speaker 3: and fuel sort of a funny thing. You know. Fuel 96 00:05:01,960 --> 00:05:05,360 Speaker 3: prices that are too high are bad news. Fuel prices 97 00:05:05,400 --> 00:05:07,840 Speaker 3: that are too low also bad news. You know. The 98 00:05:07,920 --> 00:05:12,440 Speaker 3: latter signals a recession, for example. But where we are 99 00:05:12,520 --> 00:05:16,120 Speaker 3: today with you know, WTI and kind of the high 100 00:05:16,200 --> 00:05:21,240 Speaker 3: sixties or thereabouts, it's at a level where it's not 101 00:05:21,320 --> 00:05:25,680 Speaker 3: really doing any damage or it's not dangerously cheap per se. 102 00:05:26,480 --> 00:05:29,960 Speaker 3: And it did come down from levels where we're going 103 00:05:30,000 --> 00:05:32,479 Speaker 3: to see lower unit revenue at least short term. So 104 00:05:32,800 --> 00:05:35,560 Speaker 3: it's actually good to have a little bit of tailwind 105 00:05:35,600 --> 00:05:38,760 Speaker 3: from fuel today, you know. But I guess if fuel 106 00:05:38,760 --> 00:05:42,279 Speaker 3: start and crude started to fall wildly, that wouldn't be 107 00:05:42,320 --> 00:05:43,680 Speaker 3: the best signal in the world. 108 00:05:43,920 --> 00:05:45,400 Speaker 2: So I think a couple of things we're still talking 109 00:05:45,400 --> 00:05:47,960 Speaker 2: about one. Did the weakness in February spill over to March? 110 00:05:48,440 --> 00:05:51,880 Speaker 2: And within the weakness is the premium segment. The international 111 00:05:51,920 --> 00:05:53,080 Speaker 2: long call is still holding up. 112 00:05:54,120 --> 00:05:57,320 Speaker 3: Yeah, so what we see so far international long hall 113 00:05:57,560 --> 00:06:01,919 Speaker 3: is still strong. You have a dearth of new equipment 114 00:06:02,000 --> 00:06:04,880 Speaker 3: per capita in that space. On the wide body side, 115 00:06:04,920 --> 00:06:07,640 Speaker 3: you really only have three excuse me now with the 116 00:06:07,640 --> 00:06:10,359 Speaker 3: alask have four US carolines and how many any wide 117 00:06:10,360 --> 00:06:14,679 Speaker 3: bodies really? And loyalty and co branded card the same 118 00:06:14,800 --> 00:06:17,520 Speaker 3: domestic spin the main place. So far that's been a 119 00:06:17,560 --> 00:06:22,480 Speaker 3: little bit soft. And you know, the indications so far 120 00:06:22,600 --> 00:06:26,320 Speaker 3: as are is that that should at least continue somewhat 121 00:06:26,360 --> 00:06:28,120 Speaker 3: in the March. But you know, truly to say, what's 122 00:06:28,120 --> 00:06:29,040 Speaker 3: gonna happen on the month. 123 00:06:29,080 --> 00:06:31,280 Speaker 2: And let's finish on domestic what happens when you start 124 00:06:31,400 --> 00:06:33,400 Speaker 2: changing for bags? What happens? 125 00:06:34,480 --> 00:06:35,640 Speaker 3: Yeah? It depends who you are. 126 00:06:36,279 --> 00:06:37,440 Speaker 2: What if you're Southwest? 127 00:06:40,040 --> 00:06:43,920 Speaker 3: Yeah, well, so I think on one level, if you're 128 00:06:43,960 --> 00:06:48,720 Speaker 3: a carrier that's for decades been dealing with a passenger 129 00:06:48,760 --> 00:06:53,760 Speaker 3: flow that is elastic in terms of demand, it's a 130 00:06:53,880 --> 00:06:56,520 Speaker 3: give and take, No, so I think what you're gonna 131 00:06:56,520 --> 00:07:00,680 Speaker 3: pick up and check bags. You're also going to run 132 00:07:00,760 --> 00:07:04,640 Speaker 3: some risk of sending some passion passenger flow away to 133 00:07:04,680 --> 00:07:09,440 Speaker 3: somebody else, and that also makes you arguably less distinct 134 00:07:10,360 --> 00:07:14,280 Speaker 3: against basic economy of one of the big three. You're 135 00:07:14,280 --> 00:07:17,120 Speaker 3: now offering something similar to them, and they have a 136 00:07:17,160 --> 00:07:18,560 Speaker 3: massive network versus you. 137 00:07:19,280 --> 00:07:22,160 Speaker 2: If yourself question why did they do it? What's the 138 00:07:22,200 --> 00:07:23,040 Speaker 2: logic behind it? 139 00:07:24,160 --> 00:07:28,240 Speaker 3: So I think for the discount airlines there has to 140 00:07:28,240 --> 00:07:32,400 Speaker 3: be some kind of change. Strategically speaking, I think these 141 00:07:32,760 --> 00:07:39,440 Speaker 3: post pandemic structural challenges, the way consumers purchase tickets and 142 00:07:39,560 --> 00:07:42,800 Speaker 3: decide to travel, all of that's changed. We no longer 143 00:07:42,880 --> 00:07:48,560 Speaker 3: have enough air traffic control capacity per capita to allow 144 00:07:48,640 --> 00:07:52,080 Speaker 3: these discount carriers to just lay a bunch of capacity 145 00:07:52,360 --> 00:07:55,440 Speaker 3: and maintain really high blockout ugalization. They need to do 146 00:07:55,520 --> 00:07:57,960 Speaker 3: something on the unit revenue side. So is this going 147 00:07:58,040 --> 00:07:59,920 Speaker 3: to be the fix? I don't know. 148 00:08:00,240 --> 00:08:02,240 Speaker 2: Just quickly topic right now for the sector? 149 00:08:02,400 --> 00:08:06,440 Speaker 3: What is it of the US airlines? United's my favorite one, 150 00:08:06,520 --> 00:08:08,600 Speaker 3: and then American Airlines in DOTTA. 151 00:08:08,760 --> 00:08:10,720 Speaker 2: All three then all three of the big players. 152 00:08:10,880 --> 00:08:14,280 Speaker 3: We're fans of the network guys. They have everything they 153 00:08:14,320 --> 00:08:18,720 Speaker 3: need to win. We just need the consumer to have 154 00:08:18,840 --> 00:08:20,240 Speaker 3: a little bit more calmera water. 155 00:08:20,680 --> 00:08:22,720 Speaker 2: We'll get another read on the US consumer at a 156 00:08:22,840 --> 00:08:25,080 Speaker 2: thirty Eastern Times. Stephen Trent, good to see you, as always, 157 00:08:25,080 --> 00:08:37,160 Speaker 2: Stephen Trent there of City, Lofi Carui of GOLDM and 158 00:08:37,240 --> 00:08:40,280 Speaker 2: Sachs looking for wider credit spreads. Writing since the first 159 00:08:40,360 --> 00:08:44,000 Speaker 2: tariff headlines broke, our message has been simple, ad hedges, 160 00:08:44,240 --> 00:08:47,480 Speaker 2: embrace for some rebuilding risk. Premia Lafia joins us now 161 00:08:47,520 --> 00:08:48,920 Speaker 2: for more, Lofi, good morning, it's good to see you. 162 00:08:49,000 --> 00:08:49,240 Speaker 3: Warning. 163 00:08:49,800 --> 00:08:51,440 Speaker 2: I want to go back several months. I want to 164 00:08:51,440 --> 00:08:52,760 Speaker 2: go back to the note you put out the end 165 00:08:52,800 --> 00:08:55,480 Speaker 2: of twenty four going into twenty five, where you highlighted 166 00:08:55,520 --> 00:08:59,280 Speaker 2: just how severe the valuation constraints were coming up into 167 00:08:59,280 --> 00:09:00,719 Speaker 2: the new year. How much of a role do you 168 00:09:00,720 --> 00:09:02,600 Speaker 2: think that's played in some of the shay count we've 169 00:09:02,600 --> 00:09:03,240 Speaker 2: seen so far. 170 00:09:03,760 --> 00:09:06,560 Speaker 5: A little bit, obviously, when valuations are expensive, you don't 171 00:09:06,600 --> 00:09:09,680 Speaker 5: have a lot of room to stomach these big, big shocks. 172 00:09:10,120 --> 00:09:12,400 Speaker 5: But back then, actually our message was that yes, the 173 00:09:12,400 --> 00:09:16,640 Speaker 5: market is expensive, ad hedges, add downside protection and then 174 00:09:16,720 --> 00:09:19,680 Speaker 5: wait for any signs that things that are shifting, either 175 00:09:19,760 --> 00:09:22,720 Speaker 5: fundamentally or from a technical standpoint. What we've learned the 176 00:09:22,760 --> 00:09:24,880 Speaker 5: last three to four weeks is that things are actually 177 00:09:24,960 --> 00:09:28,280 Speaker 5: shifting fundamentally, but the trade off between growth and inflation 178 00:09:28,840 --> 00:09:31,080 Speaker 5: is in our of you at least heading into a 179 00:09:31,120 --> 00:09:33,440 Speaker 5: direction that is unfriendly to risk assets, and so you 180 00:09:33,520 --> 00:09:35,800 Speaker 5: have to realign yourself with that and you have to 181 00:09:35,800 --> 00:09:36,960 Speaker 5: push spreads a little wider. 182 00:09:37,000 --> 00:09:39,600 Speaker 4: Things are changing fundamentally when it comes to sentiment, when 183 00:09:39,600 --> 00:09:41,320 Speaker 4: it comes to maybe to demand that we're hearing from 184 00:09:41,320 --> 00:09:43,719 Speaker 4: airlines as we were just talking about. Has it really 185 00:09:43,760 --> 00:09:46,560 Speaker 4: shifted though, with the credit worthiness of these companies that 186 00:09:46,800 --> 00:09:49,720 Speaker 4: have walked in borrowing costs for a long time and 187 00:09:49,760 --> 00:09:52,199 Speaker 4: still seem to have healthier balances than they have historically. 188 00:09:52,760 --> 00:09:54,000 Speaker 2: It depends where you look. 189 00:09:54,640 --> 00:09:58,560 Speaker 5: If you're talking high quality, ig rated companies, probably not. 190 00:09:58,800 --> 00:10:00,640 Speaker 5: I mean, you know, if you implement terrorists at the 191 00:10:00,679 --> 00:10:02,120 Speaker 5: end of the day, it's probably worth a couple of 192 00:10:02,200 --> 00:10:06,760 Speaker 5: points of declining of declines and earnings that will shift 193 00:10:06,760 --> 00:10:08,800 Speaker 5: your credit metrics a little bit, but not too much. 194 00:10:09,120 --> 00:10:11,520 Speaker 5: Where this will make a difference, in my view, is 195 00:10:11,600 --> 00:10:13,520 Speaker 5: in the very low end of the high end market, 196 00:10:13,880 --> 00:10:16,959 Speaker 5: where we ended the year with tight spreads in hopes 197 00:10:16,960 --> 00:10:20,280 Speaker 5: that actually the economics of refinancing for some of these 198 00:10:20,280 --> 00:10:24,199 Speaker 5: over leveraged capital structures have gotten better. Now, I think 199 00:10:24,240 --> 00:10:27,319 Speaker 5: what you'll see is spreads moving wider and that economics 200 00:10:27,320 --> 00:10:29,760 Speaker 5: of refinancing getting a little bit more challenging. 201 00:10:29,800 --> 00:10:30,520 Speaker 2: Again, we just. 202 00:10:30,480 --> 00:10:33,800 Speaker 4: Saw a week of the biggest widening and credit spreads 203 00:10:33,840 --> 00:10:37,040 Speaker 4: going back to last summer's volatility, and I just wonder, 204 00:10:37,120 --> 00:10:39,000 Speaker 4: is this a repricing of risk to your point about 205 00:10:39,080 --> 00:10:41,959 Speaker 4: valuation late last year, or is this the start of 206 00:10:42,000 --> 00:10:45,720 Speaker 4: something more significant where people shift maybe to places like 207 00:10:45,760 --> 00:10:48,880 Speaker 4: say Europe and European credit over the United States. 208 00:10:49,440 --> 00:10:52,320 Speaker 5: This feels a little different to me relative to late 209 00:10:52,400 --> 00:10:55,480 Speaker 5: July early August, where we were actually pounding the table 210 00:10:55,480 --> 00:10:56,440 Speaker 5: to buy the dip back. 211 00:10:56,480 --> 00:10:56,640 Speaker 4: Then. 212 00:10:56,800 --> 00:10:59,080 Speaker 5: This feels a little different because you need time to 213 00:10:59,200 --> 00:11:02,640 Speaker 5: process what is effectively a meaningful dose of uncertainty that's 214 00:11:02,679 --> 00:11:05,959 Speaker 5: been injected in the economy. The starting level for spreads 215 00:11:06,040 --> 00:11:07,920 Speaker 5: is also very tight, and so it's not like you 216 00:11:07,960 --> 00:11:11,080 Speaker 5: were being paid actually for this type of shocks. Europe 217 00:11:11,080 --> 00:11:15,199 Speaker 5: has already a performed Actually, Europe has had a phenomenal 218 00:11:15,280 --> 00:11:18,240 Speaker 5: start to the year, both in credit and inequities. I 219 00:11:18,240 --> 00:11:22,160 Speaker 5: guess I would describe European credit and as basically being 220 00:11:22,160 --> 00:11:24,680 Speaker 5: in the same situation as US credit, you know, three 221 00:11:24,720 --> 00:11:28,240 Speaker 5: months ago, back to that valuation conundrums. So I think 222 00:11:28,240 --> 00:11:31,120 Speaker 5: it's going to be very hard for Europe to continue 223 00:11:31,160 --> 00:11:35,000 Speaker 5: to tighten in absolute terms. In relative terms, I think 224 00:11:35,000 --> 00:11:36,280 Speaker 5: europeill i perform the US. 225 00:11:36,320 --> 00:11:39,120 Speaker 4: There's this question at a time when the US is 226 00:11:39,120 --> 00:11:43,240 Speaker 4: potentially entering into a difficult patch of whether credit still 227 00:11:43,280 --> 00:11:45,679 Speaker 4: has the canary in the coal mine aspect that it 228 00:11:45,800 --> 00:11:48,959 Speaker 4: used to, Whether it's still kind of can forecast the 229 00:11:49,000 --> 00:11:52,880 Speaker 4: sense of disruption in the fundamental economy that it had 230 00:11:52,880 --> 00:11:55,520 Speaker 4: the reputation of doing ten twenty years ago. Has that 231 00:11:56,679 --> 00:11:58,480 Speaker 4: signaling mechanism been broken? 232 00:11:58,640 --> 00:12:02,000 Speaker 5: Yeah, I think that rept comes entirely from the playbook 233 00:12:02,040 --> 00:12:04,679 Speaker 5: of the global financial crisis. I don't think things will 234 00:12:04,679 --> 00:12:06,640 Speaker 5: play out that way this time around. And so what 235 00:12:06,679 --> 00:12:10,679 Speaker 5: we've seen now is literally credit moving locksteps with its 236 00:12:10,679 --> 00:12:13,520 Speaker 5: sort of empirical or beta relationship to the equity market. 237 00:12:13,600 --> 00:12:16,160 Speaker 5: And so people complain all the time, Well, actually credit 238 00:12:16,200 --> 00:12:19,200 Speaker 5: has not moved. That's actually quite that's not true. You know, 239 00:12:19,280 --> 00:12:22,320 Speaker 5: we've actually repriced in terms of the change in spreads. 240 00:12:22,720 --> 00:12:24,720 Speaker 5: If you look at the change in ig that would 241 00:12:24,720 --> 00:12:26,960 Speaker 5: be implied by it eight and a half nine percent 242 00:12:27,000 --> 00:12:29,280 Speaker 5: moving in the SMP. It's exactly what you've gotten the 243 00:12:29,360 --> 00:12:32,120 Speaker 5: last four weeks. And so it looks like credit is 244 00:12:32,160 --> 00:12:36,120 Speaker 5: resilient only because the starting level is so tight, But 245 00:12:36,200 --> 00:12:38,719 Speaker 5: if you look at the change in spreads, it's been commonsorate. 246 00:12:38,760 --> 00:12:40,200 Speaker 5: I would say with the move inequities. 247 00:12:40,280 --> 00:12:42,440 Speaker 1: When John was talking about your note, you talked about 248 00:12:42,480 --> 00:12:45,160 Speaker 1: the first headline from Donald Trump when it came to tariffs. 249 00:12:45,480 --> 00:12:48,800 Speaker 1: Why now? Trump has talked about this from the very beginning, 250 00:12:48,840 --> 00:12:52,439 Speaker 1: and we knew this was one piece of his broader plan. 251 00:12:53,200 --> 00:12:53,680 Speaker 6: Why now? 252 00:12:53,800 --> 00:12:56,240 Speaker 5: Great question. I think what we've learned is that the 253 00:12:56,280 --> 00:13:00,160 Speaker 5: administration has greater tolerance for a move lower in the 254 00:13:00,200 --> 00:13:02,640 Speaker 5: market and even a full slow down in the economy. 255 00:13:02,640 --> 00:13:05,200 Speaker 5: To me, that's been the most critical piece of information 256 00:13:05,280 --> 00:13:09,079 Speaker 5: that we've learned. And then valuation has remained very tight. 257 00:13:09,240 --> 00:13:11,040 Speaker 5: The two other things I would add is that you know, 258 00:13:11,320 --> 00:13:14,240 Speaker 5: and this is a big difference between today and twenty eighteen. 259 00:13:14,320 --> 00:13:17,560 Speaker 5: In eighteen, rates were very low. They're not today. Actually, 260 00:13:17,559 --> 00:13:20,480 Speaker 5: you get paid four percent four in a quarter to 261 00:13:20,600 --> 00:13:23,240 Speaker 5: invest in cash, and so you have a very valuable 262 00:13:23,280 --> 00:13:26,720 Speaker 5: degree of freedom. Duration has rallied to from a peak 263 00:13:26,760 --> 00:13:29,000 Speaker 5: of four and three quarters roughly to four and a quarter, 264 00:13:29,320 --> 00:13:33,679 Speaker 5: but can rally more if you have an even bigger slowdown. 265 00:13:33,679 --> 00:13:35,920 Speaker 5: And so to me, the urgency to buy the dip 266 00:13:35,960 --> 00:13:37,960 Speaker 5: today is just not there. 267 00:13:38,120 --> 00:13:40,240 Speaker 2: I think we all remember December twenty eighteen when the 268 00:13:40,240 --> 00:13:42,880 Speaker 2: credit market totally throws up. I think that month for 269 00:13:42,960 --> 00:13:46,120 Speaker 2: high yield we got zero issuance in December twenty eighteen. 270 00:13:46,559 --> 00:13:48,599 Speaker 2: Is there anything like that happening right now? Anything that 271 00:13:48,640 --> 00:13:51,040 Speaker 2: we're concern the Federal Reserve coming against this two diimetic 272 00:13:51,320 --> 00:13:52,559 Speaker 2: standing tomorrow. 273 00:13:53,280 --> 00:13:56,040 Speaker 5: I think they'll most likely be in wait and see 274 00:13:56,360 --> 00:13:58,960 Speaker 5: or on the sidelines, will learn, you know, in terms 275 00:13:59,040 --> 00:14:01,280 Speaker 5: of what they do with the their own projections how 276 00:14:01,360 --> 00:14:04,000 Speaker 5: much they'll push inflation up and then how much they'll 277 00:14:04,000 --> 00:14:06,960 Speaker 5: push growth down. But at the moment, like us, my 278 00:14:07,040 --> 00:14:09,360 Speaker 5: guess is that they're processing this flow of information and 279 00:14:09,400 --> 00:14:10,640 Speaker 5: trying to assess what they will do. 280 00:14:10,720 --> 00:14:10,880 Speaker 7: Now. 281 00:14:10,880 --> 00:14:13,200 Speaker 5: The market is pricing in I think two cuts for 282 00:14:13,240 --> 00:14:16,600 Speaker 5: this year. That seems quite reasonable to me. You're pricing 283 00:14:16,600 --> 00:14:18,480 Speaker 5: in two cuts not because you think we're going to 284 00:14:18,480 --> 00:14:20,960 Speaker 5: make progress and inflation, but you're pricing in two cuts 285 00:14:21,280 --> 00:14:23,840 Speaker 5: because you think the Fed will probably adopt some kind 286 00:14:23,840 --> 00:14:26,480 Speaker 5: of an insurance cuts type of framework exactly like they did. 287 00:14:26,480 --> 00:14:27,640 Speaker 5: Actually in twenty eighteen. 288 00:14:27,680 --> 00:14:30,040 Speaker 2: It's the primary market still open for DALs. We saw 289 00:14:30,040 --> 00:14:31,320 Speaker 2: some headlines in the last week or so. 290 00:14:32,960 --> 00:14:35,280 Speaker 5: You know, risk aversion has gone up, and so the 291 00:14:35,320 --> 00:14:38,000 Speaker 5: market is open one hundred percent, but new issue concessions 292 00:14:38,040 --> 00:14:40,000 Speaker 5: have gone up, and so you know, issuers have to 293 00:14:40,000 --> 00:14:42,120 Speaker 5: pay a little bit more relative to the secondary to 294 00:14:42,200 --> 00:14:45,280 Speaker 5: access the primary market. That's actually, in and of itself, 295 00:14:45,480 --> 00:14:48,120 Speaker 5: it's a healthy thing because if you reduce supply, you 296 00:14:48,200 --> 00:14:50,000 Speaker 5: kind of rebalance the market a little bit and you 297 00:14:50,080 --> 00:14:51,960 Speaker 5: bring stability to the secondary market. 298 00:14:52,160 --> 00:14:54,560 Speaker 4: What are you waiting to understand the depth of what 299 00:14:54,680 --> 00:14:56,920 Speaker 4: kind of correction we could see or whether this is 300 00:14:56,960 --> 00:15:00,920 Speaker 4: going to become something that you can opportunistically go into. 301 00:15:01,360 --> 00:15:03,560 Speaker 5: So at the single name level, I would say you're 302 00:15:03,600 --> 00:15:06,800 Speaker 5: already seeing some opportunities. I mean, certainly the primary market 303 00:15:06,840 --> 00:15:09,720 Speaker 5: is one way to deploy capital and harvest a little 304 00:15:09,720 --> 00:15:11,520 Speaker 5: bit of alpha. But what could change my view? 305 00:15:11,640 --> 00:15:12,400 Speaker 2: Look two things. 306 00:15:12,440 --> 00:15:15,200 Speaker 5: One, you get a valuation reset, so actually you from 307 00:15:15,240 --> 00:15:16,880 Speaker 5: load a lot of damage, you price it in and 308 00:15:16,960 --> 00:15:20,520 Speaker 5: you make spreads interesting. Then you revisit the conversation. The 309 00:15:20,600 --> 00:15:22,560 Speaker 5: second thing, I think we need to remember that there's 310 00:15:23,200 --> 00:15:26,440 Speaker 5: in the administration's policy agenda. There's a lot of things 311 00:15:26,480 --> 00:15:30,160 Speaker 5: that are pro growth, and so if you recalibrate, actually 312 00:15:30,240 --> 00:15:33,440 Speaker 5: that policy makes away from some of the stuff that 313 00:15:33,520 --> 00:15:36,200 Speaker 5: is actually negative to growth into some of the things 314 00:15:36,240 --> 00:15:38,640 Speaker 5: that are positive for growth. Tax cuts is a good example, 315 00:15:38,640 --> 00:15:41,120 Speaker 5: and deregulation, et cetera. Then I think you have a 316 00:15:41,120 --> 00:15:43,320 Speaker 5: different conversation and you would look at this market a 317 00:15:43,360 --> 00:15:44,320 Speaker 5: bit differently. 318 00:15:44,120 --> 00:15:46,040 Speaker 2: A sense that's still the strategic can care of a 319 00:15:46,040 --> 00:15:48,120 Speaker 2: lot of the bolls out there that the overall policy 320 00:15:48,120 --> 00:15:51,600 Speaker 2: makes is still pro ris pro growth. In six nine 321 00:15:51,600 --> 00:15:53,360 Speaker 2: months time, things might look a little bit different. That's 322 00:15:53,360 --> 00:15:54,000 Speaker 2: the hope. Anyway. 323 00:15:54,120 --> 00:15:56,000 Speaker 4: The first half of the year is Biden data, and 324 00:15:56,000 --> 00:15:58,440 Speaker 4: then when Trump data comes into play, you would tell that, yeah, 325 00:15:58,480 --> 00:16:00,280 Speaker 4: then there's going to be a policy mixer. It's more 326 00:16:00,280 --> 00:16:01,920 Speaker 4: supportive too. Things going better. 327 00:16:02,000 --> 00:16:03,800 Speaker 2: Lofi's good to see you. Thanks for breaking this down. 328 00:16:03,800 --> 00:16:06,600 Speaker 2: Sharp has always a clinic on credit from Loafi Karui 329 00:16:06,640 --> 00:16:20,040 Speaker 2: there of Goldman Sachs, twenty seven percent of registered voters 330 00:16:20,120 --> 00:16:23,480 Speaker 2: view the party positively in an NBC News poll. Unreal 331 00:16:23,720 --> 00:16:25,880 Speaker 2: joining us now to build on some of these conversations. 332 00:16:25,920 --> 00:16:29,720 Speaker 2: Henrota tres A Vada Partners, Henrietta welcome to the program. Overall, 333 00:16:29,840 --> 00:16:31,720 Speaker 2: I would say on net the people that come on 334 00:16:31,720 --> 00:16:34,840 Speaker 2: this program don't like tariffs. There is some pushbacks sometimes, 335 00:16:34,880 --> 00:16:36,720 Speaker 2: but on the whole they don't like them. The market 336 00:16:36,760 --> 00:16:39,800 Speaker 2: participants they do like tax cuts. Now we're trying to 337 00:16:39,880 --> 00:16:43,440 Speaker 2: understand whether we'll get those corresponding tax cuts anytime soon. 338 00:16:44,560 --> 00:16:46,560 Speaker 8: Well, if you listen to the White House, they're trying 339 00:16:46,600 --> 00:16:49,120 Speaker 8: to build the one thing that is happening here tariffs 340 00:16:49,400 --> 00:16:51,560 Speaker 8: as tax cuts. You know, when Peter Navarro and other 341 00:16:51,600 --> 00:16:53,960 Speaker 8: economic advisors in the White House come out and say 342 00:16:53,960 --> 00:16:57,600 Speaker 8: that tariffs are tax cuts, that's obviously you know, either 343 00:16:57,640 --> 00:16:59,000 Speaker 8: you're lying to yourself or you're lying to me. 344 00:16:59,120 --> 00:17:01,680 Speaker 7: But it's not correct. And that's the problem. 345 00:17:01,400 --> 00:17:03,640 Speaker 8: That we run into because the same is true on 346 00:17:03,680 --> 00:17:06,720 Speaker 8: the tax cut side. As your previous guest was discussing 347 00:17:07,080 --> 00:17:09,320 Speaker 8: the bill that they're trying to pass, you know by 348 00:17:09,359 --> 00:17:11,320 Speaker 8: Memorial Day whenever it passes, that don't care. 349 00:17:11,640 --> 00:17:13,200 Speaker 7: They're extending the status quo. 350 00:17:13,600 --> 00:17:15,800 Speaker 8: So there are no tax cuts even built into the 351 00:17:16,040 --> 00:17:19,680 Speaker 8: four point six trillion dollar tax bill that they need 352 00:17:19,720 --> 00:17:20,640 Speaker 8: to pass this year. 353 00:17:21,000 --> 00:17:24,159 Speaker 7: So there are tariffs and there are not tax cuts. 354 00:17:24,440 --> 00:17:27,639 Speaker 8: And when you sell tariffs as tax cuts, you create 355 00:17:27,680 --> 00:17:31,440 Speaker 8: a pretty material disconnect between the consumer who is confused 356 00:17:31,480 --> 00:17:34,680 Speaker 8: now about what there should should be expecting, which is swye. 357 00:17:34,720 --> 00:17:36,880 Speaker 8: You pull back at the big box retailers and people 358 00:17:36,920 --> 00:17:38,439 Speaker 8: delaying big purchases, which. 359 00:17:38,359 --> 00:17:41,960 Speaker 7: Is what's leading to that soft data that's so problematic. 360 00:17:41,600 --> 00:17:43,919 Speaker 1: Right now, Henrietta, what happened to the Caroenen stick approach 361 00:17:43,960 --> 00:17:47,160 Speaker 1: when it came to tariffs in corporate tax rates? I thought, 362 00:17:47,200 --> 00:17:50,080 Speaker 1: if you produced in the United States, potentially you could 363 00:17:50,080 --> 00:17:52,280 Speaker 1: get a fifteen percent corporate tax rate. Where did that 364 00:17:52,320 --> 00:17:54,000 Speaker 1: conversation go on Capitol Hill? 365 00:17:54,720 --> 00:17:57,520 Speaker 8: That conversation is nowhere right now on Capitol Hill. Each 366 00:17:57,560 --> 00:17:59,879 Speaker 8: percentage point reduction in the corporate tax rate costs a 367 00:18:00,040 --> 00:18:02,920 Speaker 8: hundred and fifty billion dollars. So, as I mentioned, we're 368 00:18:02,960 --> 00:18:05,480 Speaker 8: already at four point six trillion just for the status quo. 369 00:18:05,520 --> 00:18:07,680 Speaker 8: We got to fix the salt cap even just to 370 00:18:07,760 --> 00:18:10,280 Speaker 8: raise it up to twenty k for couples filing jointly. 371 00:18:10,680 --> 00:18:13,320 Speaker 7: We have to extend the child tax credit. 372 00:18:13,520 --> 00:18:16,119 Speaker 8: The President wants to do things like eliminate taxes on tips, 373 00:18:16,119 --> 00:18:18,560 Speaker 8: which is itself one hundred and seventy five billion dollars. 374 00:18:18,760 --> 00:18:21,200 Speaker 8: We do not have the money for a fifteen percent 375 00:18:21,280 --> 00:18:22,760 Speaker 8: corporate tax rate, And even if. 376 00:18:22,640 --> 00:18:24,320 Speaker 7: You did, I'd like to. 377 00:18:24,400 --> 00:18:27,760 Speaker 8: Relay that the Republican Conference and members up there do 378 00:18:27,880 --> 00:18:30,440 Speaker 8: not support additional tax cuts. 379 00:18:30,200 --> 00:18:31,360 Speaker 7: For the business community. 380 00:18:31,680 --> 00:18:35,000 Speaker 8: They view the twenty seventeen tax build downfall. The one 381 00:18:35,000 --> 00:18:37,960 Speaker 8: piece that was really unpopular is that the corporate rate 382 00:18:38,000 --> 00:18:40,720 Speaker 8: tech cuts were permanent, and all the individuals in the 383 00:18:40,800 --> 00:18:43,679 Speaker 8: United States are now subject to the tax increase at 384 00:18:43,680 --> 00:18:46,160 Speaker 8: the end of this year because of the twenty seventeen bills. 385 00:18:46,160 --> 00:18:48,119 Speaker 8: So there's not a lot of appetite for tax cuts 386 00:18:48,320 --> 00:18:49,160 Speaker 8: at the corporate level. 387 00:18:49,240 --> 00:18:51,720 Speaker 1: So, Henrietta, what kind of extras can we get? Do 388 00:18:51,800 --> 00:18:54,760 Speaker 1: we get no tax on tips, no tax on social security? 389 00:18:55,080 --> 00:18:57,640 Speaker 1: What could Trump put on this to make it more 390 00:18:57,720 --> 00:18:59,880 Speaker 1: than just an extension of TCJA. 391 00:19:00,720 --> 00:19:03,680 Speaker 7: That's a great question. The no taxes on SOLFI security 392 00:19:03,760 --> 00:19:04,960 Speaker 7: is physically not possible. 393 00:19:05,480 --> 00:19:08,840 Speaker 8: They're not permitted to address social security in any capacity 394 00:19:09,119 --> 00:19:11,440 Speaker 8: using reconciliation instructions. 395 00:19:10,880 --> 00:19:12,720 Speaker 7: So that's entirely off the table. 396 00:19:13,000 --> 00:19:15,440 Speaker 8: And just so we're clear, the cost of doing that 397 00:19:15,480 --> 00:19:19,040 Speaker 8: would be one point eight trillion dollars. So if it 398 00:19:19,119 --> 00:19:22,520 Speaker 8: was not physically impossible, it's definitely monetarily impossible. The no 399 00:19:22,640 --> 00:19:24,879 Speaker 8: taxes on tips piece doesn't have a tremendous amount of 400 00:19:24,880 --> 00:19:28,720 Speaker 8: support because there's not been enough education or discussion of 401 00:19:28,760 --> 00:19:31,639 Speaker 8: how to rain that in so that you don't avoid 402 00:19:32,040 --> 00:19:35,040 Speaker 8: a CEO saying the million dollars that I made last 403 00:19:35,080 --> 00:19:37,359 Speaker 8: year is actually just a tip and evading taxes, So 404 00:19:37,400 --> 00:19:40,359 Speaker 8: they don't have this the logistics. 405 00:19:39,600 --> 00:19:40,280 Speaker 7: Worked out for that. 406 00:19:40,320 --> 00:19:42,800 Speaker 8: And then in addition, that's not a universal tax cut 407 00:19:42,840 --> 00:19:44,800 Speaker 8: for all individuals. It's only a tax cut if you 408 00:19:45,000 --> 00:19:48,880 Speaker 8: get tips, which not everybody does, so it's disproportionately impactful 409 00:19:48,960 --> 00:19:51,560 Speaker 8: to different states. That was a big sell in Nevada, 410 00:19:51,640 --> 00:19:53,679 Speaker 8: but Nevada does not have Republican senator, so it's going 411 00:19:53,720 --> 00:19:55,840 Speaker 8: to be really difficult to get that over the finish line. 412 00:19:55,880 --> 00:19:58,280 Speaker 8: There's not a lot in there that can be described 413 00:19:58,280 --> 00:20:01,960 Speaker 8: even charitably as stimula. There are a couple of business 414 00:20:02,160 --> 00:20:05,359 Speaker 8: related provisions that expired in twenty twenty two that we 415 00:20:05,359 --> 00:20:07,760 Speaker 8: could provide a short term extension of, but that's really it. 416 00:20:08,400 --> 00:20:11,040 Speaker 2: Henrod destroys as Ida put as Henritta, thank you for 417 00:20:11,080 --> 00:20:23,520 Speaker 2: the update. Appreciate it. To extend the conversation, it's a 418 00:20:23,640 --> 00:20:26,200 Speaker 2: run back now, welcome to the program, sir. You've noted 419 00:20:26,200 --> 00:20:30,359 Speaker 2: the soft data the anxiety over employment specifically, I just 420 00:20:30,400 --> 00:20:33,400 Speaker 2: want your thoughts initially on retail sales. Do those two 421 00:20:33,440 --> 00:20:34,639 Speaker 2: things stack up. 422 00:20:36,760 --> 00:20:36,920 Speaker 3: Well? 423 00:20:36,960 --> 00:20:40,400 Speaker 9: I mean, the retail sales data was basically an online story. 424 00:20:40,520 --> 00:20:43,320 Speaker 9: I mean last month, a lot of the weakness that 425 00:20:43,359 --> 00:20:47,480 Speaker 9: people didn't foresee was a function of online retail. And 426 00:20:48,240 --> 00:20:50,280 Speaker 9: this month, a lot of the strength that people see 427 00:20:50,520 --> 00:20:52,679 Speaker 9: was a function of online retail. So that kind of 428 00:20:52,720 --> 00:20:56,159 Speaker 9: just slung around. If you take that out, you know, 429 00:20:56,240 --> 00:20:58,560 Speaker 9: the underlying story is still weaker, you know. I think 430 00:20:58,560 --> 00:21:02,600 Speaker 9: it's interesting that food services and drinking places, you know, 431 00:21:02,680 --> 00:21:08,560 Speaker 9: basically restaurants are down, you know, three months in a row, 432 00:21:09,200 --> 00:21:12,280 Speaker 9: and you know, or down sorry, over the last three months, 433 00:21:13,040 --> 00:21:16,600 Speaker 9: and pretty meaningfully over that period. I mean, that's sort 434 00:21:16,640 --> 00:21:19,600 Speaker 9: of a bread and butter type of discretionary purchase. If 435 00:21:19,640 --> 00:21:23,880 Speaker 9: you're not feeling good, you're not going to go out 436 00:21:23,920 --> 00:21:25,919 Speaker 9: to eat. And that's exactly what's been happening. 437 00:21:26,200 --> 00:21:28,280 Speaker 4: Neil, You've been clear about how this weakening tread has 438 00:21:28,320 --> 00:21:30,320 Speaker 4: been in place for quite a while, that really since 439 00:21:30,400 --> 00:21:31,919 Speaker 4: late last year you could start to see it in 440 00:21:31,920 --> 00:21:35,000 Speaker 4: the data, and this is part of the economic cycle 441 00:21:35,359 --> 00:21:37,680 Speaker 4: as much as anything else, if not more. I am 442 00:21:37,760 --> 00:21:40,199 Speaker 4: wondering if you're surprised by the pace of some of 443 00:21:40,200 --> 00:21:44,520 Speaker 4: the deterioration, especially in light of the pressure that increasingly 444 00:21:44,600 --> 00:21:46,719 Speaker 4: is being put on the FED not to cut rates 445 00:21:47,000 --> 00:21:49,000 Speaker 4: because of inflation expectations. 446 00:21:50,800 --> 00:21:53,520 Speaker 9: Well, I don't think there's a smoking gun yet in 447 00:21:53,600 --> 00:21:55,480 Speaker 9: the hard data. I mean, I want to be clear 448 00:21:55,560 --> 00:21:59,760 Speaker 9: about that. You know, there's no sign of collapse. There's 449 00:21:59,760 --> 00:22:02,800 Speaker 9: no real discontinuity in the hard data. I mean, that's 450 00:22:02,840 --> 00:22:06,119 Speaker 9: a classic green span sort of tell for trying to 451 00:22:06,160 --> 00:22:08,640 Speaker 9: figure out when you know, if we're in a recession 452 00:22:08,720 --> 00:22:09,600 Speaker 9: or going into one. 453 00:22:10,240 --> 00:22:13,120 Speaker 6: But you clearly see weakness in. 454 00:22:13,240 --> 00:22:17,399 Speaker 9: You know, soft measures of economic activity, and you know, 455 00:22:17,440 --> 00:22:21,879 Speaker 9: obviously there's been a fairly rapid speed in terms of 456 00:22:21,960 --> 00:22:24,399 Speaker 9: the weakness in in consumer sentiment as. 457 00:22:24,240 --> 00:22:27,560 Speaker 6: An example, the March Empire data. Sort of the same thing. 458 00:22:27,920 --> 00:22:30,040 Speaker 9: Obviously, if you're doing tariffs, I mean, that's going to 459 00:22:30,080 --> 00:22:33,879 Speaker 9: weigh on the good sector, you know, disproportionately, and you're 460 00:22:33,920 --> 00:22:36,520 Speaker 9: seeing that, but you've yet to see that really translate 461 00:22:37,000 --> 00:22:39,119 Speaker 9: into into hard measures of activity. 462 00:22:40,200 --> 00:22:41,520 Speaker 6: And I think at some level. 463 00:22:41,320 --> 00:22:44,240 Speaker 9: Lisa, I mean, the fact that the economy, i mean, 464 00:22:44,320 --> 00:22:49,119 Speaker 9: residential investment has been quite sluggish, you know, you know, 465 00:22:49,160 --> 00:22:51,520 Speaker 9: a lot of the cyclical areas. You know, manufacturing has 466 00:22:51,560 --> 00:22:55,080 Speaker 9: been quite sluggish. So if these cyclical areas have been 467 00:22:55,080 --> 00:22:58,440 Speaker 9: relatively soft to begin with, it mitigates some of the downside, 468 00:22:58,480 --> 00:23:01,720 Speaker 9: because if you're sort of bouncing along the bottom, it's 469 00:23:01,760 --> 00:23:04,400 Speaker 9: hard to go further down into the basement. 470 00:23:04,640 --> 00:23:06,520 Speaker 4: One thing that you've laid out, Neil, and I thought 471 00:23:06,520 --> 00:23:09,040 Speaker 4: it was really profound, especially in your conversation with Paul 472 00:23:09,119 --> 00:23:12,560 Speaker 4: Krugman over the weekend, was the degree to which some 473 00:23:12,600 --> 00:23:15,359 Speaker 4: people are underestimating the amount of state and local funding 474 00:23:15,400 --> 00:23:17,480 Speaker 4: that's being cut right now, and how some of the 475 00:23:17,480 --> 00:23:20,040 Speaker 4: federal cuts might look really small on kind of a 476 00:23:20,119 --> 00:23:22,720 Speaker 4: national spending level, but when you start to get those 477 00:23:22,800 --> 00:23:25,359 Speaker 4: cuts at state and local levels, that's where it's going 478 00:23:25,440 --> 00:23:26,720 Speaker 4: to bite more significantly. 479 00:23:26,800 --> 00:23:28,760 Speaker 2: I'm wondering how quickly are. 480 00:23:28,600 --> 00:23:31,320 Speaker 4: We starting to see some of those cuts filter into 481 00:23:31,520 --> 00:23:34,359 Speaker 4: some of the economic data that we're getting out, like spending, 482 00:23:34,760 --> 00:23:36,000 Speaker 4: like consumer confidence. 483 00:23:37,160 --> 00:23:39,880 Speaker 9: Well, I think the area to watch is really stay 484 00:23:39,880 --> 00:23:42,080 Speaker 9: in local government employment. I mean, that had been a 485 00:23:42,080 --> 00:23:46,679 Speaker 9: steady tail wind for jobs growth over the last you know, 486 00:23:46,760 --> 00:23:49,520 Speaker 9: year or so, and that's you know, shifting into a 487 00:23:49,640 --> 00:23:53,560 Speaker 9: much lower lower gear. And you know, I remember stay 488 00:23:53,560 --> 00:23:56,600 Speaker 9: in local governments. We're adding, you know, thirty basis points 489 00:23:56,600 --> 00:23:59,520 Speaker 9: to GDP growth, and that's probably poised to go to zero, 490 00:23:59,640 --> 00:24:02,080 Speaker 9: maybe and slightly negative this year. You know, that's what 491 00:24:02,080 --> 00:24:04,879 Speaker 9: we're seeing in the upcoming fiscal year. You know, states 492 00:24:04,880 --> 00:24:09,040 Speaker 9: have exhausted their pandemic relief money, and you know that's 493 00:24:09,080 --> 00:24:11,840 Speaker 9: that's already started to weigh on sort of public sector 494 00:24:11,880 --> 00:24:15,240 Speaker 9: construction spending. I think employment's going to be the next 495 00:24:15,280 --> 00:24:16,679 Speaker 9: leg of that, you know, when. 496 00:24:16,520 --> 00:24:19,520 Speaker 1: It comes to this administration and their pain tolerance. Over 497 00:24:19,560 --> 00:24:22,639 Speaker 1: the weekend, Treasure Secretary Scott best In, someone I know 498 00:24:22,720 --> 00:24:24,960 Speaker 1: you know well, said, over the long term, if we 499 00:24:25,000 --> 00:24:29,600 Speaker 1: have good tax policy, deregulation, energy security, then the markets. 500 00:24:29,200 --> 00:24:29,800 Speaker 2: Will do great. 501 00:24:29,800 --> 00:24:32,440 Speaker 1: But in the short term, right now, the only policy 502 00:24:32,520 --> 00:24:35,720 Speaker 1: we keep getting out of this administration is tariffs. What's 503 00:24:35,760 --> 00:24:38,679 Speaker 1: their threshold for how painful they're willing to take what 504 00:24:38,720 --> 00:24:42,879 Speaker 1: we're seeing in the financial markets and consumer sentiment, Well. 505 00:24:42,760 --> 00:24:46,000 Speaker 9: I don't know the level of the the put I mean, 506 00:24:46,000 --> 00:24:48,280 Speaker 9: I just know that it's lower than where we are now. 507 00:24:48,320 --> 00:24:51,159 Speaker 9: I mean, look, I do think it's more about what 508 00:24:51,240 --> 00:24:53,560 Speaker 9: they're doing, not the uncertainty around what they're doing. 509 00:24:53,640 --> 00:24:56,120 Speaker 6: That's that's driving the markets. 510 00:24:56,160 --> 00:24:58,679 Speaker 9: But you know, did I keep you know, you and 511 00:24:58,680 --> 00:25:00,919 Speaker 9: I have talked about this and people not know what 512 00:25:00,960 --> 00:25:04,680 Speaker 9: they signed up for. I think what we're seeing is 513 00:25:05,320 --> 00:25:08,840 Speaker 9: when Trump won, everyone knew that it was some combination 514 00:25:09,000 --> 00:25:12,119 Speaker 9: of tax cuts, deregulation, and tariffs, but they bet on 515 00:25:12,160 --> 00:25:16,359 Speaker 9: it in that order, which is why you saw expectations 516 00:25:16,359 --> 00:25:18,320 Speaker 9: for growth at least in the first and second quarter 517 00:25:18,400 --> 00:25:20,199 Speaker 9: go up after the election. 518 00:25:22,320 --> 00:25:24,080 Speaker 6: But obviously we see what the order is in. 519 00:25:24,119 --> 00:25:26,480 Speaker 9: Any day that they're not talking about tax cuts and 520 00:25:26,520 --> 00:25:29,000 Speaker 9: deregulation is a day they're talking about tariffs, and the 521 00:25:29,040 --> 00:25:31,679 Speaker 9: signaling of that means that they're pursuing a lot of 522 00:25:31,720 --> 00:25:33,320 Speaker 9: growth unfriendly initiatives. 523 00:25:33,400 --> 00:25:35,720 Speaker 1: First, Neil, why do you think there was this consensus 524 00:25:35,760 --> 00:25:39,560 Speaker 1: around the sequencing, because it's very clear, if you understand Washington, 525 00:25:39,600 --> 00:25:42,720 Speaker 1: that the only lever Donald Trump could pull on his 526 00:25:42,800 --> 00:25:45,840 Speaker 1: own when he got into office was unilaterally tariffs. 527 00:25:47,320 --> 00:25:49,800 Speaker 9: Well, yeah, I mean, I'm I don't know, Henry, maybe 528 00:25:49,840 --> 00:25:53,560 Speaker 9: you should you should get into the private sector forecasting business, 529 00:25:53,600 --> 00:25:57,720 Speaker 9: because I think that was a great call. But but look, 530 00:25:57,800 --> 00:26:00,639 Speaker 9: I mean not only that, I mean any leg was 531 00:26:00,680 --> 00:26:02,480 Speaker 9: going to be a very very tall left as well 532 00:26:02,480 --> 00:26:06,320 Speaker 9: as you know, because the Congress was so thinly divided. 533 00:26:06,400 --> 00:26:08,359 Speaker 9: I mean, I think at some level, because it's going 534 00:26:08,400 --> 00:26:10,000 Speaker 9: to take them longer to get some of this tax 535 00:26:10,080 --> 00:26:13,240 Speaker 9: stuff through the finish line. You know, that's probably why 536 00:26:13,240 --> 00:26:18,200 Speaker 9: they're one reason why they are front loading the terriff agenda. 537 00:26:18,640 --> 00:26:20,679 Speaker 2: Neil, I haven't watched it yet, but people want to know. 538 00:26:21,320 --> 00:26:23,280 Speaker 2: Is Kruman Dat's are going to become a regular thing? 539 00:26:23,760 --> 00:26:25,000 Speaker 2: Do we get a second series? 540 00:26:26,640 --> 00:26:28,840 Speaker 9: You'd have to ask Paul, but it was it was 541 00:26:28,920 --> 00:26:31,240 Speaker 9: quite the honor to be on with him. 542 00:26:31,520 --> 00:26:34,520 Speaker 2: Neil appreciate the input. As always, Sir Neil's of Run 543 00:26:34,640 --> 00:26:38,879 Speaker 2: mag This is the Bloomberg Sevenants podcast, bringing you the 544 00:26:38,880 --> 00:26:42,240 Speaker 2: best in markets, economics, angier politics. 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