WEBVTT - Bloomberg Surveillance TV: March 17, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.040 Terminal and the Bloomberg Business app. Let's bring it back 0:00:37.080 --> 0:00:39.199 to the United States and turn to the US consumer 0:00:39.280 --> 0:00:42.120 Retail sales due at a thirty Eastern time. The report, 0:00:42.159 --> 0:00:45.600 coming after a disappointing new mitched consumer sentiment survey, dropped 0:00:45.640 --> 0:00:47.960 going into the weekend. Airlines are leading the way as 0:00:48.000 --> 0:00:51.280 corporate start a lower guidance, Delta American and Southwest slashing 0:00:51.320 --> 0:00:54.680 their outlooks citing weaker than expected demand. Stephen Trent of 0:00:54.720 --> 0:00:57.440 City still op domestic common sector, writing the main risk 0:00:57.480 --> 0:00:59.560 seems to be top down, when and how do we 0:00:59.560 --> 0:01:02.120 get cloud see on the government's plans on tariff, trade 0:01:02.400 --> 0:01:05.240 and foreign relations. Steven joined US now for more. Stephen Goomring, 0:01:05.280 --> 0:01:07.080 good to see you same, thank you for having me. 0:01:07.160 --> 0:01:08.840 I think we've got to start with the downgrades to 0:01:08.880 --> 0:01:10.560 the outlook for the first quarter that came from some 0:01:10.600 --> 0:01:12.319 of the airlines, and it was kicked off by Delta 0:01:12.480 --> 0:01:14.760 just last week at Bastin used the tea word, the 0:01:14.760 --> 0:01:18.479 tea words a scary word on this program. Transitory transitory. 0:01:18.600 --> 0:01:20.200 Just how transitory? Might this be? 0:01:21.160 --> 0:01:23.720 Great question, and I think it's too early to say. 0:01:23.880 --> 0:01:26.840 So you did have a lot of noise in one queue, certainly, 0:01:26.840 --> 0:01:31.560 as you guys said, the airlines really disliked this uncertainty. 0:01:31.920 --> 0:01:34.520 So when are we going to get clarity on tariffs, 0:01:34.720 --> 0:01:37.440 on dodge cuts and what does all of this mean 0:01:37.520 --> 0:01:40.880 for demand? I think that's too early to say during 0:01:40.920 --> 0:01:43.679 the quarter at least so far. As well, you did, 0:01:43.760 --> 0:01:48.600 unfortunately have several high profile aviation accidents, all but one 0:01:48.640 --> 0:01:52.320 of them were fatal. That is also something that you 0:01:52.400 --> 0:01:56.360 can ignore in these short term moves. But I think, overall, 0:01:57.120 --> 0:01:59.640 what confidence do we have six months? So now? I 0:01:59.680 --> 0:02:04.120 think it way too early to tell, and the underlying 0:02:04.200 --> 0:02:05.720 fundamentals still look positive. 0:02:05.840 --> 0:02:08.600 So let's go check ourselves, because before we get carried 0:02:08.600 --> 0:02:10.680 away with too much negativity, not that I would ever 0:02:10.680 --> 0:02:13.160 be accused of that. I am wondering if it really 0:02:13.240 --> 0:02:15.880 was all that bad what some of these airline executives 0:02:15.919 --> 0:02:16.519 are projecting. 0:02:17.800 --> 0:02:21.160 Yeah, so look, I think if you look to your point, 0:02:21.720 --> 0:02:24.440 nobody so far has changed their full air guide. I 0:02:24.440 --> 0:02:27.920 think they're also in a wait and see mode to 0:02:28.000 --> 0:02:32.000 some extent where things go. Are we going to wake 0:02:32.080 --> 0:02:34.680 up a month from now and we'll have a little 0:02:34.720 --> 0:02:40.239 bit more clarity after this April second bogie that mister 0:02:40.360 --> 0:02:42.799 Wessemmer mentioned. Are we going to wake up and have 0:02:42.919 --> 0:02:45.799 some wild headline about Greenland and nobody wants to travel? 0:02:45.840 --> 0:02:48.600 I think it's too early to say, and it's a 0:02:48.600 --> 0:02:52.040 little too hard to put meth on that today. But 0:02:52.160 --> 0:02:55.720 the underlying fundamentals still look positive, and I think the 0:02:55.720 --> 0:02:58.200 airlines telegraph that by not making any cut to the 0:02:58.200 --> 0:02:58.880 full year guides. 0:02:59.040 --> 0:03:00.600 There was a real question about how much of this 0:03:00.720 --> 0:03:03.640 was driven by consumer discretionary spending, people who might be 0:03:03.639 --> 0:03:07.320 worried about losing their job, versus companies really pulling back 0:03:07.639 --> 0:03:10.440 saying hunker down, study, you've got nothing to tell any 0:03:10.480 --> 0:03:11.040 of the clients. 0:03:11.919 --> 0:03:16.120 Yeah. Look, I think those are all potentially legitimate drivers 0:03:16.280 --> 0:03:19.240 I would add to that what's happened on the government level, 0:03:19.240 --> 0:03:23.240 which is not the largest piece of travel, but with 0:03:23.480 --> 0:03:27.520 doors kicking in less government employment, I would imagine they're 0:03:27.560 --> 0:03:30.920 also being stricter about who's allowed to go on business 0:03:30.919 --> 0:03:34.320 trips from these various agencies. So I think all of 0:03:34.320 --> 0:03:35.280 that stuff is relevant. 0:03:35.440 --> 0:03:37.800 They certainly are, I hear that anecdotally. But also we 0:03:37.840 --> 0:03:41.040 saw it with United, who is most vulnerable to that 0:03:41.120 --> 0:03:43.280 those government contracts, those government flights. 0:03:44.240 --> 0:03:50.280 Yeah, certainly United had not a massive number, but American 0:03:50.480 --> 0:03:54.760 United sort of talked about having a smallish percent of 0:03:54.840 --> 0:03:58.760 revenue associated with US government travels. So I don't remember 0:03:58.800 --> 0:04:01.400 exactly at the top of my head, but very low 0:04:01.480 --> 0:04:04.000 single digits I think in in the highest case. 0:04:03.880 --> 0:04:05.280 So not enough to pull roots. 0:04:06.360 --> 0:04:11.160 No, no, But you also have to also, uh consider 0:04:11.760 --> 0:04:15.640 some of these markets uh where the government serves, so Washington, 0:04:15.720 --> 0:04:18.120 Reagan of course, where we just had one of those 0:04:18.160 --> 0:04:22.239 awful accidents. Uh. You know, the FAA has had actually 0:04:22.640 --> 0:04:25.840 added a little bit of flights uh into that carrictor recently. 0:04:25.960 --> 0:04:29.200 So you have a difference in terms of how much 0:04:29.279 --> 0:04:33.360 flow you get from some of these uh government employees, 0:04:33.800 --> 0:04:37.599 and uh, what kind of economics you get on them. So, uh, 0:04:37.640 --> 0:04:40.880 they were small numbers, but I think the question is 0:04:42.080 --> 0:04:44.640 at when the dust clears in all of this, how 0:04:44.640 --> 0:04:46.680 big are they gonna be? We we don't really know yet. 0:04:46.839 --> 0:04:49.160 You also mentioned fuel prices in your note. A lot 0:04:49.160 --> 0:04:52.280 of banks are now cutting their forecast to BRND. How 0:04:52.360 --> 0:04:54.720 much is that going to be very helpful right now 0:04:54.760 --> 0:04:55.520 for the airlines? 0:04:56.480 --> 0:04:59.640 Yeah, so I think, uh, lower fuel prices are helpful, 0:04:59.680 --> 0:05:01.960 and fuel sort of a funny thing. You know. Fuel 0:05:01.960 --> 0:05:05.360 prices that are too high are bad news. Fuel prices 0:05:05.400 --> 0:05:07.840 that are too low also bad news. You know. The 0:05:07.920 --> 0:05:12.440 latter signals a recession, for example. But where we are 0:05:12.520 --> 0:05:16.120 today with you know, WTI and kind of the high 0:05:16.200 --> 0:05:21.240 sixties or thereabouts, it's at a level where it's not 0:05:21.320 --> 0:05:25.680 really doing any damage or it's not dangerously cheap per se. 0:05:26.480 --> 0:05:29.960 And it did come down from levels where we're going 0:05:30.000 --> 0:05:32.479 to see lower unit revenue at least short term. So 0:05:32.800 --> 0:05:35.560 it's actually good to have a little bit of tailwind 0:05:35.600 --> 0:05:38.760 from fuel today, you know. But I guess if fuel 0:05:38.760 --> 0:05:42.279 start and crude started to fall wildly, that wouldn't be 0:05:42.320 --> 0:05:43.680 the best signal in the world. 0:05:43.920 --> 0:05:45.400 So I think a couple of things we're still talking 0:05:45.400 --> 0:05:47.960 about one. Did the weakness in February spill over to March? 0:05:48.440 --> 0:05:51.880 And within the weakness is the premium segment. The international 0:05:51.920 --> 0:05:53.080 long call is still holding up. 0:05:54.120 --> 0:05:57.320 Yeah, so what we see so far international long hall 0:05:57.560 --> 0:06:01.919 is still strong. You have a dearth of new equipment 0:06:02.000 --> 0:06:04.880 per capita in that space. On the wide body side, 0:06:04.920 --> 0:06:07.640 you really only have three excuse me now with the 0:06:07.640 --> 0:06:10.359 alask have four US carolines and how many any wide 0:06:10.360 --> 0:06:14.679 bodies really? And loyalty and co branded card the same 0:06:14.800 --> 0:06:17.520 domestic spin the main place. So far that's been a 0:06:17.560 --> 0:06:22.480 little bit soft. And you know, the indications so far 0:06:22.600 --> 0:06:26.320 as are is that that should at least continue somewhat 0:06:26.360 --> 0:06:28.120 in the March. But you know, truly to say, what's 0:06:28.120 --> 0:06:29.040 gonna happen on the month. 0:06:29.080 --> 0:06:31.280 And let's finish on domestic what happens when you start 0:06:31.400 --> 0:06:33.400 changing for bags? What happens? 0:06:34.480 --> 0:06:35.640 Yeah? It depends who you are. 0:06:36.279 --> 0:06:37.440 What if you're Southwest? 0:06:40.040 --> 0:06:43.920 Yeah, well, so I think on one level, if you're 0:06:43.960 --> 0:06:48.720 a carrier that's for decades been dealing with a passenger 0:06:48.760 --> 0:06:53.760 flow that is elastic in terms of demand, it's a 0:06:53.880 --> 0:06:56.520 give and take, No, so I think what you're gonna 0:06:56.520 --> 0:07:00.680 pick up and check bags. You're also going to run 0:07:00.760 --> 0:07:04.640 some risk of sending some passion passenger flow away to 0:07:04.680 --> 0:07:09.440 somebody else, and that also makes you arguably less distinct 0:07:10.360 --> 0:07:14.280 against basic economy of one of the big three. You're 0:07:14.280 --> 0:07:17.120 now offering something similar to them, and they have a 0:07:17.160 --> 0:07:18.560 massive network versus you. 0:07:19.280 --> 0:07:22.160 If yourself question why did they do it? What's the 0:07:22.200 --> 0:07:23.040 logic behind it? 0:07:24.160 --> 0:07:28.240 So I think for the discount airlines there has to 0:07:28.240 --> 0:07:32.400 be some kind of change. Strategically speaking, I think these 0:07:32.760 --> 0:07:39.440 post pandemic structural challenges, the way consumers purchase tickets and 0:07:39.560 --> 0:07:42.800 decide to travel, all of that's changed. We no longer 0:07:42.880 --> 0:07:48.560 have enough air traffic control capacity per capita to allow 0:07:48.640 --> 0:07:52.080 these discount carriers to just lay a bunch of capacity 0:07:52.360 --> 0:07:55.440 and maintain really high blockout ugalization. They need to do 0:07:55.520 --> 0:07:57.960 something on the unit revenue side. So is this going 0:07:58.040 --> 0:07:59.920 to be the fix? I don't know. 0:08:00.240 --> 0:08:02.240 Just quickly topic right now for the sector? 0:08:02.400 --> 0:08:06.440 What is it of the US airlines? United's my favorite one, 0:08:06.520 --> 0:08:08.600 and then American Airlines in DOTTA. 0:08:08.760 --> 0:08:10.720 All three then all three of the big players. 0:08:10.880 --> 0:08:14.280 We're fans of the network guys. They have everything they 0:08:14.320 --> 0:08:18.720 need to win. We just need the consumer to have 0:08:18.840 --> 0:08:20.240 a little bit more calmera water. 0:08:20.680 --> 0:08:22.720 We'll get another read on the US consumer at a 0:08:22.840 --> 0:08:25.080 thirty Eastern Times. Stephen Trent, good to see you, as always, 0:08:25.080 --> 0:08:37.160 Stephen Trent there of City, Lofi Carui of GOLDM and 0:08:37.240 --> 0:08:40.280 Sachs looking for wider credit spreads. Writing since the first 0:08:40.360 --> 0:08:44.000 tariff headlines broke, our message has been simple, ad hedges, 0:08:44.240 --> 0:08:47.480 embrace for some rebuilding risk. Premia Lafia joins us now 0:08:47.520 --> 0:08:48.920 for more, Lofi, good morning, it's good to see you. 0:08:49.000 --> 0:08:49.240 Warning. 0:08:49.800 --> 0:08:51.440 I want to go back several months. I want to 0:08:51.440 --> 0:08:52.760 go back to the note you put out the end 0:08:52.800 --> 0:08:55.480 of twenty four going into twenty five, where you highlighted 0:08:55.520 --> 0:08:59.280 just how severe the valuation constraints were coming up into 0:08:59.280 --> 0:09:00.719 the new year. How much of a role do you 0:09:00.720 --> 0:09:02.600 think that's played in some of the shay count we've 0:09:02.600 --> 0:09:03.240 seen so far. 0:09:03.760 --> 0:09:06.560 A little bit, obviously, when valuations are expensive, you don't 0:09:06.600 --> 0:09:09.680 have a lot of room to stomach these big, big shocks. 0:09:10.120 --> 0:09:12.400 But back then, actually our message was that yes, the 0:09:12.400 --> 0:09:16.640 market is expensive, ad hedges, add downside protection and then 0:09:16.720 --> 0:09:19.680 wait for any signs that things that are shifting, either 0:09:19.760 --> 0:09:22.720 fundamentally or from a technical standpoint. What we've learned the 0:09:22.760 --> 0:09:24.880 last three to four weeks is that things are actually 0:09:24.960 --> 0:09:28.280 shifting fundamentally, but the trade off between growth and inflation 0:09:28.840 --> 0:09:31.080 is in our of you at least heading into a 0:09:31.120 --> 0:09:33.440 direction that is unfriendly to risk assets, and so you 0:09:33.520 --> 0:09:35.800 have to realign yourself with that and you have to 0:09:35.800 --> 0:09:36.960 push spreads a little wider. 0:09:37.000 --> 0:09:39.600 Things are changing fundamentally when it comes to sentiment, when 0:09:39.600 --> 0:09:41.320 it comes to maybe to demand that we're hearing from 0:09:41.320 --> 0:09:43.719 airlines as we were just talking about. Has it really 0:09:43.760 --> 0:09:46.560 shifted though, with the credit worthiness of these companies that 0:09:46.800 --> 0:09:49.720 have walked in borrowing costs for a long time and 0:09:49.760 --> 0:09:52.199 still seem to have healthier balances than they have historically. 0:09:52.760 --> 0:09:54.000 It depends where you look. 0:09:54.640 --> 0:09:58.560 If you're talking high quality, ig rated companies, probably not. 0:09:58.800 --> 0:10:00.640 I mean, you know, if you implement terrorists at the 0:10:00.679 --> 0:10:02.120 end of the day, it's probably worth a couple of 0:10:02.200 --> 0:10:06.760 points of declining of declines and earnings that will shift 0:10:06.760 --> 0:10:08.800 your credit metrics a little bit, but not too much. 0:10:09.120 --> 0:10:11.520 Where this will make a difference, in my view, is 0:10:11.600 --> 0:10:13.520 in the very low end of the high end market, 0:10:13.880 --> 0:10:16.959 where we ended the year with tight spreads in hopes 0:10:16.960 --> 0:10:20.280 that actually the economics of refinancing for some of these 0:10:20.280 --> 0:10:24.199 over leveraged capital structures have gotten better. Now, I think 0:10:24.240 --> 0:10:27.319 what you'll see is spreads moving wider and that economics 0:10:27.320 --> 0:10:29.760 of refinancing getting a little bit more challenging. 0:10:29.800 --> 0:10:30.520 Again, we just. 0:10:30.480 --> 0:10:33.800 Saw a week of the biggest widening and credit spreads 0:10:33.840 --> 0:10:37.040 going back to last summer's volatility, and I just wonder, 0:10:37.120 --> 0:10:39.000 is this a repricing of risk to your point about 0:10:39.080 --> 0:10:41.959 valuation late last year, or is this the start of 0:10:42.000 --> 0:10:45.720 something more significant where people shift maybe to places like 0:10:45.760 --> 0:10:48.880 say Europe and European credit over the United States. 0:10:49.440 --> 0:10:52.320 This feels a little different to me relative to late 0:10:52.400 --> 0:10:55.480 July early August, where we were actually pounding the table 0:10:55.480 --> 0:10:56.440 to buy the dip back. 0:10:56.480 --> 0:10:56.640 Then. 0:10:56.800 --> 0:10:59.080 This feels a little different because you need time to 0:10:59.200 --> 0:11:02.640 process what is effectively a meaningful dose of uncertainty that's 0:11:02.679 --> 0:11:05.959 been injected in the economy. The starting level for spreads 0:11:06.040 --> 0:11:07.920 is also very tight, and so it's not like you 0:11:07.960 --> 0:11:11.080 were being paid actually for this type of shocks. Europe 0:11:11.080 --> 0:11:15.199 has already a performed Actually, Europe has had a phenomenal 0:11:15.280 --> 0:11:18.240 start to the year, both in credit and inequities. I 0:11:18.240 --> 0:11:22.160 guess I would describe European credit and as basically being 0:11:22.160 --> 0:11:24.680 in the same situation as US credit, you know, three 0:11:24.720 --> 0:11:28.240 months ago, back to that valuation conundrums. So I think 0:11:28.240 --> 0:11:31.120 it's going to be very hard for Europe to continue 0:11:31.160 --> 0:11:35.000 to tighten in absolute terms. In relative terms, I think 0:11:35.000 --> 0:11:36.280 europeill i perform the US. 0:11:36.320 --> 0:11:39.120 There's this question at a time when the US is 0:11:39.120 --> 0:11:43.240 potentially entering into a difficult patch of whether credit still 0:11:43.280 --> 0:11:45.679 has the canary in the coal mine aspect that it 0:11:45.800 --> 0:11:48.959 used to, Whether it's still kind of can forecast the 0:11:49.000 --> 0:11:52.880 sense of disruption in the fundamental economy that it had 0:11:52.880 --> 0:11:55.520 the reputation of doing ten twenty years ago. Has that 0:11:56.679 --> 0:11:58.480 signaling mechanism been broken? 0:11:58.640 --> 0:12:02.000 Yeah, I think that rept comes entirely from the playbook 0:12:02.040 --> 0:12:04.679 of the global financial crisis. I don't think things will 0:12:04.679 --> 0:12:06.640 play out that way this time around. And so what 0:12:06.679 --> 0:12:10.679 we've seen now is literally credit moving locksteps with its 0:12:10.679 --> 0:12:13.520 sort of empirical or beta relationship to the equity market. 0:12:13.600 --> 0:12:16.160 And so people complain all the time, Well, actually credit 0:12:16.200 --> 0:12:19.200 has not moved. That's actually quite that's not true. You know, 0:12:19.280 --> 0:12:22.320 we've actually repriced in terms of the change in spreads. 0:12:22.720 --> 0:12:24.720 If you look at the change in ig that would 0:12:24.720 --> 0:12:26.960 be implied by it eight and a half nine percent 0:12:27.000 --> 0:12:29.280 moving in the SMP. It's exactly what you've gotten the 0:12:29.360 --> 0:12:32.120 last four weeks. And so it looks like credit is 0:12:32.160 --> 0:12:36.120 resilient only because the starting level is so tight, But 0:12:36.200 --> 0:12:38.719 if you look at the change in spreads, it's been commonsorate. 0:12:38.760 --> 0:12:40.200 I would say with the move inequities. 0:12:40.280 --> 0:12:42.440 When John was talking about your note, you talked about 0:12:42.480 --> 0:12:45.160 the first headline from Donald Trump when it came to tariffs. 0:12:45.480 --> 0:12:48.800 Why now? Trump has talked about this from the very beginning, 0:12:48.840 --> 0:12:52.439 and we knew this was one piece of his broader plan. 0:12:53.200 --> 0:12:53.680 Why now? 0:12:53.800 --> 0:12:56.240 Great question. I think what we've learned is that the 0:12:56.280 --> 0:13:00.160 administration has greater tolerance for a move lower in the 0:13:00.200 --> 0:13:02.640 market and even a full slow down in the economy. 0:13:02.640 --> 0:13:05.200 To me, that's been the most critical piece of information 0:13:05.280 --> 0:13:09.079 that we've learned. And then valuation has remained very tight. 0:13:09.240 --> 0:13:11.040 The two other things I would add is that you know, 0:13:11.320 --> 0:13:14.240 and this is a big difference between today and twenty eighteen. 0:13:14.320 --> 0:13:17.560 In eighteen, rates were very low. They're not today. Actually, 0:13:17.559 --> 0:13:20.480 you get paid four percent four in a quarter to 0:13:20.600 --> 0:13:23.240 invest in cash, and so you have a very valuable 0:13:23.280 --> 0:13:26.720 degree of freedom. Duration has rallied to from a peak 0:13:26.760 --> 0:13:29.000 of four and three quarters roughly to four and a quarter, 0:13:29.320 --> 0:13:33.679 but can rally more if you have an even bigger slowdown. 0:13:33.679 --> 0:13:35.920 And so to me, the urgency to buy the dip 0:13:35.960 --> 0:13:37.960 today is just not there. 0:13:38.120 --> 0:13:40.240 I think we all remember December twenty eighteen when the 0:13:40.240 --> 0:13:42.880 credit market totally throws up. I think that month for 0:13:42.960 --> 0:13:46.120 high yield we got zero issuance in December twenty eighteen. 0:13:46.559 --> 0:13:48.599 Is there anything like that happening right now? Anything that 0:13:48.640 --> 0:13:51.040 we're concern the Federal Reserve coming against this two diimetic 0:13:51.320 --> 0:13:52.559 standing tomorrow. 0:13:53.280 --> 0:13:56.040 I think they'll most likely be in wait and see 0:13:56.360 --> 0:13:58.960 or on the sidelines, will learn, you know, in terms 0:13:59.040 --> 0:14:01.280 of what they do with the their own projections how 0:14:01.360 --> 0:14:04.000 much they'll push inflation up and then how much they'll 0:14:04.000 --> 0:14:06.960 push growth down. But at the moment, like us, my 0:14:07.040 --> 0:14:09.360 guess is that they're processing this flow of information and 0:14:09.400 --> 0:14:10.640 trying to assess what they will do. 0:14:10.720 --> 0:14:10.880 Now. 0:14:10.880 --> 0:14:13.200 The market is pricing in I think two cuts for 0:14:13.240 --> 0:14:16.600 this year. That seems quite reasonable to me. You're pricing 0:14:16.600 --> 0:14:18.480 in two cuts not because you think we're going to 0:14:18.480 --> 0:14:20.960 make progress and inflation, but you're pricing in two cuts 0:14:21.280 --> 0:14:23.840 because you think the Fed will probably adopt some kind 0:14:23.840 --> 0:14:26.480 of an insurance cuts type of framework exactly like they did. 0:14:26.480 --> 0:14:27.640 Actually in twenty eighteen. 0:14:27.680 --> 0:14:30.040 It's the primary market still open for DALs. We saw 0:14:30.040 --> 0:14:31.320 some headlines in the last week or so. 0:14:32.960 --> 0:14:35.280 You know, risk aversion has gone up, and so the 0:14:35.320 --> 0:14:38.000 market is open one hundred percent, but new issue concessions 0:14:38.040 --> 0:14:40.000 have gone up, and so you know, issuers have to 0:14:40.000 --> 0:14:42.120 pay a little bit more relative to the secondary to 0:14:42.200 --> 0:14:45.280 access the primary market. That's actually, in and of itself, 0:14:45.480 --> 0:14:48.120 it's a healthy thing because if you reduce supply, you 0:14:48.200 --> 0:14:50.000 kind of rebalance the market a little bit and you 0:14:50.080 --> 0:14:51.960 bring stability to the secondary market. 0:14:52.160 --> 0:14:54.560 What are you waiting to understand the depth of what 0:14:54.680 --> 0:14:56.920 kind of correction we could see or whether this is 0:14:56.960 --> 0:15:00.920 going to become something that you can opportunistically go into. 0:15:01.360 --> 0:15:03.560 So at the single name level, I would say you're 0:15:03.600 --> 0:15:06.800 already seeing some opportunities. I mean, certainly the primary market 0:15:06.840 --> 0:15:09.720 is one way to deploy capital and harvest a little 0:15:09.720 --> 0:15:11.520 bit of alpha. But what could change my view? 0:15:11.640 --> 0:15:12.400 Look two things. 0:15:12.440 --> 0:15:15.200 One, you get a valuation reset, so actually you from 0:15:15.240 --> 0:15:16.880 load a lot of damage, you price it in and 0:15:16.960 --> 0:15:20.520 you make spreads interesting. Then you revisit the conversation. The 0:15:20.600 --> 0:15:22.560 second thing, I think we need to remember that there's 0:15:23.200 --> 0:15:26.440 in the administration's policy agenda. There's a lot of things 0:15:26.480 --> 0:15:30.160 that are pro growth, and so if you recalibrate, actually 0:15:30.240 --> 0:15:33.440 that policy makes away from some of the stuff that 0:15:33.520 --> 0:15:36.200 is actually negative to growth into some of the things 0:15:36.240 --> 0:15:38.640 that are positive for growth. Tax cuts is a good example, 0:15:38.640 --> 0:15:41.120 and deregulation, et cetera. Then I think you have a 0:15:41.120 --> 0:15:43.320 different conversation and you would look at this market a 0:15:43.360 --> 0:15:44.320 bit differently. 0:15:44.120 --> 0:15:46.040 A sense that's still the strategic can care of a 0:15:46.040 --> 0:15:48.120 lot of the bolls out there that the overall policy 0:15:48.120 --> 0:15:51.600 makes is still pro ris pro growth. In six nine 0:15:51.600 --> 0:15:53.360 months time, things might look a little bit different. That's 0:15:53.360 --> 0:15:54.000 the hope. Anyway. 0:15:54.120 --> 0:15:56.000 The first half of the year is Biden data, and 0:15:56.000 --> 0:15:58.440 then when Trump data comes into play, you would tell that, yeah, 0:15:58.480 --> 0:16:00.280 then there's going to be a policy mixer. It's more 0:16:00.280 --> 0:16:01.920 supportive too. Things going better. 0:16:02.000 --> 0:16:03.800 Lofi's good to see you. Thanks for breaking this down. 0:16:03.800 --> 0:16:06.600 Sharp has always a clinic on credit from Loafi Karui 0:16:06.640 --> 0:16:20.040 there of Goldman Sachs, twenty seven percent of registered voters 0:16:20.120 --> 0:16:23.480 view the party positively in an NBC News poll. Unreal 0:16:23.720 --> 0:16:25.880 joining us now to build on some of these conversations. 0:16:25.920 --> 0:16:29.720 Henrota tres A Vada Partners, Henrietta welcome to the program. Overall, 0:16:29.840 --> 0:16:31.720 I would say on net the people that come on 0:16:31.720 --> 0:16:34.840 this program don't like tariffs. There is some pushbacks sometimes, 0:16:34.880 --> 0:16:36.720 but on the whole they don't like them. The market 0:16:36.760 --> 0:16:39.800 participants they do like tax cuts. Now we're trying to 0:16:39.880 --> 0:16:43.440 understand whether we'll get those corresponding tax cuts anytime soon. 0:16:44.560 --> 0:16:46.560 Well, if you listen to the White House, they're trying 0:16:46.600 --> 0:16:49.120 to build the one thing that is happening here tariffs 0:16:49.400 --> 0:16:51.560 as tax cuts. You know, when Peter Navarro and other 0:16:51.600 --> 0:16:53.960 economic advisors in the White House come out and say 0:16:53.960 --> 0:16:57.600 that tariffs are tax cuts, that's obviously you know, either 0:16:57.640 --> 0:16:59.000 you're lying to yourself or you're lying to me. 0:16:59.120 --> 0:17:01.680 But it's not correct. And that's the problem. 0:17:01.400 --> 0:17:03.640 That we run into because the same is true on 0:17:03.680 --> 0:17:06.720 the tax cut side. As your previous guest was discussing 0:17:07.080 --> 0:17:09.320 the bill that they're trying to pass, you know by 0:17:09.359 --> 0:17:11.320 Memorial Day whenever it passes, that don't care. 0:17:11.640 --> 0:17:13.200 They're extending the status quo. 0:17:13.600 --> 0:17:15.800 So there are no tax cuts even built into the 0:17:16.040 --> 0:17:19.680 four point six trillion dollar tax bill that they need 0:17:19.720 --> 0:17:20.640 to pass this year. 0:17:21.000 --> 0:17:24.159 So there are tariffs and there are not tax cuts. 0:17:24.440 --> 0:17:27.639 And when you sell tariffs as tax cuts, you create 0:17:27.680 --> 0:17:31.440 a pretty material disconnect between the consumer who is confused 0:17:31.480 --> 0:17:34.680 now about what there should should be expecting, which is swye. 0:17:34.720 --> 0:17:36.880 You pull back at the big box retailers and people 0:17:36.920 --> 0:17:38.439 delaying big purchases, which. 0:17:38.359 --> 0:17:41.960 Is what's leading to that soft data that's so problematic. 0:17:41.600 --> 0:17:43.919 Right now, Henrietta, what happened to the Caroenen stick approach 0:17:43.960 --> 0:17:47.160 when it came to tariffs in corporate tax rates? I thought, 0:17:47.200 --> 0:17:50.080 if you produced in the United States, potentially you could 0:17:50.080 --> 0:17:52.280 get a fifteen percent corporate tax rate. Where did that 0:17:52.320 --> 0:17:54.000 conversation go on Capitol Hill? 0:17:54.720 --> 0:17:57.520 That conversation is nowhere right now on Capitol Hill. Each 0:17:57.560 --> 0:17:59.879 percentage point reduction in the corporate tax rate costs a 0:18:00.040 --> 0:18:02.920 hundred and fifty billion dollars. So, as I mentioned, we're 0:18:02.960 --> 0:18:05.480 already at four point six trillion just for the status quo. 0:18:05.520 --> 0:18:07.680 We got to fix the salt cap even just to 0:18:07.760 --> 0:18:10.280 raise it up to twenty k for couples filing jointly. 0:18:10.680 --> 0:18:13.320 We have to extend the child tax credit. 0:18:13.520 --> 0:18:16.119 The President wants to do things like eliminate taxes on tips, 0:18:16.119 --> 0:18:18.560 which is itself one hundred and seventy five billion dollars. 0:18:18.760 --> 0:18:21.200 We do not have the money for a fifteen percent 0:18:21.280 --> 0:18:22.760 corporate tax rate, And even if. 0:18:22.640 --> 0:18:24.320 You did, I'd like to. 0:18:24.400 --> 0:18:27.760 Relay that the Republican Conference and members up there do 0:18:27.880 --> 0:18:30.440 not support additional tax cuts. 0:18:30.200 --> 0:18:31.360 For the business community. 0:18:31.680 --> 0:18:35.000 They view the twenty seventeen tax build downfall. The one 0:18:35.000 --> 0:18:37.960 piece that was really unpopular is that the corporate rate 0:18:38.000 --> 0:18:40.720 tech cuts were permanent, and all the individuals in the 0:18:40.800 --> 0:18:43.679 United States are now subject to the tax increase at 0:18:43.680 --> 0:18:46.160 the end of this year because of the twenty seventeen bills. 0:18:46.160 --> 0:18:48.119 So there's not a lot of appetite for tax cuts 0:18:48.320 --> 0:18:49.160 at the corporate level. 0:18:49.240 --> 0:18:51.720 So, Henrietta, what kind of extras can we get? Do 0:18:51.800 --> 0:18:54.760 we get no tax on tips, no tax on social security? 0:18:55.080 --> 0:18:57.640 What could Trump put on this to make it more 0:18:57.720 --> 0:18:59.880 than just an extension of TCJA. 0:19:00.720 --> 0:19:03.680 That's a great question. The no taxes on SOLFI security 0:19:03.760 --> 0:19:04.960 is physically not possible. 0:19:05.480 --> 0:19:08.840 They're not permitted to address social security in any capacity 0:19:09.119 --> 0:19:11.440 using reconciliation instructions. 0:19:10.880 --> 0:19:12.720 So that's entirely off the table. 0:19:13.000 --> 0:19:15.440 And just so we're clear, the cost of doing that 0:19:15.480 --> 0:19:19.040 would be one point eight trillion dollars. So if it 0:19:19.119 --> 0:19:22.520 was not physically impossible, it's definitely monetarily impossible. The no 0:19:22.640 --> 0:19:24.879 taxes on tips piece doesn't have a tremendous amount of 0:19:24.880 --> 0:19:28.720 support because there's not been enough education or discussion of 0:19:28.760 --> 0:19:31.639