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 --> 00:00:37,960 Speaker 2: Terminal and the Bloomberg Business App. Harry Cavasina of RBC writing, 10 00:00:38,000 --> 00:00:40,479 Speaker 2: we are lowering our year end twenty five price targets 11 00:00:40,479 --> 00:00:43,720 Speaker 2: of fifty five to fifty from sixty two hundred, essentially 12 00:00:43,760 --> 00:00:47,000 Speaker 2: making our old bare case our new base case. Lurie 13 00:00:47,040 --> 00:00:49,320 Speaker 2: joined us now for more, and Laurier have to say 14 00:00:49,479 --> 00:00:51,680 Speaker 2: that old bear case, which is the new base case, 15 00:00:51,760 --> 00:00:54,080 Speaker 2: is sounding like the bullcase based on the moose we've 16 00:00:54,120 --> 00:00:56,440 Speaker 2: seen over the past few days. How you're reflecting on 17 00:00:56,520 --> 00:00:57,480 Speaker 2: things over the weekend. 18 00:00:58,880 --> 00:01:00,960 Speaker 3: It's a great question, and I was actually talking to 19 00:01:01,000 --> 00:01:03,640 Speaker 3: my energy trader, and the days are all bleeding together 20 00:01:03,680 --> 00:01:05,600 Speaker 3: at this point. I think it was on Friday, and 21 00:01:05,800 --> 00:01:08,360 Speaker 3: you know, we sort of discussed how we went from 22 00:01:08,400 --> 00:01:11,800 Speaker 3: stagflation in terms of people's thinking to recession in about 23 00:01:11,800 --> 00:01:14,840 Speaker 3: two seconds. And I've never seen anything like it where 24 00:01:14,840 --> 00:01:17,360 Speaker 3: you've just seen the mentality shift so much so quickly. 25 00:01:17,640 --> 00:01:19,959 Speaker 3: But I will caution you that is what happens in 26 00:01:20,040 --> 00:01:21,880 Speaker 3: growth spheres, and that is what we are Smack Dad 27 00:01:21,920 --> 00:01:24,000 Speaker 3: in the middle of the seventeen point four percent draw 28 00:01:24,040 --> 00:01:26,480 Speaker 3: down that we saw as of Friday was exactly in 29 00:01:26,520 --> 00:01:28,840 Speaker 3: line with the average drawdown that we saw in twenty ten, 30 00:01:28,920 --> 00:01:31,360 Speaker 3: twenty eleven, twenty fifteen, sixteen, and twenty eighteen. 31 00:01:31,400 --> 00:01:32,959 Speaker 1: Of course, that twenty eighteen. 32 00:01:32,800 --> 00:01:35,399 Speaker 3: Went all the way down twenty percent, which would take 33 00:01:35,440 --> 00:01:37,399 Speaker 3: us around forty nine hundred on the S ANDP. This 34 00:01:37,400 --> 00:01:39,440 Speaker 3: time around, I think just a touch under. And so 35 00:01:39,560 --> 00:01:42,160 Speaker 3: this is what it feels like. You know, we have 36 00:01:42,319 --> 00:01:44,920 Speaker 3: this tiers of fear framework we've talked about to help 37 00:01:45,000 --> 00:01:47,560 Speaker 3: us navigate. We're in tier two. Tier one is the 38 00:01:47,600 --> 00:01:50,200 Speaker 3: garden variety pullback. Tier two is the growth fhere. Tier 39 00:01:50,240 --> 00:01:52,919 Speaker 3: three is recession. And so we have increasingly been talking 40 00:01:52,960 --> 00:01:55,520 Speaker 3: to people, if we break through that twenty percent number, 41 00:01:55,840 --> 00:01:58,200 Speaker 3: what does recession look like? If you look at the 42 00:01:58,240 --> 00:02:00,640 Speaker 3: average and the media and draw down it's about twenty 43 00:02:00,640 --> 00:02:02,559 Speaker 3: seven and thirty two percent. It's taken out of forty 44 00:02:02,560 --> 00:02:04,280 Speaker 3: two hundred and forty five hundred on the S and P. 45 00:02:04,440 --> 00:02:07,120 Speaker 1: We could do that. It's not unreasonable to be thinking. 46 00:02:06,960 --> 00:02:09,280 Speaker 2: About that, Laurie. We know how to price growth scarce. 47 00:02:09,320 --> 00:02:11,800 Speaker 2: We're okay at that. We're fairly decent at knowing what 48 00:02:11,840 --> 00:02:13,839 Speaker 2: a recession might look like, though we haven't seen many 49 00:02:13,840 --> 00:02:16,040 Speaker 2: over the last twenty years. That's a shock to the cycle. 50 00:02:16,600 --> 00:02:18,280 Speaker 2: The issue that we've been trying to get our hands 51 00:02:18,280 --> 00:02:20,280 Speaker 2: around is how to price a shock to the system 52 00:02:20,680 --> 00:02:22,480 Speaker 2: because of these are the new rules of the game. 53 00:02:22,880 --> 00:02:25,800 Speaker 2: This is a change we haven't seen for decades, Lourie, 54 00:02:25,919 --> 00:02:26,919 Speaker 2: How different is that? 55 00:02:28,160 --> 00:02:29,960 Speaker 1: So I think it's a great question. John. 56 00:02:30,000 --> 00:02:32,560 Speaker 3: And as I've been, you know, talking to investors over 57 00:02:32,600 --> 00:02:34,720 Speaker 3: the past month, and we've been talking, we were talking 58 00:02:34,720 --> 00:02:35,280 Speaker 3: about how. 59 00:02:35,160 --> 00:02:37,880 Speaker 1: That tier two fear was rising. One of the thoughts 60 00:02:37,919 --> 00:02:38,680 Speaker 1: that occurred to. 61 00:02:38,639 --> 00:02:40,280 Speaker 3: Me, and I didn't like to say this out loud 62 00:02:40,320 --> 00:02:42,640 Speaker 3: all that often, but it had felt a bit to 63 00:02:42,680 --> 00:02:45,160 Speaker 3: me like this was January of twenty twenty, where there 64 00:02:45,240 --> 00:02:47,960 Speaker 3: was something coming that we didn't quite know what it was. 65 00:02:48,639 --> 00:02:50,760 Speaker 3: I will give you one bit of you know, comfort 66 00:02:50,880 --> 00:02:53,640 Speaker 3: from that twenty twenty period, which was that that ended 67 00:02:53,720 --> 00:02:57,040 Speaker 3: up being a garden variety recession in the thirties and 68 00:02:57,120 --> 00:02:58,720 Speaker 3: terms of the drawdown from peak. And I know it 69 00:02:58,760 --> 00:03:00,560 Speaker 3: doesn't make us all feel happy for me to say 70 00:03:00,560 --> 00:03:02,520 Speaker 3: that out loud right now, but it does give me 71 00:03:02,560 --> 00:03:04,680 Speaker 3: a little bit of comfort. If you really want to 72 00:03:04,720 --> 00:03:07,720 Speaker 3: talk about big crises, we don't have a big sample 73 00:03:07,800 --> 00:03:10,120 Speaker 3: size on those. You know, We've got things like the 74 00:03:10,160 --> 00:03:13,040 Speaker 3: tech bubble, We've got things like the GFC. You basically 75 00:03:13,040 --> 00:03:15,280 Speaker 3: see the market lose hap its value. I'm not saying 76 00:03:15,280 --> 00:03:17,600 Speaker 3: that's what's going to happen, but as we sort of explore, 77 00:03:17,760 --> 00:03:20,560 Speaker 3: you know, the depths that we could go, that is 78 00:03:20,600 --> 00:03:22,799 Speaker 3: the one outside of recession that you want to look at. 79 00:03:22,919 --> 00:03:25,840 Speaker 4: You said, Laurie in your recent note that full recession 80 00:03:25,880 --> 00:03:28,600 Speaker 4: pricing could be a drawdown of some twenty seven to 81 00:03:28,639 --> 00:03:31,560 Speaker 4: thirty two percent based on historical standards, which would take 82 00:03:31,560 --> 00:03:34,760 Speaker 4: the index down to forty two hundred to forty five hundred. 83 00:03:35,120 --> 00:03:37,680 Speaker 4: What would you have to see to start entertaining the 84 00:03:37,680 --> 00:03:39,320 Speaker 4: idea of that being a base case? 85 00:03:40,800 --> 00:03:43,000 Speaker 3: So look, I think the street and we talked about 86 00:03:43,000 --> 00:03:44,960 Speaker 3: this in our target note. We changed our target on 87 00:03:45,000 --> 00:03:47,680 Speaker 3: Friday morning. It was clear to us on Thursday that that, 88 00:03:47,720 --> 00:03:49,160 Speaker 3: you know, things were not going to hold in that 89 00:03:49,200 --> 00:03:53,240 Speaker 3: garden variety territory. But the reality is that the street 90 00:03:53,320 --> 00:03:55,640 Speaker 3: right now is really doing a lot of hard work 91 00:03:55,680 --> 00:03:57,720 Speaker 3: modeling out what the economic impacts are. 92 00:03:58,000 --> 00:03:59,520 Speaker 1: And so we've got the impacts. 93 00:03:59,120 --> 00:04:02,840 Speaker 3: From the tariffs, but then we've also got secondary impacts, right, 94 00:04:02,880 --> 00:04:05,480 Speaker 3: We've got impacts from all the uncertainty we've just had. 95 00:04:05,520 --> 00:04:07,760 Speaker 1: We've got secondary impacts. Even if the. 96 00:04:07,680 --> 00:04:11,160 Speaker 3: Tariffs get dialed down, there's still secondary impacts from the 97 00:04:11,280 --> 00:04:13,720 Speaker 3: uncertainty that will be there going forward. This is a 98 00:04:13,880 --> 00:04:16,640 Speaker 3: very very tough thing for the economics community to model. 99 00:04:16,839 --> 00:04:19,159 Speaker 3: They're working through it now, and I will remind you, Lisa, 100 00:04:19,200 --> 00:04:21,560 Speaker 3: a week ago, we were also all sitting here saying 101 00:04:21,560 --> 00:04:23,960 Speaker 3: we've seen all this deterioration and the soft data, what 102 00:04:24,040 --> 00:04:26,240 Speaker 3: about the hard data. We still haven't really seen any 103 00:04:26,320 --> 00:04:30,240 Speaker 3: hard data yet for the recent impacts of all that uncertainty. 104 00:04:30,279 --> 00:04:32,200 Speaker 3: So we need that baseline to come out in this 105 00:04:32,279 --> 00:04:35,719 Speaker 3: hard data to really understand what the damage is going 106 00:04:35,800 --> 00:04:36,000 Speaker 3: to be. 107 00:04:36,200 --> 00:04:37,920 Speaker 4: At the same time that we're talking in these sort 108 00:04:37,920 --> 00:04:40,440 Speaker 4: of catastrophic terms. I want to go back to the 109 00:04:40,480 --> 00:04:42,839 Speaker 4: call that you actually made, which is gains on the 110 00:04:42,960 --> 00:04:45,279 Speaker 4: S and F through the end of this year. What 111 00:04:45,440 --> 00:04:49,120 Speaker 4: gives you hope or confidence that actually there is going 112 00:04:49,160 --> 00:04:50,480 Speaker 4: to be some sort of rally. 113 00:04:50,560 --> 00:04:52,320 Speaker 5: What is the relief valve. 114 00:04:52,279 --> 00:04:55,480 Speaker 4: That you think Stymy's what this is as you frame 115 00:04:55,600 --> 00:04:56,360 Speaker 4: a growth scare. 116 00:04:57,520 --> 00:04:59,680 Speaker 3: So, look, there are two things that you can look at. 117 00:04:59,680 --> 00:05:01,760 Speaker 3: One of them I buy into the other that I don't. 118 00:05:01,800 --> 00:05:03,599 Speaker 3: I think that the thing that you know, and we've 119 00:05:03,600 --> 00:05:06,200 Speaker 3: seen strategists you know, start to take their numbers down, 120 00:05:06,240 --> 00:05:08,240 Speaker 3: A lot have not, and I think one of the 121 00:05:08,279 --> 00:05:10,360 Speaker 3: reasons why a lot have not is because there is 122 00:05:10,360 --> 00:05:12,680 Speaker 3: an understanding if you've been in this business long enough, 123 00:05:12,680 --> 00:05:15,040 Speaker 3: that as fast as you go down, you can rally 124 00:05:15,160 --> 00:05:18,000 Speaker 3: just as fast on the other side once something happens, 125 00:05:18,040 --> 00:05:20,320 Speaker 3: once there's some sort of policy intervention, once there's some 126 00:05:20,360 --> 00:05:23,440 Speaker 3: sort of change, And so I think that's keeping people, 127 00:05:23,600 --> 00:05:25,880 Speaker 3: you know, somewhat. I don't want to use the word complacent, 128 00:05:25,880 --> 00:05:27,720 Speaker 3: because that's not what it is. It's a legitimate thing 129 00:05:27,760 --> 00:05:30,320 Speaker 3: to worry about. But I do think the trigger in 130 00:05:30,400 --> 00:05:33,000 Speaker 3: terms of the fundamentals for that is this idea that 131 00:05:33,040 --> 00:05:35,599 Speaker 3: we get back to tax, that we get back to deregulation, 132 00:05:35,720 --> 00:05:38,279 Speaker 3: that somehow this storm passes and we get to the 133 00:05:38,320 --> 00:05:40,679 Speaker 3: promised lands of those business friendly things. 134 00:05:40,760 --> 00:05:42,560 Speaker 1: I'm not so excited about that. 135 00:05:43,400 --> 00:05:46,040 Speaker 3: But I will tell you the thing in my modeling, Lisa, 136 00:05:46,279 --> 00:05:48,440 Speaker 3: that sort of keeps me sympathetic to that kind of 137 00:05:48,520 --> 00:05:50,640 Speaker 3: V shaped type move, or at least on guard for 138 00:05:50,680 --> 00:05:52,640 Speaker 3: it a little bit, is the idea that if you 139 00:05:52,640 --> 00:05:55,799 Speaker 3: look at aaii netbulls, they are a very very good 140 00:05:55,839 --> 00:05:57,039 Speaker 3: contrarian indicator. 141 00:05:57,080 --> 00:05:59,279 Speaker 1: If you're looking on a forward, say nine. 142 00:05:59,120 --> 00:06:01,880 Speaker 3: Month basis or twelve month basis, and we are down 143 00:06:02,000 --> 00:06:04,680 Speaker 3: more than two standard deviations below the long term average. 144 00:06:04,680 --> 00:06:06,800 Speaker 3: We have been there since the end of February. In 145 00:06:06,880 --> 00:06:09,719 Speaker 3: terms of how lousy people have felt. That is similar 146 00:06:09,720 --> 00:06:12,240 Speaker 3: to what we saw in twenty twenty two. It's similar 147 00:06:12,279 --> 00:06:14,120 Speaker 3: to what we saw in the GFC. It's similar to 148 00:06:14,160 --> 00:06:16,160 Speaker 3: also what we saw in the ninety ninety one recession. 149 00:06:16,400 --> 00:06:18,440 Speaker 3: If you go back to the fall of twenty twenty two, 150 00:06:18,600 --> 00:06:21,640 Speaker 3: there was despair running around the street. We had something 151 00:06:21,720 --> 00:06:24,520 Speaker 3: weird happen with that inflation spike. It wasn't quite a recession. 152 00:06:24,760 --> 00:06:27,560 Speaker 3: It ended up being a great buying opportunity that nobody 153 00:06:27,839 --> 00:06:30,320 Speaker 3: could even entertain in terms of kind of writing the 154 00:06:30,360 --> 00:06:33,599 Speaker 3: sentences out on paper. But that indicator, that just sort 155 00:06:33,600 --> 00:06:35,640 Speaker 3: of contrarian impulse, I think is something a lot of 156 00:06:35,640 --> 00:06:37,880 Speaker 3: people in the strategy community have in their minds. 157 00:06:38,040 --> 00:06:41,120 Speaker 2: Laurie Helpers navigated the earning still to come. So on Friday, 158 00:06:41,120 --> 00:06:43,320 Speaker 2: we were going into the hard daya looking for payrolls. 159 00:06:43,320 --> 00:06:45,760 Speaker 2: Payrolls came and went. No one's talking about it, no 160 00:06:45,760 --> 00:06:48,160 Speaker 2: one's mentioned it for the whole of this morning. For 161 00:06:48,200 --> 00:06:50,960 Speaker 2: the Holy Yesterday, when we did special programming, the payrolls 162 00:06:51,000 --> 00:06:52,040 Speaker 2: number didn't even come up. 163 00:06:52,160 --> 00:06:54,880 Speaker 6: We moved on quickly. This week it's about earnings. 164 00:06:55,080 --> 00:06:57,200 Speaker 2: Are we going to have the same behavior towards earnings 165 00:06:57,200 --> 00:06:58,880 Speaker 2: this week when we hear from down to rail lines 166 00:06:58,920 --> 00:07:01,320 Speaker 2: on Wednesday? From the banks on Friday? What would you 167 00:07:01,400 --> 00:07:04,040 Speaker 2: use earnings this week for come they offer any guidance? 168 00:07:05,320 --> 00:07:07,480 Speaker 3: So, John, I don't think that the earnings this week 169 00:07:07,480 --> 00:07:09,760 Speaker 3: we're going to offer much guidance beyond the banks themselves. 170 00:07:09,840 --> 00:07:11,480 Speaker 3: You know, I think the airlines always give us some 171 00:07:11,520 --> 00:07:15,320 Speaker 3: interesting clues, particularly in regards to consumer behaviors. Of course 172 00:07:15,360 --> 00:07:17,600 Speaker 3: we want to pay attention to that, but you know, 173 00:07:17,640 --> 00:07:19,840 Speaker 3: to be honest, the banks are not at the center 174 00:07:19,880 --> 00:07:21,720 Speaker 3: of this storm. You know, we might hear some things 175 00:07:21,720 --> 00:07:24,440 Speaker 3: in terms of trading volume and whatnot, but we knew, 176 00:07:24,520 --> 00:07:26,600 Speaker 3: you know, back in early March at our financial conference, 177 00:07:26,640 --> 00:07:28,160 Speaker 3: that the banks were in pretty good shape. They were 178 00:07:28,200 --> 00:07:29,920 Speaker 3: cognizant of what was going on, and they felt like 179 00:07:29,960 --> 00:07:32,160 Speaker 3: they could manage through. So do we see any deviation 180 00:07:32,280 --> 00:07:34,320 Speaker 3: from that message. That'll be one thing to look at. 181 00:07:34,880 --> 00:07:37,400 Speaker 3: But really, John, what we care about is week two, 182 00:07:37,480 --> 00:07:40,440 Speaker 3: Week three, week four, We two, we get more industrials. 183 00:07:40,440 --> 00:07:42,400 Speaker 3: They're really more at the center of this storm. We 184 00:07:42,440 --> 00:07:44,200 Speaker 3: need to hear what they're saying in terms of how 185 00:07:44,240 --> 00:07:46,800 Speaker 3: they manage their supply chains and pricing. You're not even 186 00:07:46,840 --> 00:07:48,800 Speaker 3: going to get consumer companies till the end of this 187 00:07:48,880 --> 00:07:51,240 Speaker 3: reporting season. You might have a few sprinkled out throughout, 188 00:07:51,600 --> 00:07:52,880 Speaker 3: but this can be a long slog. 189 00:07:52,960 --> 00:07:54,400 Speaker 1: There's a lot of hard work to be done. 190 00:07:54,480 --> 00:07:57,360 Speaker 3: Companies have done a lousy job of giving the sell side, 191 00:07:57,360 --> 00:08:00,320 Speaker 3: analyst community guidance on how to think about tariffs because 192 00:08:00,320 --> 00:08:02,960 Speaker 3: that denialism you talked about, John, the companies have been 193 00:08:02,960 --> 00:08:05,080 Speaker 3: guilty of this as well, and it's really frozen a 194 00:08:05,080 --> 00:08:07,240 Speaker 3: lot of the people who cover stocks on the street, 195 00:08:07,440 --> 00:08:10,160 Speaker 3: because when they don't understand what the sensitivities are, they 196 00:08:10,160 --> 00:08:10,840 Speaker 3: can't model it. 197 00:08:10,880 --> 00:08:12,680 Speaker 1: And I will tell you I read a lot of transcripts. 198 00:08:13,200 --> 00:08:15,600 Speaker 3: Companies have not wanted to talk about anything until it 199 00:08:15,600 --> 00:08:18,480 Speaker 3: comes to reality, and we're just now having that reality. 200 00:08:18,200 --> 00:08:18,880 Speaker 1: Hit them in the face. 201 00:08:19,000 --> 00:08:20,480 Speaker 2: Laurie, you don't have to answer this question if you 202 00:08:20,480 --> 00:08:21,640 Speaker 2: don't want to. I don't want to put you in 203 00:08:21,640 --> 00:08:23,480 Speaker 2: a tricky spot. But do you think that could be 204 00:08:23,480 --> 00:08:25,520 Speaker 2: because these management teams didn't want to get on the 205 00:08:25,560 --> 00:08:27,760 Speaker 2: wrong side of the administration? Do you think that was 206 00:08:27,760 --> 00:08:29,760 Speaker 2: something that was driving that decision not to share their 207 00:08:29,760 --> 00:08:32,240 Speaker 2: thoughts on tariffs? And do you think that'll change in 208 00:08:32,280 --> 00:08:32,960 Speaker 2: the coming weeks. 209 00:08:34,320 --> 00:08:36,400 Speaker 1: You know, it's hard for me to speculate on what 210 00:08:36,480 --> 00:08:38,360 Speaker 1: that is. I do worry about John. 211 00:08:38,240 --> 00:08:41,120 Speaker 3: About financial markets, and you know, I'm an old political 212 00:08:41,200 --> 00:08:43,880 Speaker 3: science major. I study political political theory, and so I'm 213 00:08:43,880 --> 00:08:45,960 Speaker 3: a big believer in the free marketplace of ideas, and 214 00:08:46,000 --> 00:08:47,640 Speaker 3: I do think we have to have a free market 215 00:08:47,640 --> 00:08:50,320 Speaker 3: place of ideas on the street for financial. 216 00:08:50,040 --> 00:08:53,079 Speaker 1: Markets to work well. But I think, to be honest, 217 00:08:53,360 --> 00:08:53,719 Speaker 1: they have. 218 00:08:53,800 --> 00:08:56,200 Speaker 3: Really just not wanted to talk about things until they 219 00:08:56,320 --> 00:08:59,400 Speaker 3: knew exactly what they had to talk about if we 220 00:08:59,440 --> 00:09:02,079 Speaker 3: sort of look forward. You know, I think the conversation 221 00:09:02,200 --> 00:09:03,720 Speaker 3: is going to get started. But I will tell you 222 00:09:03,760 --> 00:09:06,320 Speaker 3: one of my analysts last week told me his companies 223 00:09:06,400 --> 00:09:07,800 Speaker 3: they're not going to be able to figure out this 224 00:09:07,840 --> 00:09:09,959 Speaker 3: in one quarter. It's going to take a couple quarters. 225 00:09:09,960 --> 00:09:11,440 Speaker 3: And that was not a comforting thought to me. 226 00:09:11,720 --> 00:09:14,199 Speaker 2: Lurie, I appreciate your time as oas thanks for jumping 227 00:09:14,200 --> 00:09:16,880 Speaker 2: on for us Lari canvasin event a VAMPI. 228 00:09:16,640 --> 00:09:28,520 Speaker 7: Sat excited to say I'm joined by Ed Mills this 229 00:09:28,559 --> 00:09:30,400 Speaker 7: morning of Raymond James, and thank you so. 230 00:09:30,440 --> 00:09:31,040 Speaker 5: Much for joining. 231 00:09:31,040 --> 00:09:34,480 Speaker 7: A big question we have going into this week is 232 00:09:34,480 --> 00:09:37,000 Speaker 7: is this a negotiating tactic. This reports in Japan the 233 00:09:37,040 --> 00:09:39,360 Speaker 7: Prime Minister will get on the phone with the president 234 00:09:39,400 --> 00:09:42,160 Speaker 7: this morning DC time, or are these the new rules 235 00:09:42,160 --> 00:09:42,839 Speaker 7: of engagement. 236 00:09:43,440 --> 00:09:45,480 Speaker 8: I think it's a bit of both, and I think 237 00:09:45,480 --> 00:09:48,760 Speaker 8: that they need more revenue to go to the tax cuts. 238 00:09:49,040 --> 00:09:50,960 Speaker 8: I do think that this is a big part of 239 00:09:51,000 --> 00:09:53,800 Speaker 8: trying to change policy and Marie, but I think that 240 00:09:53,880 --> 00:09:56,600 Speaker 8: the problem for the President is that a lot of 241 00:09:56,720 --> 00:09:59,440 Speaker 8: world leaders are not quite sure that they can negotiate 242 00:09:59,480 --> 00:10:02,920 Speaker 8: with him. They look at the meeting between Trudeau Zelenski. 243 00:10:03,520 --> 00:10:06,120 Speaker 8: They don't want to be embarrassed. They also don't know 244 00:10:06,280 --> 00:10:09,480 Speaker 8: what the president actually wants. He says he doesn't want 245 00:10:09,520 --> 00:10:12,120 Speaker 8: a trade deficit, but there's some of these countries that 246 00:10:12,200 --> 00:10:14,920 Speaker 8: will never be able to be at par you look 247 00:10:14,960 --> 00:10:18,280 Speaker 8: at Vietnam in particular. I think one of the saving 248 00:10:18,320 --> 00:10:21,720 Speaker 8: graces potentially is that the only thing that is still 249 00:10:21,800 --> 00:10:25,839 Speaker 8: not subject to tariffs are USMCA compliant goods. That was 250 00:10:25,880 --> 00:10:27,880 Speaker 8: a deal that he struck in his first term. Is 251 00:10:27,880 --> 00:10:31,000 Speaker 8: he trying to send the signal that if I negotiate 252 00:10:31,040 --> 00:10:33,600 Speaker 8: a deal that I am willing to stick with it. 253 00:10:33,800 --> 00:10:36,880 Speaker 8: The more USMCA goods are excluded, the more he can 254 00:10:36,960 --> 00:10:37,840 Speaker 8: lean into that argument. 255 00:10:37,920 --> 00:10:41,280 Speaker 7: The trade deals take years to hammer out. Is the 256 00:10:41,360 --> 00:10:42,559 Speaker 7: damage going to be done? 257 00:10:43,080 --> 00:10:45,040 Speaker 8: That's the question for markets, And when I talked to 258 00:10:45,040 --> 00:10:48,319 Speaker 8: folks at Raymond James is that they are concerned that 259 00:10:48,400 --> 00:10:51,839 Speaker 8: what they thought they understood about President Trump is not 260 00:10:51,920 --> 00:10:54,680 Speaker 8: what they're getting. That there is a big concern that 261 00:10:54,720 --> 00:10:58,160 Speaker 8: the equity markets are no longer a barometer of his success. 262 00:10:58,480 --> 00:11:00,640 Speaker 8: That they are concerned that he is going to be 263 00:11:00,800 --> 00:11:04,040 Speaker 8: pushing for a change to the world global order that 264 00:11:04,080 --> 00:11:06,440 Speaker 8: has existed since the end of World War II, and 265 00:11:06,480 --> 00:11:08,680 Speaker 8: that they are concerned that he might go too far 266 00:11:08,760 --> 00:11:12,400 Speaker 8: because his advisors are telling them in his first term 267 00:11:12,760 --> 00:11:15,680 Speaker 8: he didn't go fast enough and that he wasn't able 268 00:11:15,720 --> 00:11:17,720 Speaker 8: to do the change in the four years that he 269 00:11:17,760 --> 00:11:20,640 Speaker 8: was president, and that there is a desire to go stronger, 270 00:11:21,080 --> 00:11:24,319 Speaker 8: hold the course and try to push for additional change 271 00:11:24,440 --> 00:11:26,320 Speaker 8: that we were not pricing into this market. 272 00:11:26,400 --> 00:11:27,000 Speaker 1: Will there be. 273 00:11:27,040 --> 00:11:30,199 Speaker 7: Legal or congressional challenges to the tariff plans. 274 00:11:30,640 --> 00:11:32,440 Speaker 8: I think that there's going to be both. I think 275 00:11:32,480 --> 00:11:35,959 Speaker 8: with Congress. Congress has the ability under the National Emergencies 276 00:11:36,000 --> 00:11:39,760 Speaker 8: Act to undo this emergency. However, it requires a veto 277 00:11:39,800 --> 00:11:43,120 Speaker 8: proof majority. We saw the Senate pass a resolution on 278 00:11:43,160 --> 00:11:45,920 Speaker 8: the Canada tariffs last week that was only fifty one 279 00:11:45,880 --> 00:11:48,440 Speaker 8: to forty eight. It was a majority, but not veto proof. 280 00:11:48,960 --> 00:11:52,440 Speaker 8: If he's not cutting deals, the tensions will grow when 281 00:11:52,480 --> 00:11:56,080 Speaker 8: you look to the courts. He used emergency powers JEPA. 282 00:11:55,880 --> 00:11:56,480 Speaker 6: Yeah, AIPA. 283 00:11:56,720 --> 00:11:59,760 Speaker 8: Back in nineteen seventy one, Richard Nixon did the same thing, 284 00:12:00,040 --> 00:12:03,160 Speaker 8: used emergency powers to put a worldwide global tariff as 285 00:12:03,240 --> 00:12:05,360 Speaker 8: we came off the gold standard. There was a strong 286 00:12:05,440 --> 00:12:08,920 Speaker 8: argument there about an unbalanced of payments. Then in nineteen 287 00:12:08,960 --> 00:12:12,920 Speaker 8: seventy four, Congress passed a trade Act that said, if 288 00:12:12,920 --> 00:12:16,800 Speaker 8: there is an uneven balance of payments, the president's authority 289 00:12:17,080 --> 00:12:18,960 Speaker 8: is to use what's known as Section one twenty two, 290 00:12:19,280 --> 00:12:21,120 Speaker 8: where you can put a tariff on for one hundred 291 00:12:21,160 --> 00:12:23,880 Speaker 8: and fifty days up to fifteen percent one to five. 292 00:12:24,679 --> 00:12:27,320 Speaker 8: This is not what the president did here. So did 293 00:12:27,360 --> 00:12:30,679 Speaker 8: the president violate the congressional intent? Did the president use 294 00:12:30,720 --> 00:12:35,400 Speaker 8: emergency authority when there isn't the subcontext for an emergency authority? 295 00:12:35,640 --> 00:12:36,880 Speaker 1: The problem for me. 296 00:12:37,280 --> 00:12:41,000 Speaker 8: Is that the courts, almost exclusively never say that the 297 00:12:41,040 --> 00:12:45,559 Speaker 8: president's emergency action was not legitimate, and that the beef 298 00:12:45,640 --> 00:12:48,520 Speaker 8: might be with Congress that the Congress has to make 299 00:12:48,720 --> 00:12:51,760 Speaker 8: their action under the National Emergencies Act to turn off 300 00:12:51,800 --> 00:12:53,040 Speaker 8: the emergency. 301 00:12:52,600 --> 00:12:54,720 Speaker 7: Saying in Congress, some good news for the administration was 302 00:12:54,720 --> 00:12:56,600 Speaker 7: the fact that the Senate passed this budget is going 303 00:12:56,640 --> 00:12:58,599 Speaker 7: to go to the House this week. When do you 304 00:12:58,679 --> 00:13:01,240 Speaker 7: think we will see extension of tax cuts? 305 00:13:01,320 --> 00:13:03,400 Speaker 8: So I'm always looking for a crisis or deadline in 306 00:13:03,440 --> 00:13:06,360 Speaker 8: DC before we act. You look at Republicans and they're 307 00:13:06,400 --> 00:13:08,840 Speaker 8: trying to do this with the debt limit. So to me, 308 00:13:09,320 --> 00:13:13,760 Speaker 8: that goes right up to the August recess, so probably. 309 00:13:13,320 --> 00:13:14,800 Speaker 6: The June July time period. 310 00:13:15,040 --> 00:13:17,959 Speaker 8: And when you look at that bill, what passed in 311 00:13:18,000 --> 00:13:20,360 Speaker 8: the Senate was at least five trillion dollars worth of 312 00:13:20,400 --> 00:13:23,040 Speaker 8: tax cuts over the next decade, a three hundred billion 313 00:13:23,080 --> 00:13:26,360 Speaker 8: dollar increase in defense, in immigration spending. That would be 314 00:13:26,400 --> 00:13:29,160 Speaker 8: the single largest bill in the history of the United States. 315 00:13:29,360 --> 00:13:30,880 Speaker 8: And a lot of people look at this and say, 316 00:13:30,880 --> 00:13:32,960 Speaker 8: all right, well, this is not going to be stimulative 317 00:13:32,960 --> 00:13:35,960 Speaker 8: because it's a continuation of current policy. But when you 318 00:13:36,040 --> 00:13:38,920 Speaker 8: add in the changes to no tax on tips, overtime 319 00:13:38,960 --> 00:13:42,760 Speaker 8: social security, extension of salt, extension of the child tax credit, 320 00:13:42,960 --> 00:13:45,160 Speaker 8: in the business tax credits, I can come up with 321 00:13:45,200 --> 00:13:48,560 Speaker 8: a reasonable argument that over the next year or two 322 00:13:49,000 --> 00:13:51,959 Speaker 8: that's somewhere between five hundred billion in a trillion dollars 323 00:13:51,960 --> 00:13:54,640 Speaker 8: of additional stimulus. That's where the market is going to say, 324 00:13:54,760 --> 00:13:57,400 Speaker 8: that's the bull case from here, especially if we start 325 00:13:57,440 --> 00:13:59,160 Speaker 8: getting some of these trade deals struck. 326 00:13:59,040 --> 00:14:00,720 Speaker 1: Ed wills, Thank you so much from Raymond. 327 00:14:00,559 --> 00:14:13,680 Speaker 2: Jeans Justin Wolfers of the University of Michigan writing, these 328 00:14:13,720 --> 00:14:16,320 Speaker 2: tariffs are going to hurt a lot. They're going to 329 00:14:16,360 --> 00:14:19,640 Speaker 2: reshape your life in much more fundamental ways, and pleased 330 00:14:19,640 --> 00:14:21,480 Speaker 2: to say that Justin has given us some time this 331 00:14:21,520 --> 00:14:23,600 Speaker 2: morning just thin good morning to you, sir. Let's just 332 00:14:23,640 --> 00:14:25,920 Speaker 2: breath some life into that quote. When you say this 333 00:14:25,960 --> 00:14:29,200 Speaker 2: is going to change people's lives in fundamental ways, what 334 00:14:29,240 --> 00:14:29,520 Speaker 2: do you. 335 00:14:29,480 --> 00:14:33,480 Speaker 9: Mean Next time you walk through the supermarket, just pick 336 00:14:33,560 --> 00:14:37,800 Speaker 9: up that box of cookies or their pastor or that avocado, 337 00:14:38,000 --> 00:14:40,000 Speaker 9: and just look on the side for where it's made. 338 00:14:40,640 --> 00:14:43,280 Speaker 9: Even when it says whether it's made in America, think 339 00:14:43,320 --> 00:14:47,160 Speaker 9: about whether or ingredients came from and very quickly you'll 340 00:14:47,160 --> 00:14:50,560 Speaker 9: discover that every part of our lives is profoundly integrated 341 00:14:50,560 --> 00:14:53,520 Speaker 9: with the global economy. And what we now have is 342 00:14:54,240 --> 00:14:58,000 Speaker 9: on average twenty percent tax on every interaction we have 343 00:14:58,160 --> 00:15:00,640 Speaker 9: with the rest of the world. So we're going to 344 00:15:00,640 --> 00:15:03,080 Speaker 9: have to shift what we buy, we shift how much 345 00:15:03,120 --> 00:15:06,520 Speaker 9: we can afford, and you know, the rest of the 346 00:15:06,560 --> 00:15:09,160 Speaker 9: world's off doing business with each other. This is a 347 00:15:09,200 --> 00:15:10,720 Speaker 9: shock very much on Americans. 348 00:15:11,280 --> 00:15:11,480 Speaker 1: Justin. 349 00:15:11,520 --> 00:15:14,200 Speaker 4: You said, small tariffs create small problems, and big tariffs 350 00:15:14,520 --> 00:15:17,520 Speaker 4: create huge ones. How much of this is just simply 351 00:15:17,560 --> 00:15:21,280 Speaker 4: price increases. How much is this a real crimping in 352 00:15:21,360 --> 00:15:24,200 Speaker 4: the economy, and how much is this actual supply chain disruptions? 353 00:15:24,200 --> 00:15:26,360 Speaker 4: It kin to what we saw during the pandemic. 354 00:15:27,520 --> 00:15:30,080 Speaker 9: Yeah, so Lisa, this one of a few networks so 355 00:15:30,120 --> 00:15:31,960 Speaker 9: I can actually come on and talk about it this way. 356 00:15:32,960 --> 00:15:35,880 Speaker 9: There's something I hope your viewers remember from when they 357 00:15:35,920 --> 00:15:41,040 Speaker 9: took introductory economics, which is that the cost of a 358 00:15:41,120 --> 00:15:44,880 Speaker 9: tariff rises in the square of the tariff. So you know, 359 00:15:45,120 --> 00:15:47,760 Speaker 9: when we move from one percent to two percent tariffs, 360 00:15:47,760 --> 00:15:50,440 Speaker 9: which is basically what we did under the first Trump administration, 361 00:15:50,960 --> 00:15:54,000 Speaker 9: it's just not a big deal. You know, if our 362 00:15:54,120 --> 00:15:57,440 Speaker 9: two percent tariff can lead you to switch off buying something, 363 00:15:57,640 --> 00:16:00,320 Speaker 9: you probably didn't want it that much anyway. But now 364 00:16:00,320 --> 00:16:02,440 Speaker 9: we're moving all the way up to twenty percent tariffs. 365 00:16:02,440 --> 00:16:05,600 Speaker 9: And so by my calculation, that means that the second 366 00:16:05,800 --> 00:16:09,840 Speaker 9: set of the tariffs in the second Trump administration will 367 00:16:09,840 --> 00:16:14,080 Speaker 9: literally be fifty times more painful. To put it in 368 00:16:14,200 --> 00:16:17,720 Speaker 9: simpler language. In the first Trump administration, if things became 369 00:16:17,760 --> 00:16:20,080 Speaker 9: a little bit more expensive, you know, you could sort 370 00:16:20,080 --> 00:16:22,320 Speaker 9: of soldier on and a percentage point here, and then 371 00:16:22,360 --> 00:16:24,840 Speaker 9: you're not really going to notice here. Every time you 372 00:16:24,920 --> 00:16:27,880 Speaker 9: go to purchase something, every part of your supply chain, 373 00:16:28,040 --> 00:16:30,280 Speaker 9: every store you visit, you want to ask yourself a 374 00:16:30,360 --> 00:16:33,720 Speaker 9: question before you walk in hey to these prices make sense? 375 00:16:34,000 --> 00:16:36,320 Speaker 9: Can I afford to keep doing this? Ought to be 376 00:16:36,440 --> 00:16:39,120 Speaker 9: looking at a substitute even if it's a substitute I 377 00:16:39,120 --> 00:16:41,760 Speaker 9: don't like as much. And that's the sense in which 378 00:16:41,800 --> 00:16:43,920 Speaker 9: this is really fundamentally going to change every part of 379 00:16:43,920 --> 00:16:44,840 Speaker 9: our lives. 380 00:16:44,920 --> 00:16:47,160 Speaker 4: Which raises the question of what the bigger risk is 381 00:16:47,240 --> 00:16:50,440 Speaker 4: right now? Is it stay fleation or is it recession? 382 00:16:50,680 --> 00:16:53,200 Speaker 4: And people have been asking this question initially is stay 383 00:16:53,280 --> 00:16:56,960 Speaker 4: fleation was the main case? If this really does suppress demand, 384 00:16:57,240 --> 00:16:59,160 Speaker 4: at what point are we just talking out a recession? 385 00:17:00,560 --> 00:17:00,880 Speaker 1: Listen. 386 00:17:01,320 --> 00:17:02,720 Speaker 9: I think one of the hard things to do right 387 00:17:02,760 --> 00:17:06,000 Speaker 9: now is to interpret the news that we're getting. So 388 00:17:06,480 --> 00:17:09,040 Speaker 9: realize that stocks have fallen twelve thirteen percent over the 389 00:17:09,080 --> 00:17:13,679 Speaker 9: past a few trading days, but realize they'd already priced 390 00:17:13,680 --> 00:17:16,200 Speaker 9: in their best guess at what the Trump tariffs would 391 00:17:16,280 --> 00:17:19,280 Speaker 9: look like, and even right now they're pricing in a 392 00:17:19,400 --> 00:17:22,919 Speaker 9: very large probability that Trump backs off. So if you 393 00:17:23,000 --> 00:17:25,679 Speaker 9: took all of that out, that suggests that markets believe 394 00:17:25,760 --> 00:17:30,440 Speaker 9: that the cost of these tariffs are much much larger 395 00:17:30,480 --> 00:17:33,399 Speaker 9: than the ten than the twelve or thirteen percent that 396 00:17:33,520 --> 00:17:36,040 Speaker 9: markets have subtracted as a result so if they got 397 00:17:36,080 --> 00:17:38,320 Speaker 9: clarity that Trump were going to stick with this, it 398 00:17:38,359 --> 00:17:42,280 Speaker 9: would be even more calamitous. Look, you raise a really 399 00:17:42,280 --> 00:17:45,880 Speaker 9: important question, which is it's a very very asymmetric set 400 00:17:45,880 --> 00:17:49,360 Speaker 9: of risks. And so here's the thing Trump doesn't understand, 401 00:17:49,480 --> 00:17:52,080 Speaker 9: which is he remembers from when he was young that 402 00:17:52,119 --> 00:17:55,200 Speaker 9: there were very not very large, there were large trading 403 00:17:55,280 --> 00:17:58,440 Speaker 9: barriers within a number of countries. That's simply not true. 404 00:17:58,440 --> 00:18:01,400 Speaker 9: We had decades and decades of aid liberalization and it's 405 00:18:01,440 --> 00:18:05,199 Speaker 9: no longer true. So look, heads we win, we can 406 00:18:05,240 --> 00:18:07,879 Speaker 9: get a country like Vietnam to get rid of its tariffs, 407 00:18:07,920 --> 00:18:10,760 Speaker 9: but realize the gain there is Vietnam is going to 408 00:18:10,760 --> 00:18:13,520 Speaker 9: reduce its tariffreate from one point one percent to zero. 409 00:18:14,560 --> 00:18:19,080 Speaker 9: Tales we lose. We're facing thirty four percent tariffs on 410 00:18:19,160 --> 00:18:21,240 Speaker 9: trying to export stuff from China. So this is a 411 00:18:21,280 --> 00:18:23,359 Speaker 9: game where there's not much to win, but there's a 412 00:18:23,400 --> 00:18:24,520 Speaker 9: whole heck of a lot to lose. 413 00:18:24,800 --> 00:18:26,879 Speaker 2: Justin can we sit on the sources of inflation and 414 00:18:26,920 --> 00:18:29,879 Speaker 2: the potential for further price increases when you look across 415 00:18:29,880 --> 00:18:33,000 Speaker 2: the economy of various industries, and you mentioned food production 416 00:18:33,119 --> 00:18:36,719 Speaker 2: repeatedly through this conversation, are there certain industries where demand 417 00:18:36,760 --> 00:18:39,520 Speaker 2: will be high but capacity will continue to be low 418 00:18:39,560 --> 00:18:42,280 Speaker 2: and constrained here domestically in the United States that you 419 00:18:42,320 --> 00:18:44,280 Speaker 2: would worry about in the coming months. 420 00:18:46,000 --> 00:18:47,359 Speaker 9: Man, I'm just going to tell you, I'm not very 421 00:18:47,359 --> 00:18:49,800 Speaker 9: good getting down to the sector bisector staff. So you've 422 00:18:49,800 --> 00:18:51,639 Speaker 9: got all sorts of really smart analysts, and so I 423 00:18:51,720 --> 00:18:53,000 Speaker 9: reckon you oud oppose it to them. 424 00:18:53,240 --> 00:18:55,120 Speaker 2: I'm sure I'll ask them that question and they would 425 00:18:55,119 --> 00:18:58,080 Speaker 2: probably point to what you've pointed to food production, and 426 00:18:58,119 --> 00:19:00,399 Speaker 2: that could be the issue going forward from here. That 427 00:19:00,480 --> 00:19:03,200 Speaker 2: raises the question about consumer price tolerance justin and maybe 428 00:19:03,240 --> 00:19:05,159 Speaker 2: you can speak to that. This is going to be 429 00:19:05,200 --> 00:19:07,720 Speaker 2: the interesting interplay for us as we watch financial markets 430 00:19:07,760 --> 00:19:10,680 Speaker 2: and how corporations respond in the coming days, the interplay 431 00:19:10,680 --> 00:19:14,240 Speaker 2: between margins whether they'll absorb some of this or whether 432 00:19:14,240 --> 00:19:17,040 Speaker 2: they'll pass it on consumer price tolerance. Are we in 433 00:19:17,040 --> 00:19:19,320 Speaker 2: a different phase of the economic cycle compared to where 434 00:19:19,359 --> 00:19:22,080 Speaker 2: we were several years ago, when consumers could absorb some 435 00:19:22,119 --> 00:19:23,280 Speaker 2: of the higher costs. 436 00:19:23,800 --> 00:19:26,600 Speaker 9: Made were in a very different place. So, first of all, 437 00:19:26,680 --> 00:19:31,080 Speaker 9: during the last downturn, we had enormous amounts of government 438 00:19:31,119 --> 00:19:35,439 Speaker 9: support coming and more to the point, we had you know, 439 00:19:35,480 --> 00:19:39,199 Speaker 9: through twenty twenty one, a government that, whether you like 440 00:19:39,240 --> 00:19:41,399 Speaker 9: it or not, appeared to be competent on its face, 441 00:19:42,560 --> 00:19:46,560 Speaker 9: we had no surge in economic uncertainty. Look, one of 442 00:19:46,640 --> 00:19:48,280 Speaker 9: the things that's really unnerved to all of us over 443 00:19:48,280 --> 00:19:51,320 Speaker 9: the past few days is not just the tariffs. It's 444 00:19:51,400 --> 00:19:54,840 Speaker 9: the clown show that's come with it. It's tariff's on penguins, 445 00:19:55,240 --> 00:19:59,560 Speaker 9: it's setting tariffs proportional to the bilateral trade deficit, which 446 00:19:59,600 --> 00:20:02,679 Speaker 9: Noah on Earth will tell you it's defensible. And then 447 00:20:02,720 --> 00:20:06,280 Speaker 9: it's sending out the entire cabinet to the Sunday shows, 448 00:20:06,520 --> 00:20:08,440 Speaker 9: where each one of them, on a different network gave 449 00:20:08,480 --> 00:20:12,080 Speaker 9: a different rationale for what's going on, basically leaving us 450 00:20:12,119 --> 00:20:15,440 Speaker 9: all with the conclusion that the global economy is being 451 00:20:15,480 --> 00:20:18,680 Speaker 9: held hostage by the whims of just one man, which 452 00:20:18,720 --> 00:20:21,720 Speaker 9: is not usually how we like democracies or economies to work. 453 00:20:22,280 --> 00:20:24,680 Speaker 2: Justin, I appreciate your time, sir, as always, and your 454 00:20:24,680 --> 00:20:28,240 Speaker 2: honor's response as always, Justin Wolferstan at the University of Michigan. 455 00:20:38,000 --> 00:20:41,760 Speaker 2: Macan Draper Barkley's writing this coinflation will likely rise markedly 456 00:20:41,760 --> 00:20:44,520 Speaker 2: over the coming months as taris are implemented, labor report 457 00:20:44,800 --> 00:20:47,040 Speaker 2: needs to weaken materially for the fat to cut as 458 00:20:47,119 --> 00:20:50,159 Speaker 2: much as it's currently priced then by the market. Maganjoin's 459 00:20:50,200 --> 00:20:51,760 Speaker 2: is now for more. Megan, gim morning, get to see you, 460 00:20:51,880 --> 00:20:53,920 Speaker 2: Good morning, to see you. What changed the chairman pal 461 00:20:54,080 --> 00:20:54,879 Speaker 2: over the last week. 462 00:20:55,520 --> 00:20:57,760 Speaker 10: Oh, I mean things have become much cloudier. I think 463 00:20:57,760 --> 00:21:00,359 Speaker 10: it's a much more complicated hand that he's been delt. 464 00:21:00,400 --> 00:21:03,560 Speaker 10: And frankly, we've downgraded our growth forecast I think in 465 00:21:03,640 --> 00:21:05,680 Speaker 10: good company across the street over the course of the 466 00:21:05,760 --> 00:21:09,480 Speaker 10: last forty eight hours. So calling for two periods of 467 00:21:10,000 --> 00:21:12,399 Speaker 10: negative growth in the second half of this year, or 468 00:21:12,440 --> 00:21:14,920 Speaker 10: calling for unemployment to tick back up to four point 469 00:21:14,960 --> 00:21:17,080 Speaker 10: six by year end. But the bigger problem for the 470 00:21:17,119 --> 00:21:19,400 Speaker 10: Fed is that we're calling for an increase in inflation. 471 00:21:19,600 --> 00:21:22,120 Speaker 5: So it's up four percent on. 472 00:21:22,080 --> 00:21:24,439 Speaker 10: The course EPI number by your end, three seven on 473 00:21:24,600 --> 00:21:27,080 Speaker 10: core PCE. But to your point earlier, you know, it's 474 00:21:27,119 --> 00:21:30,000 Speaker 10: not really about where inflation is today. I think for Powell, 475 00:21:30,040 --> 00:21:32,880 Speaker 10: he's looking out where is inflation a year from now 476 00:21:32,960 --> 00:21:35,359 Speaker 10: or two years from now, and looking his legacy as a. 477 00:21:35,359 --> 00:21:35,840 Speaker 5: Piece of that. 478 00:21:36,240 --> 00:21:37,760 Speaker 6: You're running deck capital markets. 479 00:21:38,280 --> 00:21:40,800 Speaker 2: How well supplied does this market been in the lead 480 00:21:40,880 --> 00:21:43,000 Speaker 2: up to this and what kind of issuance are you 481 00:21:43,000 --> 00:21:44,720 Speaker 2: expecting in the next few months. 482 00:21:44,720 --> 00:21:47,440 Speaker 10: Now, Yeah, you know, this is an a liquidity event 483 00:21:47,520 --> 00:21:49,359 Speaker 10: and I think that's the net positive. So if we 484 00:21:49,440 --> 00:21:52,600 Speaker 10: look at investment grade markets, is really becoming a safe 485 00:21:52,640 --> 00:21:56,240 Speaker 10: harbor for issuers and investors. We started out the year 486 00:21:56,240 --> 00:21:59,679 Speaker 10: with a record amount of supply, an all time record. 487 00:21:59,720 --> 00:22:02,160 Speaker 10: Why is that it's front loading. It's not a nominal 488 00:22:02,200 --> 00:22:05,000 Speaker 10: increase in funding needs, but it was a defensive posturing 489 00:22:05,160 --> 00:22:08,080 Speaker 10: I think heading into expectations that this year would be 490 00:22:08,160 --> 00:22:11,879 Speaker 10: choppy to navigate, and so you think about you know, 491 00:22:11,920 --> 00:22:13,720 Speaker 10: the issuers we're talking to as on the road the 492 00:22:13,760 --> 00:22:17,760 Speaker 10: last week, talking to CFOs and treasures, they're very defensively 493 00:22:17,800 --> 00:22:21,800 Speaker 10: positioned heading into this, which netnet is a positive. You know, 494 00:22:21,880 --> 00:22:25,680 Speaker 10: they have extended their maturity profiles. You're watching EBITDAH margins 495 00:22:25,680 --> 00:22:28,280 Speaker 10: that are upwards of thirty percent still in it's far 496 00:22:28,320 --> 00:22:32,520 Speaker 10: above two thousand and four highs, and you know, at 497 00:22:32,520 --> 00:22:34,680 Speaker 10: the end of the day, they're appealing to investors who 498 00:22:34,720 --> 00:22:35,920 Speaker 10: are flushed with liquidity. 499 00:22:36,200 --> 00:22:37,520 Speaker 5: So you talk to the buy side. 500 00:22:37,800 --> 00:22:40,320 Speaker 10: You know, the silver lining, the bright spot, and the 501 00:22:40,359 --> 00:22:42,320 Speaker 10: noise we saw in the last forty eight hours. Is 502 00:22:42,359 --> 00:22:46,000 Speaker 10: that investors continue to have cash to spend. Why there's 503 00:22:46,119 --> 00:22:48,680 Speaker 10: four hundred billion of coupon and come back coming back 504 00:22:48,720 --> 00:22:52,520 Speaker 10: into investor's hands this year, they've got record COVID debt maturing. 505 00:22:52,640 --> 00:22:55,439 Speaker 10: That's all cash coming back into investors pockets. And so 506 00:22:55,680 --> 00:22:58,920 Speaker 10: we saw actually net buying over the course of Friday session, 507 00:22:58,960 --> 00:23:01,199 Speaker 10: as bad as it felt in their places, you know, 508 00:23:01,200 --> 00:23:02,800 Speaker 10: two and a half billion of net buying. 509 00:23:03,000 --> 00:23:04,040 Speaker 5: It's pretty astonishing. 510 00:23:04,119 --> 00:23:07,760 Speaker 4: Well, we've also seen deals pulled. People have been companies 511 00:23:07,880 --> 00:23:10,560 Speaker 4: have been planning to issue certain deals and have decided 512 00:23:10,600 --> 00:23:12,440 Speaker 4: maybe they ought to wait till another time because this 513 00:23:12,760 --> 00:23:14,840 Speaker 4: might not be the best week in the world. Does 514 00:23:14,840 --> 00:23:16,960 Speaker 4: that concern you or is this just a timing for 515 00:23:17,000 --> 00:23:19,080 Speaker 4: the best price kind of issue? And if they needed 516 00:23:19,080 --> 00:23:21,919 Speaker 4: to and wanted to, they probably could just a small 517 00:23:22,200 --> 00:23:23,359 Speaker 4: haircut to what they would like. 518 00:23:23,720 --> 00:23:23,920 Speaker 3: Yeah. 519 00:23:23,920 --> 00:23:25,840 Speaker 10: I mean in investment grade, we haven't had deals pulled, 520 00:23:25,840 --> 00:23:28,919 Speaker 10: but they've been postponed. So we're evaluating entry points. And 521 00:23:28,960 --> 00:23:31,520 Speaker 10: it's really three camps I think emerging as I talked 522 00:23:31,520 --> 00:23:34,720 Speaker 10: to issuers. The first are yield centric investors, and so 523 00:23:35,080 --> 00:23:37,480 Speaker 10: you look at these moves and underlying treasury yields. 524 00:23:37,720 --> 00:23:39,960 Speaker 5: It's more than offset spread widening. 525 00:23:40,000 --> 00:23:44,000 Speaker 10: We've seen an investment grade, so you know, in mid January, 526 00:23:44,480 --> 00:23:46,800 Speaker 10: you know, four seventy eight on the tenure note. You know, 527 00:23:46,880 --> 00:23:49,680 Speaker 10: four percent or sub four percent feels like a reasonably 528 00:23:49,680 --> 00:23:52,320 Speaker 10: good entry point, even if you need to pay higher 529 00:23:52,359 --> 00:23:54,960 Speaker 10: new issue concessions to appeal to some of that liquidity. 530 00:23:55,400 --> 00:23:57,040 Speaker 5: Then you got spread focused borrowers. 531 00:23:57,080 --> 00:24:00,000 Speaker 10: I think there it's a bit more defensive shelter in place, 532 00:24:00,200 --> 00:24:03,359 Speaker 10: if you will. But in talking to what are largely 533 00:24:03,400 --> 00:24:06,159 Speaker 10: bank buyers in that subset of issuers, many of them 534 00:24:06,160 --> 00:24:08,640 Speaker 10: are already forty to sixty percent through their funding needs 535 00:24:08,640 --> 00:24:09,120 Speaker 10: for the year. 536 00:24:09,400 --> 00:24:12,240 Speaker 5: There's no real urgency here. We're not seeing any signs 537 00:24:12,240 --> 00:24:12,800 Speaker 5: of panic. 538 00:24:13,400 --> 00:24:14,879 Speaker 10: And then there are others that are just flush with 539 00:24:14,920 --> 00:24:17,959 Speaker 10: cash and I think maybe disappointed that business investment is slowing, 540 00:24:18,880 --> 00:24:21,040 Speaker 10: but all in all, I think well positioned and willing 541 00:24:21,080 --> 00:24:21,919 Speaker 10: to write out the storm. 542 00:24:22,280 --> 00:24:24,560 Speaker 4: There's a larger question here. You said that there's plenty 543 00:24:24,560 --> 00:24:28,640 Speaker 4: of cash in the investor base is looking for good investments. 544 00:24:28,880 --> 00:24:31,400 Speaker 4: A lot of the investor base used to be overseas, 545 00:24:31,720 --> 00:24:34,480 Speaker 4: Japan in particular, and there's a real question, and John 546 00:24:34,560 --> 00:24:38,600 Speaker 4: was alluding to it, earlier. Will some international buyers withdraw 547 00:24:38,920 --> 00:24:42,160 Speaker 4: their interest from the US markets on the heels of 548 00:24:42,280 --> 00:24:45,760 Speaker 4: a whole host of different policies as well as currency differentials. 549 00:24:45,800 --> 00:24:47,360 Speaker 4: Are you seeing any signs of that. 550 00:24:48,320 --> 00:24:49,960 Speaker 10: It's a great point, and I think it's something we 551 00:24:50,000 --> 00:24:53,480 Speaker 10: need to continue to closely monitor. So retaliation may not 552 00:24:53,560 --> 00:24:55,960 Speaker 10: be just as it relates to tariffs, may actually be 553 00:24:56,000 --> 00:24:58,160 Speaker 10: as it relates to investment in US assets. 554 00:24:58,240 --> 00:25:00,680 Speaker 5: And the largest growth of. 555 00:25:00,560 --> 00:25:03,640 Speaker 10: Underpinning to demand an investment grade credit has come from 556 00:25:03,640 --> 00:25:07,159 Speaker 10: overseas investors. It's twenty to twenty five percent of the market, 557 00:25:07,240 --> 00:25:09,960 Speaker 10: so not insubstantial. On the new issue side, it's probably 558 00:25:09,960 --> 00:25:12,119 Speaker 10: fifteen percent of the order books that we'll be seeing. 559 00:25:12,320 --> 00:25:15,080 Speaker 10: It's about forty percent of that is Europe, about twenty 560 00:25:15,160 --> 00:25:17,280 Speaker 10: five percent of that it's Asia, and then you've got 561 00:25:17,280 --> 00:25:20,879 Speaker 10: ten percent or so from Canada. The mitigans to that 562 00:25:20,920 --> 00:25:24,439 Speaker 10: money moving away from investment grade credit are really two 563 00:25:24,560 --> 00:25:27,359 Speaker 10: or threefold. One is they already own twenty to twenty 564 00:25:27,359 --> 00:25:29,720 Speaker 10: five percent. So are you really working against your own 565 00:25:29,720 --> 00:25:32,879 Speaker 10: book by pairing back or not showing up to not 566 00:25:32,920 --> 00:25:35,600 Speaker 10: showing up to the new issues that emerge here. On 567 00:25:35,640 --> 00:25:37,399 Speaker 10: the other hand, it's one of the few places you 568 00:25:37,440 --> 00:25:41,199 Speaker 10: can source duration, and it's also the most liquid market 569 00:25:41,880 --> 00:25:44,120 Speaker 10: around the globe, so eight and a half trillion of assets, 570 00:25:44,640 --> 00:25:46,440 Speaker 10: it would be difficult, I think, to move back to 571 00:25:46,480 --> 00:25:49,240 Speaker 10: their whole markets. We did see one or two instances 572 00:25:49,280 --> 00:25:53,159 Speaker 10: of smaller size real money pension investors on principle stepping 573 00:25:53,240 --> 00:25:55,639 Speaker 10: back from the market last week, but it's a small 574 00:25:55,680 --> 00:25:58,240 Speaker 10: fraction and net net six and a half of net 575 00:25:58,240 --> 00:26:00,000 Speaker 10: buying over the course of the week says it was 576 00:26:00,200 --> 00:26:02,520 Speaker 10: dropping the bucket in terms of those who paired back. 577 00:26:02,600 --> 00:26:04,560 Speaker 5: But certainly something we need to keep an eye on. 578 00:26:04,720 --> 00:26:06,760 Speaker 2: Race is the question where asked you go my gape 579 00:26:06,760 --> 00:26:07,920 Speaker 2: and it was just on just pig me on the 580 00:26:07,960 --> 00:26:11,159 Speaker 2: Bloomberg terminal said trades only a fraction of US GDP 581 00:26:11,320 --> 00:26:14,440 Speaker 2: compared to other countries. The larger revisions may come outside 582 00:26:14,480 --> 00:26:16,160 Speaker 2: the US, and it may be more of a global 583 00:26:16,160 --> 00:26:18,400 Speaker 2: recession story than a US one. 584 00:26:18,520 --> 00:26:20,280 Speaker 6: That's something we have to think about. I think. 585 00:26:20,320 --> 00:26:22,240 Speaker 2: Over the last two months or so, we just talked 586 00:26:22,240 --> 00:26:24,840 Speaker 2: about trade, looked at the market move. The market was 587 00:26:24,840 --> 00:26:26,680 Speaker 2: basically the bias for everyone to frame their own view 588 00:26:26,680 --> 00:26:28,760 Speaker 2: on what was happening at the moment. Equities were under 589 00:26:28,800 --> 00:26:31,600 Speaker 2: performing in America outperforming in Europe. Everyone talked about the 590 00:26:31,640 --> 00:26:34,639 Speaker 2: pain in the United States over the past week or so. 591 00:26:34,720 --> 00:26:37,240 Speaker 2: We've only just started to talk about the pain abroad 592 00:26:37,520 --> 00:26:40,240 Speaker 2: in Europe, stocks down hard, Japan, in China. 593 00:26:40,720 --> 00:26:42,040 Speaker 6: That's a new phase of this story. 594 00:26:42,160 --> 00:26:44,600 Speaker 4: This was what people thought would happen, like late last year, 595 00:26:44,640 --> 00:26:46,600 Speaker 4: where they were looking at a potential terror regime, the 596 00:26:46,760 --> 00:26:49,040 Speaker 4: US sneezes and the rest of the world catches it 597 00:26:49,119 --> 00:26:52,840 Speaker 4: called that was upended partly because people a didn't believe 598 00:26:52,880 --> 00:26:54,800 Speaker 4: that these tariffs would go on, and B we're so 599 00:26:54,880 --> 00:26:56,640 Speaker 4: excited about the idea that Germany was going to spend 600 00:26:56,640 --> 00:26:58,440 Speaker 4: money that it seemed like the whole world could be 601 00:26:58,480 --> 00:27:02,560 Speaker 4: a brighter place with fiscal stimulus. On some level, there 602 00:27:02,640 --> 00:27:05,000 Speaker 4: is this issue of whether this is the right sizing 603 00:27:05,080 --> 00:27:07,520 Speaker 4: and the unwind of some of that capital shift that 604 00:27:07,560 --> 00:27:08,080 Speaker 4: we saw. 605 00:27:08,119 --> 00:27:08,960 Speaker 5: Earlier this year. 606 00:27:09,040 --> 00:27:10,960 Speaker 2: Megan, this was a clinic. It's great to cant show 607 00:27:11,000 --> 00:27:12,760 Speaker 2: with you. Thanks for your time, Thank you very much, 608 00:27:12,800 --> 00:27:16,480 Speaker 2: making great for their of Barclays. This is the Bloomberg 609 00:27:16,520 --> 00:27:21,160 Speaker 2: Surveillance podcast, bringing you the best in markets, economics, angiot politics. 610 00:27:21,480 --> 00:27:23,960 Speaker 2: You can watch the show live on Bloomberg TV weekday 611 00:27:24,000 --> 00:27:27,240 Speaker 2: mornings from six am to nine am Eastern. 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