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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: So far this week and it's only Wednesday, President Trump

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Speaker 2: has threatened to raise tariffs on South Korean exports to

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Speaker 2: twenty five percent. He said he's okay with a weakening dollar,

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Speaker 2: and Trump announced a massive armada is heading to Iran.

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Speaker 2: Last night, at a speech in Iowa, the President once

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Speaker 2: again criticized the Federal Reserve chair.

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Speaker 1: We call him too late. He's too late, Durham, too late, Pal,

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Speaker 1: He's too late.

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Speaker 2: Trump's latest attack on the Fed's independence came in the

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Speaker 2: middle of a two day meeting on interest rates, and

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Speaker 2: as expected, policymakers decided not to lower them. It used

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Speaker 2: to be any one of these announcements could have upbended

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Speaker 2: global markets, but in the second year of President Trump's

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Speaker 2: second term, investors seem to be shrugging them off.

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Speaker 3: It is Taco Tuesday, but it seems that every day

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Speaker 3: is a taco day these days.

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Speaker 2: Is that taco trade is sort of emerging here once.

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Speaker 3: Again, the taco trade, if you want want to call

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Speaker 3: it that.

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Speaker 1: The boy who cried.

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Speaker 4: Tariff taco, of course stands for Trump always chickens out.

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Speaker 4: And this is the theory that Trump is not powerfully

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Speaker 4: committed to any policy position in general.

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Speaker 2: Rob Armstrong is a columnist for The Financial Times and

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Speaker 2: the co host of the Unheedged podcast. He's also responsible

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Speaker 2: for that taco moniker. He came up with the acronym.

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Speaker 4: So when he makes an extreme threat and he is

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Speaker 4: faced by resistance, either from markets or from the body politic,

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Speaker 4: he turns around and walks the other direction. The guy

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Speaker 4: folds is what it says.

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Speaker 2: Since election Day in twenty twenty four, many investors have

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Speaker 2: been making a bet that whatever Donald Trump threatens to do,

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Speaker 2: he probably won't. It's unlikely to happen.

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Speaker 4: The taco trade is the smart money. When the dumb

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Speaker 4: money panics and sells on the last crazy thing the

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Speaker 4: president says, that's when the smart money buys.

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Speaker 2: This week, Bloomberg Economics published a report analyzing all the

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Speaker 2: times President Trump threatened to raise tariffs and found that

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Speaker 2: roughly three times out of four the tariff he threatened

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Speaker 2: didn't materialize. In other words, the taco trade was right

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Speaker 2: far more often than it wasn't. When I saw that finding,

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Speaker 2: I immediately thought of two people I wanted to talk to.

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Speaker 2: Bloomberg opinion columnist John Authors and Rob Armstrong again, the

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Speaker 2: columnist who gave us the term taco.

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Speaker 4: You can identify me as anakin skywalker to John's Obi

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Speaker 4: wan Kenobi. John hired me at the FT fifteen years ago.

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Speaker 4: The professional path I currently trot at the FT writing

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Speaker 4: a daily newsletter about markets is a path that was

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Speaker 4: of course plazed by John. So I'm doubly indebted and

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Speaker 4: it's a thrill to just be able to be here

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Speaker 4: and chop it.

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Speaker 1: Up with him.

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Speaker 2: To get these two guys together in a studio on

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Speaker 2: a Tuesday night when John was on deadline, I promised

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Speaker 2: them we'd line up dinner.

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Speaker 4: What's cooking?

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Speaker 1: Well, I.

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Speaker 2: Couldn't resist the three of us eight, and then we

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Speaker 2: talked about how the taco trade has evolved over the

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Speaker 2: past year, and how it seems to be changing in

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Speaker 2: real time.

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Speaker 4: More than one economist has pointed out to me that

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Speaker 4: taco seems like an unstable equilibrium because you know, each

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Speaker 4: time we go through the cycle, the market is less

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Speaker 4: impressed with the stuff Trump says, and so in order

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Speaker 4: to get the response that would make him change direction,

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Speaker 4: he has to say progressively crazier and crazier stuff, and

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Speaker 4: eventually you drive the car over the cliff and the

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Speaker 4: jokes on everyone.

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Speaker 2: I'm David Gerrett, and this is the big take from

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Speaker 2: Bloomberg News Today on the show, digging into the taco trade,

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Speaker 2: Why Wall Street has come to count on President Trump

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Speaker 2: backing down and what it could mean if investors keep

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Speaker 2: getting rewarded for not taking the President of the United

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Speaker 2: States at his word. A pivotal moment in the evolution

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Speaker 2: of what FT columnist Robert Armstrong calls taco theory was

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Speaker 2: on April second, twenty twenty five.

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Speaker 1: Nice crowd, What a good looking group of people will

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Speaker 1: we have?

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Speaker 2: So that's when President Trump made a big announcement about

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Speaker 2: changes to trade policy.

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Speaker 1: My fellow Americans, this is liberation Day waiting for a

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Speaker 1: long time. April second, twenty twenty five will forever be

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Speaker 1: remembered as today American industry was reborn. Today, America's destiny

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Speaker 1: was reclaimed.

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Speaker 2: Like many of us, Rob and Bloomberg' John authors were

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Speaker 2: paying close attention. The President had made a lot of

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Speaker 2: noise in the run up to this event in the

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Speaker 2: Rose Garden, and John says he was expecting more bluster

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Speaker 2: and maybe a flat across the board teriffry.

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Speaker 3: And then it turns out that he was doing ten

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Speaker 3: percent plus reciprocal tariffs, and then it turns out that

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Speaker 3: the reciprocal tariffs were reciprocal in a way that no

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Speaker 3: other and effort even attempted to use that word before.

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Speaker 3: I was literally open mouthed and started swearing at the

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Speaker 3: computer because this is ridiculous, and because it meant I knew,

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Speaker 3: knew I was going to be an until midnight. I

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Speaker 3: think I spoke to you about got bad, that's right,

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Speaker 3: but I just literally couldn't believe that he was doing

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Speaker 3: something that stupid.

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Speaker 4: I mean, it was just a jaw dropping moment. It

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Speaker 4: was so chaotic, it was so weird. They taxed an

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Speaker 4: island only with only penguins, all of this stuff, and

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Speaker 4: it spoke. It was so bizarre, you were almost paralyzed.

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Speaker 2: Rob and John were shocked, and so were markets. Stocks plunged,

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Speaker 2: and the bond market tanked.

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Speaker 4: The price of bonds fell because everybody at once had

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Speaker 4: the very same reaction that John and I had, where

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Speaker 4: you're seriously contemplating the possibility that these people are crazy.

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Speaker 2: Rob says, it was a real moment of despair for everyone.

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Speaker 2: But in the days that followed, President Trump started cutting

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Speaker 2: deals and making exceptions, and eventually he took a huge

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Speaker 2: step back.

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Speaker 1: I did a ninety day pause for the people that

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Speaker 1: didn't retaliate, because they told him, if you retaliate, we're

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Speaker 1: going to double it.

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Speaker 2: And with that announcement that those tariffs were off temporarily,

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Speaker 2: markets rejoiced.

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Speaker 4: Then it was just straight north. He starts taking a

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Speaker 4: step back, and we're on mesk later.

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Speaker 2: This is like peragdimatic taco.

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Speaker 4: Yeah. Yeah. And those who realized, you know, I wasn't

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Speaker 4: one of them who that they don't care about any

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Speaker 4: of this stuff. They made a lot of money.

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Speaker 2: And a few weeks later Rob wrote about what had happened.

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Speaker 4: I ended up writing about this pattern of big talk,

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Speaker 4: huffing and puffing, strong market reaction, Trump pulling back, the

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Speaker 4: market recovering. I just needed a short way to refer

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Speaker 4: to this thing that just kept happening. Taco was funny.

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Speaker 4: I wasn't aware that I was doing something wonderfully clever

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Speaker 4: at the time. It's a really simple claim underneath there.

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Speaker 4: The president doesn't really care about anything, and so if

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Speaker 4: he is forced to pay costs in popularity or power

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Speaker 4: for a policy, he'll always change it. That could be false,

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Speaker 4: but that's the serious underlying thesis, that there is no

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Speaker 4: there there.

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Speaker 3: And the president's trade on that assum.

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Speaker 4: And that markets trade on that assumption exactly right.

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Speaker 2: Since Rob's first newsletter about the taco trade, we've seen

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Speaker 2: that pattern over and over again.

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Speaker 4: It was electronics and then no, we're just kidding about that.

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Speaker 4: It was almost any sector specific tariffs we've seen this.

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Speaker 4: John has a better memory.

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Speaker 3: There was one on India for some reason that went away. Again,

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Speaker 3: there was the Bolscenaro tariffs against Brazil that they were

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Speaker 3: punishing Brazil for not being very nice to Jia.

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Speaker 4: That's a very important example because that is an example

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Speaker 4: where the country on the other side of the table

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Speaker 4: really stood up and fought in.

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Speaker 3: It worked.

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Speaker 4: Yeah, and it's one thing to be China and stand

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Speaker 4: up and fight, but if you're Brazil and your stand

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Speaker 4: up fight, it shows that the range of people who

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Speaker 4: could possibly put up meaningful resistance is much larger.

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Speaker 2: I want to bring up a study that our colleagues

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Speaker 2: at Bloomberg Economics did recently. They wanted to see how

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Speaker 2: often President Trump has threatened a tariff that doesn't get implemented.

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Speaker 2: They identified forty nine tariff threats or new trade investigations

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Speaker 2: between the November twenty twenty four election and January twenty fifth,

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Speaker 2: twenty twenty six. They found that about twenty percent of

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Speaker 2: those tariffs were imposed in full. Another six percent were

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Speaker 2: imposed and then withdrawn the China threats among them. That

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Speaker 2: means more than seventy percent of the president's threats of

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Speaker 2: tariffs or trade investigations did not pan out. They were

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Speaker 2: either imposed in part where they haven't been imposed, they've

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Speaker 2: been withdrawn where they're still under investigation. I want to

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Speaker 2: be clear here, Bloomberg Economics did not use the taco term,

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Speaker 2: but I think you could argue two of you might

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Speaker 2: hear that the results imply a taco rate of about

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Speaker 2: seventy percent.

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Speaker 3: People in the office have been referring to it as

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Speaker 3: the taco store.

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Speaker 2: Carry on, Yes, if they didn't use the term with

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Speaker 2: Brandon get as such, Rob, what do you make of

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Speaker 2: that when you look at that raw data?

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Speaker 4: Let me tell you answer as if I was a

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Speaker 4: taco hater, which there are plenty. The taco hater says,

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Speaker 4: just as the President said, this is negotiation. He starts

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Speaker 4: with an extreme offer, He pulls you in his direction,

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Speaker 4: and he gets something at the end of the negotiation

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Speaker 4: and he looks magnanimous. That's the story anyway, And so

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Speaker 4: you might if you wanted to write takoof is just

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Speaker 4: an idiotic joke by a second rate journalist, you might argue,

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Speaker 4: what's the overall tariff rate now? And it's fifteen percent?

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Speaker 4: We are we tariff more?

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Speaker 3: Now?

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Speaker 4: You know, has it achieved the things the president wanted

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Speaker 4: that to achieve. You can have a debate, but he

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Speaker 4: moved the ball forward on the economic field. So I

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Speaker 4: guess that's what I have to reckon with as somebody

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Speaker 4: who believes still believes the Taco thesis, is that it's

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Speaker 4: not the guy has done nothing right. I mean, I

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Speaker 4: think in a way it's more interesting to talk about

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Speaker 4: where Taco has failed to hold right and where he

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Speaker 4: has followed through. I mean, I got very unpleasant emails

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Speaker 4: after the missile strikes on Iran, and I got very

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Speaker 4: unpleasant emails after Maduro was snatched up and brought to Brooklyn.

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Speaker 4: And the text of these emails or these social media

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Speaker 4: posts was like, who's tacoing now? Right? And I guess

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Speaker 4: my response to that is where we are now is

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Speaker 4: Taco for the strong faffo for the week. This is

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Speaker 4: how I've been characterizing it. If you are a country

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Speaker 4: like Iran or Venezuela that is not strong enough to

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Speaker 4: push back the taco or Bangladesh, yes, there is no

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Speaker 4: no tacos for you. You will be fooling around and

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Speaker 4: finding out instead.

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Speaker 2: Coming up after the break, the state of the taco trade,

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Speaker 2: where it goes from here, and the consequences for everyone

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Speaker 2: of wall Street's bet, the president will always back down.

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Speaker 2: Last week, President Trump had Europe on edge. The President

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Speaker 2: made it clear he wanted to make Greenland part of

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Speaker 2: the United States. His administration went so far as to

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Speaker 2: say military force was not off the table, a move

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Speaker 2: that would pose an existential threat to NATO, and Trump

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Speaker 2: said he'd put additional tariffs on European nations that had

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Speaker 2: rallied to Denmark's side in the standoff. In a speech

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Speaker 2: at the World Economic Forums Annual meeting in Davos, the

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Speaker 2: President doubled down on his demands.

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Speaker 1: You can say yes and we will be very appreciative,

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Speaker 1: or you can say no and we will remember.

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Speaker 2: But only a few hours later, Trump announced he'd met

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Speaker 2: with NATO Secretary General Mark Ruta and they'd agree on

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Speaker 2: a framework for a future deal with respect to Greenland,

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Speaker 2: and as the President put it, the entire Arctic region.

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Speaker 2: And Trump backed off the threat of those additional tariffs.

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Speaker 2: Last Blomberg opinions John Authors and the FT's Rob Armstrong

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Speaker 2: if the president's move in Davos could be categorized as

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Speaker 2: a taco.

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Speaker 4: I think it's an ambiguous case, John May.

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Speaker 2: And why is that? Why is the.

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Speaker 4: Markets didn't move that much? First of all, complacent during

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Speaker 4: the speech in the day markets yeah, yeah, And you know,

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Speaker 4: markets were down the doll the dollar was down one

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Speaker 4: in a path or something, and the S and P

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Speaker 4: was down two percent on this really serious soughing puffing.

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Speaker 4: So if he was backing off in the face of pressure,

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Speaker 4: it was political pressure in the form of a more

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Speaker 4: unified Europe.

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Speaker 3: It did look like what's happened off to Liberation Day,

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Speaker 3: but just a tiny echo of it. It's tiny, Like, yeah, again,

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Speaker 3: you did have the combination of bond yields going up

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Speaker 3: the dollar goes down, which is a sort of classic

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Speaker 3: emerging markets crisis.

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Speaker 2: And Jolyn Rob emphasized it's the bond market, not the

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Speaker 2: stock market. It really matters here.

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Speaker 3: The stock market, despite appearances matters less. We discovered that

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Speaker 3: Donald Trump was actually prepared to look through a fairly

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Speaker 3: big reverse in the stock market, and he probably recognizes

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Speaker 3: that his people don't care as much about the stock market.

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Speaker 3: The bond market is normally, when you're scared, you buy bonds.

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Speaker 3: When you are scared in such a way that you

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Speaker 3: sell bonds, that is very dangerous. That's a very unusual

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Speaker 3: state of affairs, and that puts far more direct pressure

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Speaker 3: on the government itself and on the economy. So the

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Speaker 3: bond market is very, very big. The market for treasuries

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Speaker 3: makes from the stock market look illiquid by comparison. It's

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Speaker 3: very difficult to move once it has started moving against you.

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Speaker 4: The kind of classic Wall Street way to phrase this

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Speaker 4: is that the bond market is math and the stock

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Speaker 4: market is a bunch of adrenaline adult risk monkeys. Yes,

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Speaker 4: and so the uh so that you get these much

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Speaker 4: more dramatic responses much more quickly in the stock market,

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Speaker 4: but you kind of expect it from the monkeys. When

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Speaker 4: the grown ups in the bond market start to freak out,

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Speaker 4: then you really have a problem.

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Speaker 2: There's another dynamic, as the idea of taco is absorbed

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Speaker 2: widely with more investors. Assuming Trump will walk back his threats,

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Speaker 2: the taco trade loses its power, and it takes bolder

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Speaker 2: threats to make markets respond.

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Speaker 4: Like any good economic insight, it degrades itself over time,

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Speaker 4: the market incorporates it, and it starts to disappear. So

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Speaker 4: you know, these things have a half life, and I

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Speaker 4: think taco has had a lot of its half life.

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Speaker 2: The economist Aaron Do at the University of Massachusetts has

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Speaker 2: written about a kind of taco cycle as markets learned

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Speaker 2: to shrug off increasingly extreme statements from the president that

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Speaker 2: could encourage him to make even bolder promises before he

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Speaker 2: has to contend with a market reaction. I asked John

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Speaker 2: and Rob about the risks of increasing brinksmanship setting off

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Speaker 2: a kind of vicious cycle.

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Speaker 3: I am inclined to agree with that. I guess the

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Speaker 3: I mean again, it's just this agonizing thing that we

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Speaker 3: will have to spend so much of our time gauging

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Speaker 3: the thought process of this one individual whose thought processes

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Speaker 3: are idiosyncratic. Reverting to my ft training for a second

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Speaker 3: to give you some British understatement.

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Speaker 2: In the past, markets have acted as a kind of

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Speaker 2: check on policymaking. If a president did or said something

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Speaker 2: unexpected that would spook Wall Street. Well, Rob wonders, if

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Speaker 2: those days are done?

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Speaker 4: Is a relationship between markets and American presidential power forever

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Speaker 4: changed by Trump? Is the game different now?

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Speaker 3: I don't.

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Speaker 4: I don't, but that you know, will what will the

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Speaker 4: next person to sit in the Oval office? Learn about

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Speaker 4: the kind of dance that presidents have to dance with

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Speaker 4: the market from Trump?

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Speaker 3: And I think, okay, that's a fascinating question. Way to

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Speaker 3: put it, throwing things forward. I think a lot depends

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Speaker 3: on the midterms the administration. The reason markets are doing

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Speaker 3: as well as they are at the moment is because

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Speaker 3: there is an awful lot of stimulus and liquidity out there,

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Speaker 3: and the administration, it's not being shy about this, is

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Speaker 3: trying to stimulate the economy to push us through the midterms.

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Speaker 3: If it succeeds, that will be very much taken. In Britain,

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Speaker 3: where the incumbent party could choose when to go to

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Speaker 3: the polls, you had the concept of stop going economics,

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Speaker 3: that you would prime the pump, win your election and

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Speaker 3: then give people their medicine for a year or two

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Speaker 3: before you prime the pump again. You might find that

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Speaker 3: there is an attempt to impose that cycle again here

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Speaker 3: or at least when there isn't gridlock in Congress, that

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Speaker 3: there's some kind of an attempt to make that work.

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Speaker 4: When I talked to shell shocked market participants about being

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Speaker 4: exhausted in the way John described and not knowing how

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Speaker 4: to read this stuff and being worried about their portfolios,

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Speaker 4: which is what they're paid to do, is worry all along,

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Speaker 4: the topic of the Supreme Court comes up pretty quickly,

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Speaker 4: that the lease a cookcase, and of course.

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Speaker 3: Yap whether he was allowed to do the tariffs in

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Speaker 3: the first place.

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Speaker 4: Yes, these are really in front of investor's eyes and

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Speaker 4: a real reason for hope and optimism, not about politics,

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Speaker 4: and it's just stability, knowing the rules and being able

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Speaker 4: to play by them. In the taco world as it.

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Speaker 2: Were, markets historically have been a guardrail. We've talked about

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Speaker 2: the degree to which the taco trade, of the taco

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Speaker 2: theory is baked in. Now investors expect there to be

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Speaker 2: this walk back time and time again. Rob will start

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Speaker 2: with you, what is lost if markets aren't providing the

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Speaker 2: kind of guardrail that they have been in the past.

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Speaker 4: In a world where markets don't believe anything the government says. Uh.

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Speaker 4: The worry is that markets realize too late the damage

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Speaker 4: that has actually been done. So markets don't believe that

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Speaker 4: the stuff he's saying is gonna happen. If they wake

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Speaker 4: up to the reality that something big has happened too late,

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Speaker 4: I mean, that's the risk. That's the risk. But by

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Speaker 4: the way, I believe the guardrails are in place. We

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Speaker 4: just saw it in Minnesota.

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Speaker 3: Americans didn't like him trying to grab greenlands, and they

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Speaker 3: sent and they didn't like you know, civilians getting shots

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Speaker 3: on the streets of Minneapolis. That's polling badly. It's getting

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Speaker 3: you know, opposition politicians and his own politicians riled up

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Speaker 3: against him, and it seems to be having an effect. Certainly,

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Speaker 3: both the Supreme Court and the Republican majorities in the

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Speaker 3: two houses of Congress have been less of a tight

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Speaker 3: guardrail than one would have expected ahead of time. Plainly

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Speaker 3: those guardrails have been less strong or less they haven't

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Speaker 3: been utilized in quite the way that you might have expected,

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Speaker 3: but they are still there.

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Speaker 4: The action is at the FED right from the point

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Speaker 4: of view of us, of marketspeople, the action is, can

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Speaker 4: Trump bring this institution to its knees, and once he

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Speaker 4: does that, it almost doesn't matter what the rate decisions

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Speaker 4: are or whatever. Just the message that the federal Reserve

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Speaker 4: is now responsive to the President first and foremost, that

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Speaker 4: message would be a disaster. And so for markets people,

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Speaker 4: that's where the guardrails need to be, and that's where

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Speaker 4: the test is.

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Speaker 2: This is the Big Take from Bloomberg News. I'm David Gura.

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Speaker 2: To get more from The Big Take and unlimited access

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Speaker 2: to all of Bloomberg dot com, subscribe today at Bloomberg

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Speaker 2: dot com slash podcast offer. If you like this episode,

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