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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.

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Speaker 2: I'm Jill Wisenthal.

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Speaker 3: And I'm Tracy Alloway.

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Speaker 2: Tracy, you know what I'm proud of.

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Speaker 1: Oh, I don't you know.

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Speaker 2: I look, I'm not a trader or anything like that.

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Speaker 2: I don't like try to make a lot of calls

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Speaker 2: or oh look at you.

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Speaker 1: Know, I'm not even a pundit.

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Speaker 2: It gets things right that big said. You know what

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Speaker 2: I thinically did well. I think we took the prospect

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Speaker 2: of a serious change in the US trading relationship with

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Speaker 2: the rest of the world is a serious possibility.

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Speaker 3: Trump both seriously and literally.

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Speaker 2: We definitely Yeah, I think we took it pretty literally

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Speaker 2: when he was talking on the campaign trail and in

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Speaker 2: the early days after the election, when the markets were

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Speaker 2: lying because all they were talking about was tax cuts

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Speaker 2: and the regulation. I think we were giving serious airtime

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Speaker 2: and writing time to the aspects of trump Ism that

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Speaker 2: might not be so market friendly.

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Speaker 3: I think that's right. Also, in our newsletter just a

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Speaker 3: couple of weeks ago, we were talking about how weird

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Speaker 3: the markets actually were because we weren't seeing that much

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Speaker 3: risk priced in, right, like spreads on credits still pretty low.

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Speaker 3: FX volatility at the time was pretty low. Just lots

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Speaker 3: of weird stuff going on in the markets. And there's

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Speaker 3: someone else who noticed this.

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Speaker 2: Well, that's right, So I'm looking at a edition of

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Speaker 2: the Odd Lots newsletter. Everyone should google Odd Lots Newsletter

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Speaker 2: and sign up for it. And we had a guest contributor.

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Speaker 2: He wrote a piece for us on November twenty seventh,

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Speaker 2: twenty twenty four, when markets were surging, and he said,

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Speaker 2: this time really is different.

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Speaker 3: And he's a.

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Speaker 2: Frequent odd Laws guest and he has been very in

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Speaker 2: tune with the big changes going on in the world

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Speaker 2: in major turning points. Some thrilled to have him back.

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Speaker 2: We are speaking, of course, with the one and only

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Speaker 2: Victor Schwetz, head of Global Desk Strategy at McCrory Capital,

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Speaker 2: who said, this time is different, and I think it

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Speaker 2: turned out to be different.

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Speaker 4: Huh, yes, yes it did.

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Speaker 2: Yes, not to be different?

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Speaker 1: Why, okay, let's just go back. What were you thinking?

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Speaker 2: On Wednesday, April second Liberation Day, the chart came out,

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Speaker 2: massive tariffs announced on the rest of the world. Virtually

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Speaker 2: every country, friend, foe, et cetera.

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Speaker 4: Even small islands even small.

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Speaker 2: Islands, depopulated islands, tariff levels that are like higher than

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Speaker 2: smooth holly or whatever. What went through your mind?

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Speaker 4: The question I keep asking myself what is this administration

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Speaker 4: trying to do?

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Speaker 1: So?

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Speaker 4: In other words, what is the objective? Is objective to

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Speaker 4: raise revenue in order to partly pay for tex Scotts?

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Speaker 4: Is objective to reshape America into some form? Is it

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Speaker 4: to bring manufacturing back? Is easy to change the flow

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Speaker 4: of savings and investments on a global basis. What is

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Speaker 4: this administration trying to do? And my answer consistently is

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Speaker 4: they want to remake America. They want to make it

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Speaker 4: different to what it was before. But you can't remake

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Speaker 4: America unless you remad the world at the same time.

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Speaker 4: So it's a revolutionary movement rather than just a little

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Speaker 4: bit of a bypassing it through problems, navigating a few

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Speaker 4: bumps on the road, it's much much deeper. The only

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Speaker 4: question that I keep coming back is what is a

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Speaker 4: pain threshold and what are the sort of breaks on

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Speaker 4: the system? Because most of the breaks we've been discussing

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Speaker 4: for the last four or five months have either disappeared

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Speaker 4: or were in some form co opted by the system.

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Speaker 4: So there is only very few breaks left, and so

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Speaker 4: one of the breaks is really the pain threshold, at

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Speaker 4: which stage people will feel that their lives have gone

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Speaker 4: much worse than they used to be. And the other break,

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Speaker 4: of course, is everything to do with electoral cycle associated

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Speaker 4: with it. And so to me, that's the only question.

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Speaker 4: It's not that there is any consistent economic theory behind

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Speaker 4: what this administration is trying to do. Every time I listen,

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Speaker 4: it's very clear that they don't fully understand sexual balances.

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Speaker 4: They don't fully understand that you can't have declining deficits

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Speaker 4: and rising capital influence at the same time. So it's

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Speaker 4: clearly not guided by some conventional economics. It's sort of

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Speaker 4: guided by by a desire, as I said, to change America,

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Speaker 4: and different parts of administration of different views. So there

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Speaker 4: is a technocratic part, which is Ellen Musk and recent

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Speaker 4: Peter Teel. They have very different views. They're much more global,

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Speaker 4: they want technology to progress, they open to immigration, there's

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Speaker 4: all range of things. Then there is a populist wing,

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Speaker 4: probably Jed Events is the most obvious example of that,

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Speaker 4: which are completely opposite. Returning America back to nineteen fifties

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Speaker 4: or maybe even late nineteenth century closing the borders. Then

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Speaker 4: there's a little bit more technocratic wing saying that what

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Speaker 4: Bernaki and Greenspin were discussing in the past, which is

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Speaker 4: making sure that savings an investment on a global basis

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Speaker 4: actually balance us at some point in time somewhere. And

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Speaker 4: so all of those wings are in conflict. If they

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Speaker 4: are in conflict, expect irrational moves, quick shifts, but do

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Speaker 4: not expect that suddenly tariffs are going to go away,

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Speaker 4: suddenly restructuring of capital flows will just go away and

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Speaker 4: normality will return.

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Speaker 3: Okay, So you mentioned capital inflows, and this to me

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Speaker 3: seems to be the big hole in the Trump administration strategy,

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Speaker 3: such as it is, and it's we want to build

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Speaker 3: a bunch of stuff in America. Ostensibly we want to

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Speaker 3: boost manufacturing. Maybe that goal sits alongside a bunch of

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Speaker 3: other goals. As you just mentioned, that's really expensive and

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Speaker 3: when I look at the markets right now, it's very

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Speaker 3: unclear to me where that money is actually going to

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Speaker 3: come from.

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Speaker 4: Yeah, I agree. One of the ways you can try

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Speaker 4: to handle basically deglobalization of capital, because so far we've

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Speaker 4: been talking mostly about the globalization of goods. We have

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Speaker 4: not yet spoken about diglobalization of services. But with goods

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Speaker 4: and services comes capital. And so when we start talking

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Speaker 4: about diglobalization and fracturing of capital, that's where Welsh funds

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Speaker 4: come in. That's where various superinnuation and pension funds come in.

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Speaker 4: Now a lot of countries already either started that or

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Speaker 4: significantly increase the size of those funds. For example, Korea

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Speaker 4: will start much higher contribution to their pension funds. So

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Speaker 4: if you sing of Austria, Australia already done it, Singapoore

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Speaker 4: has done it, Norway has done it. More and more

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Speaker 4: countries are talking about creating some form of pool of

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Speaker 4: capital within those countries. But once again, is it efficient

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Speaker 4: allocation of capital? Not? Not necessarily. Is it looking after

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Speaker 4: the interest of pensioners that they're supposed to service. Not necessarily,

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Speaker 4: But that could be one way that you actually will

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Speaker 4: accumulate some capital of a time in order to fund it.

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Speaker 2: I want to go back to your point about the

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Speaker 2: revolutionary element within trump Ism. Do we need to start

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Speaker 2: looking at lenin the Russian Revolution maould say tongue to

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Speaker 2: get it or China to get a better understanding of

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Speaker 2: what the sort of like Zeitgeist or impulsary.

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Speaker 3: Can I just say, can you imagine asking that question

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Speaker 3: like a year ago?

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Speaker 2: Yeah?

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Speaker 1: Well I change.

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Speaker 2: I got into my you know, I got into my

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Speaker 2: twentieth century history, have it like right at the right times?

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Speaker 1: I read a bunch of Middle eight.

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Speaker 2: And what I'm trying to really ask Victor is I

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Speaker 2: want him to validate my choice to take up a

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Speaker 2: twentieth century revolutionary history hobby, am I was I right

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Speaker 2: to go back and study. I'll start reading all those books.

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Speaker 4: As you do, and you can go to nineteenth century

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Speaker 4: as well. Basically anything that resembles more or less the

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Speaker 4: modern times and the way various breaks in the system. Now,

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Speaker 4: remember US, I keep highlighting, is not a nation of

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Speaker 4: laws or rules. It's a nation of habits. It's a

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Speaker 4: nation of norms. Usually laws in the US are designed

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Speaker 4: very sloppily, and the idea is that we need to compromise.

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Speaker 4: Eventually is a judiciary branch will figure out where exactly

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Speaker 4: the limits are. And so founding fathers never knew whether

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Speaker 4: they want to have monarchy or whether they want to

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Speaker 4: have democracy. Like initially George Washington was supposed to be

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Speaker 4: an addressed as his majesty. It was George Washington who

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Speaker 4: insisted on being called mister President rather, So they were

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Speaker 4: never quite sure what to do, so they never delienated

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Speaker 4: the power. What is an executive power, what is the

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Speaker 4: state power? What is a federal power? What is legislative?

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Speaker 4: Was judicial? And so the result is US is a

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Speaker 4: nation of norms, whereas Europe is a nation of rules

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Speaker 4: or the nations of rules. And so the result is

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Speaker 4: in the US, it's actually relatively easy to smash those

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Speaker 4: norms if anybody wants to. That's what Andrew Jackson tried

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Speaker 4: to do. That's what Abraham Lincoln did, That's what Theodore

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Speaker 4: Roosevelt did, that's what FDR did, that's what Richard Nixon did.

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Speaker 4: And so what you're seeing is every time those changes occurred,

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Speaker 4: there is a reason why Andrew Jackson or FDR behaved

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Speaker 4: the way they did, and there was a reason why

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Speaker 4: they were pushing executive branch as aggressively. And so the

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Speaker 4: reason for that is some kind of a displacement within

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Speaker 4: those countries. And so you can't necessarily compare to cultural

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Speaker 4: revolution because some of the drivers were different necessarily compared

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Speaker 4: to Bolsheviks in Russia. But the essence is the same.

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Speaker 4: In every one of those cases, there was a dislocation,

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Speaker 4: and one of the answers during dislocation is some form

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Speaker 4: of populist approach, because the right wing usually does it

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Speaker 4: better than a left wing, because the right wing essentially

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Speaker 4: saying in many ways, cultural revolution was the right wing.

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Speaker 4: They essentially saying, blame blame the foreigners, blame the elite,

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Speaker 4: blame cosmopolitanism. We must go back to tradition, whereas left

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Speaker 4: tends to be dominated by more complex social and economic issues.

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Speaker 3: So I understand the analogy with other countries and their history,

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Speaker 3: but can you talk about the parallel that you see

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Speaker 3: in US history? What time period is you know, twenty

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Speaker 3: twenty five most similar.

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Speaker 4: To well, if you go back through a relatively short

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Speaker 4: US history, probably the times of Andrew Jackson, probably the

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Speaker 4: times of Abraham Lincoln. And I would argue that times

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Speaker 4: of Fdr. Franklin Delana Roosevelt probably will be the most

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Speaker 4: similar periods. You can add Richard Nixon, but that was

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Speaker 4: very different in my view. The same with Theodore Roosewold,

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Speaker 4: who also was smashing quite a few things. I sing,

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Speaker 4: it was different, but those three I sing in my view,

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Speaker 4: which is the beginning of the US with the first

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Speaker 4: populist wave in eighteen twenty s eighteen thirties, the Civil

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Speaker 4: War in the nineteen thirties was FDR.

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Speaker 3: Why FDR though, because it seems like, you know, the

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Speaker 3: Trump administration is backing away from a lot of fiscal spending.

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Speaker 4: Yeah. Well, the idea is not whether you're fiscally spent

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Speaker 4: or not. The idea essentially is what is executive branch

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Speaker 4: allowed and not allowed to do?

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Speaker 3: Oh, I see it.

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Speaker 4: And the other idea is the government penetrates more and

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Speaker 4: more of your life. So, on the one hand, Republican

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Speaker 4: Party says we're going to deregulate some of the regulations.

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Speaker 4: On the other hand, they're telling companies what their margins

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Speaker 4: should be, and what their prices should be, and what

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Speaker 4: policies they should pursue internally, whether culturally or otherwise. So

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Speaker 4: is Republican Party deregulating party? Well, the answer is no,

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Speaker 4: it isn't. It's actually penetrating government much deeper. And that's

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Speaker 4: very much what I've did through a variety of programs

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Speaker 4: that you tried through nineteen thirties.

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Speaker 2: You know, I would obviously love to just sit here

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Speaker 2: and talk history and political theory with you too. But

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Speaker 2: I know also you know, in your day job, you

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Speaker 2: go around the world and you talk to people and

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Speaker 2: they ask you questions, etc. One of the things that

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Speaker 2: we've been talking about is this sort of like, you know,

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Speaker 2: the end of American exceptionalism, which has been at least

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Speaker 2: probably long but in some sense at least a fifteen

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Speaker 2: year story. In markets, the only game in town is

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Speaker 2: the US. Global diversification is for suckers and losers, et cetera.

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Speaker 2: Now suddenly you get these little impulses of change when

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Speaker 2: you're around the world talking to people, do you sense

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Speaker 2: that there is a real opportunity for a meaningful shift

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Speaker 2: in terms of allocations of discretionary investment capital.

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Speaker 4: Yes, there is no doubt that the last three months

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Speaker 4: was a incredible shift away from American exceptionalism. The view,

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Speaker 4: essentially if you go too late last year was, yes,

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Speaker 4: there will be a lot of stuff going in the

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Speaker 4: social and cultural areas, there will be a lot of

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Speaker 4: stuff going on and other stuff in other things, But

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Speaker 4: from an economic point of view, US will continue to

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Speaker 4: pursue a relatively rational policy. So as soon as you're

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Speaker 4: sort of undermined that pillar, then people start asking question,

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Speaker 4: what is exceptionalism of the United States? Why US has

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Speaker 4: been growing faster than other countries over the last fifteen

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Speaker 4: to twenty years. What were the drivers? Do you are

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Speaker 4: you undermining those pillars? Are you undermining those drivers? Now?

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Speaker 4: Other countries are not necessarily exceptional. So if you think

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Speaker 4: of Europe, they're suffering from access capital unlike the United States,

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Speaker 4: they have slower growth rates. They're mostly mercantilists. But on

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Speaker 4: the other hand, if Europe is shifting, the growth rates

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Speaker 4: will improve, utilization of capital will improve, and they will

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Speaker 4: not be as dependent on trade as you go forward.

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Speaker 4: So if you think of US equities, adjusting for inflation

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Speaker 4: risk premia did go up from two and a half

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Speaker 4: to three and a half percent. But if you think

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Speaker 4: of Europe, or if you think of China, for example,

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Speaker 4: you're looking at about six to nine percent inflation adjusted

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Speaker 4: risk premia. So should that risk premia come down? In

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Speaker 4: other words, if u AS is not such so distinctly

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Speaker 4: different to Europe or China, why should be trading at

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Speaker 4: twenty times when Chinese trading at eleven times? And so

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Speaker 4: increasingly those questions are asked when you tell people, but

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Speaker 4: you know US might have an existential problem, but Europe

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Speaker 4: and China have a massive structural problems. You do understand

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Speaker 4: that China is an liquidity trap that they will not

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Speaker 4: be able to get out very easily unless there is

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Speaker 4: a paradigm shift. You understand that Europe also have a

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Speaker 4: structural problem than need to overcome. And so there is

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Speaker 4: a limitation. The way I describe it, we gradually go

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Speaker 4: into the world that no one is exceptional, and therefore

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Speaker 4: it becomes much more tradeable opportunity between the markets. Rather

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Speaker 4: than saying, as you correctly said, Joe, over the last

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Speaker 4: fifteen years, you never bet against the US. And by

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Speaker 4: the way, if you think of that phrase, never bet

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Speaker 4: against the US, if you said it in nineteen thirties,

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Speaker 4: it would not have resonated. If you said it in

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Speaker 4: nineteen seventies, it would not have resonated with people that

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Speaker 4: you don't bet against the United States. So we kind

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Speaker 4: of going into this period a largely, I must say,

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Speaker 4: for self inflicted reasons. But nevertheless, I think you're right

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Speaker 4: there will be more cross flow capital into other markets.

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Speaker 3: So, speaking of risk premia, one of the things, just

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Speaker 3: one of the things that has happened in recent days

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Speaker 3: is we saw a spike in US treasure yields, and

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Speaker 3: I think again we're recording this on April eighth, yesterday, Monday,

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Speaker 3: April seventh, we saw the yield on the benchmark ten

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Speaker 3: year ago from like just below four percent up to

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Speaker 3: I think around four point two percent. And everyone's kind

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Speaker 3: of scratching their heads because normally you would see treasure

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Speaker 3: yields go down because people buy bonds as a safe haven. Right,

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Speaker 3: what's your explanation for yields going up?

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Speaker 4: Well, to me, there are two explanations. The same applies

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Speaker 4: to you as dollar because normally you would argue that

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Speaker 4: when uncertainty is high, a risk is high, people go

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Speaker 4: into U as dollars and into US treasuries. But now

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Speaker 4: they do not. They go into other places. There is

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Speaker 4: even discussion that a European bonds or Japanese bonds might

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Speaker 4: be a better place to be. So there are two things.

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Speaker 4: One is US exceptionalism that we've just discussed with Joe.

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Speaker 4: The other one is potentially liquidation of positions that is

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Speaker 4: occurring because remember, an average American is probably if you

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Speaker 4: include the currency, ten fifteen percent wars off than what

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Speaker 4: they were all poorer than what they were say on

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Speaker 4: January first, and so there is some liquidation that is

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Speaker 4: actually occurring as well.

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Speaker 3: So sell what you cannot, necessarily what you want, sell

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Speaker 3: what you can.

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Speaker 4: So to me, there are two answers. One answer is

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Speaker 4: the sunsetting of US exceptionalism, and the other answer is liquidations. However,

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Speaker 4: coming back to that historical perspectives, you know, Roman Empire

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Speaker 4: survived many anomalies and many poor administrators, so to speak,

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Speaker 4: and the reason was the underlying strengths of Roman society

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Speaker 4: in Roman economy. And so the question is whether the

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Speaker 4: underlying strengths of the US, which it can contribute less capital,

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Speaker 4: it's growing multi factor productivity, it's got the best balance

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Speaker 4: of tangible and intangible assets, it's got a tremendous geopolitical position.

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Speaker 4: Whether those positives ultimately will reassert themselves or at the

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Speaker 4: very least reduce the degree of drag that otherwise would

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Speaker 4: have occurred. And to me, I'm still hopeful that that

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Speaker 4: is the answer.

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Speaker 2: By the way, we're recording this April late right now,

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Speaker 2: it's nine to twenty am. President Trump posting to his

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Speaker 2: truth social account. I just had a great call with

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Speaker 2: the acting President of South Korea, it says that people

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Speaker 2: on the plane right now, they're clearly in the mode

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Speaker 2: now where they're like over like trying to try this

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Speaker 2: is ideal because there was another I mean, yesterday, for example,

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Speaker 2: there was an FT column from Peter Navarro say this

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Speaker 2: isn't about deal making. So even the question of is

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Speaker 2: this about negotiations or deal making is fluid, and there's probably,

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Speaker 2: if we're being honest, some sensitivity.

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Speaker 4: To the market going. I mean, I mean, there are

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Speaker 4: plenty of inconsistent stuff, but the question you're raising, would

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Speaker 4: the market react positively when we get more and more

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Speaker 4: announced when the countries are negotiating. Absolutely. You have to

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Speaker 4: remember small countries have no leverage whatsoever. So whether you're

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Speaker 4: Sri Lanka, Malaysia, talent, whatever you are, you have no leverage,

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Speaker 4: nothing to offer. Well, well, the thing is, the thing

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Speaker 4: is that at least Korea does have some domestic market.

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Speaker 4: To ask a country like Sri Lanka to who is

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Speaker 4: poorer and relatively small, to run a balanced trade with

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Speaker 4: the United States is impossible. So the only countries that

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Speaker 4: are capable of a pushbag is Canada, UK, European Union, China,

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Speaker 4: in Japan. Now UK and Japan decided not to do it. Uh,

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Speaker 4: And so the question comes down to Canada, European Union

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Speaker 4: and China and extent to which they're going to play

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Speaker 4: a hard ball. But to have fifty countries or sixty

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Speaker 4: countries or whatever the number is coming in trying to negotiate,

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Speaker 4: that's an easy part. Now the market will react to it,

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Speaker 4: but it's just temporary. It's not saying more than that.

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Speaker 2: By the way, Tracy Trump says he's also waiting for

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Speaker 2: a call from China, and he says China really wants

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Speaker 2: a deal. So I'm just.

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Speaker 3: Yeah, I have this image in my head of Trump

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Speaker 3: like sitting by the phone in the Oval office, just.

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Speaker 1: Like hearing me.

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Speaker 3: Yeah, exactly. Okay, So is it okay to text twice?

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Speaker 1: I texted?

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Speaker 2: I feel man like, Oh, he doesn't ever reading, doesn't

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Speaker 2: ever read receipts on I have no idea. That's where

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Speaker 2: I keep going.

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Speaker 3: That's right, Okay. So we mentioned in the intro that

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Speaker 3: up until recently, markets had been like pretty quiet, pretty complacent,

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Speaker 3: you might say, given what's happened over the past week

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Speaker 3: or so. Now that we've seen the big crash in stocks,

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Speaker 3: we've seen spreads on high yield investment grades start to

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Speaker 3: go up. It's not a blowout necessarily, but it is

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Speaker 3: up significantly. Is risks sufficiently priced it, at least for

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Speaker 3: the short term.

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Speaker 4: Nobody knows, because it depends what the policies will be.

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Speaker 4: If the policies are not changed, then the risk is

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Speaker 4: nowhere near priced. And in fact, if the high yields,

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Speaker 4: say triple c which are now ten eleven percent spreads,

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Speaker 4: if they go up to fifteen, the world will freeze.

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Speaker 4: If the average spreads, which are now more like four

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Speaker 4: and a half, go to six, both global economy and

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Speaker 4: the US economy will freeze. So there are some breaks.

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Speaker 4: As I said, on the system, at the end of

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Speaker 4: the day, you can't freeze it. We saw what happened

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Speaker 4: in Pennsylvania and Wisconsin and Florida. At the end of

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Speaker 4: this year, you're going to have Virginia and New Jersey

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Speaker 4: coming up. Then you have, of course, you have a

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Speaker 4: mid terms, so that there has to be if certain taxes.

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Speaker 4: Senators are coming out and saying that that there's going

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Speaker 4: to be a blood buss in midterm if this continues,

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Speaker 4: is absolutely right. So there are checks and balances still

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Speaker 4: in a system. But one of the sayings to remember

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Speaker 4: that even if you, even if we pass the high

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Speaker 4: point of terrors, we might not have passed the high

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Speaker 4: point of other things that are going to come through.

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Speaker 4: And so the question is over the next several years,

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Speaker 4: are you going to continue seeing it? And I think

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Speaker 4: the answer the answer is yes. We didn't talk about geopolitics,

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Speaker 4: for example, an extent to which that could shift as well,

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Speaker 4: so it's not just terrorfs.

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Speaker 3: So speaking of breaks and checks and balances you mentioned earlier,

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Speaker 3: this idea of a pain threshold for Americans. Talk to

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Speaker 3: us a little bit more about that, like where do

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Speaker 3: you sense the pain threshold actually is and what matters

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Speaker 3: most to potential voters.

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Speaker 4: Well, I think the way I look at it, there

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Speaker 4: is a very soul part of the population which actually

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Speaker 4: bought into the idea that you must burn down the

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Speaker 4: house in order to build a bright future. And I

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Speaker 4: don't know whether it's a thirty percent of the population Ontade,

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Speaker 4: but there is a very large constituency which fully accepted that.

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Speaker 4: So when Scott Beason talks about dtalks, this is the

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Speaker 4: audience that accept that whatever you want to build requires

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Speaker 4: pain in between. But on the back of that community,

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Speaker 4: you can't really have political capital, because there are other

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Speaker 4: people who switched for a variety of other reasons, primarily inflation, inequalities, immigration,

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Speaker 4: and so that could constitute as march as twenty percent

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Speaker 4: of your audience. And to those people, I think the

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Speaker 4: pain is already there, and that is why at some

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Speaker 4: point in time, and I agree with Jamie Diamond. I

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Speaker 4: think he said something, we need to wrap it up

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Speaker 4: reasonably quickly. I think I would agree. Is it not

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Speaker 4: just because of economic concerntinty and investment uncertainty, not just

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Speaker 4: because forward soft data which continues to show and enormous

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Speaker 4: collapses occurring, but also because the pain is going to

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Speaker 4: spread much much wider and a hard data. We'll start

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Speaker 4: backing it up very very quickly. Some of the pain companies,

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Speaker 4: some of the collecting companies already seeing that, You're already

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Speaker 4: seeing the mortgage market that so you need to wrap

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Speaker 4: it up. And I think that's what the market is

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Speaker 4: looking for now. Federal Reserve, of course in a difficult

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Speaker 4: position because even if we assume average tariffs go down

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Speaker 4: from say twenty five percent to fifteen, that still implies

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Speaker 4: an inflationary spike, which could be as much as one

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Speaker 4: hundred basis points or more, so you'll start looking at

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Speaker 4: the PC probably three and a half percent or more

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Speaker 4: as you progress through the year. On the other hand,

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Speaker 4: economy will be slowing, So the question is with a

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Speaker 4: fat will take it as a transitory And the other

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Speaker 4: question that we keep raising is that we're seeing elimination

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Speaker 4: of independent institutions across the United States. It doesn't matter

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Speaker 4: Security in Change Commission, EPA, whatever, that is what is

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Speaker 4: actually protecting Federal Reserve? And the answer, as I said earlier,

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Speaker 4: US is not a nation of laws and rules. It's

436
00:25:09,119 --> 00:25:12,679
Speaker 4: an emanation of conventions and norms. So there is actually

437
00:25:12,800 --> 00:25:17,240
Speaker 4: not a great deal of protection legally that Federal Reserve has.

438
00:25:17,480 --> 00:25:20,240
Speaker 4: So the next step on this journey if in fact

439
00:25:20,280 --> 00:25:24,800
Speaker 4: Federal Reserve is caught between rising inflation and slowing gross

440
00:25:24,880 --> 00:25:28,359
Speaker 4: rates otherwise known as deflation. If they're actually caught in that,

441
00:25:29,600 --> 00:25:31,800
Speaker 4: the question is weather Federal Reserve will be able to

442
00:25:31,840 --> 00:25:35,800
Speaker 4: extend of independence that they have been enjoying certainly over

443
00:25:35,840 --> 00:25:37,000
Speaker 4: the last several decades.

444
00:25:37,200 --> 00:25:39,760
Speaker 2: Yeah, we did a really great episode last week, I

445
00:25:39,800 --> 00:25:43,080
Speaker 2: think with eleven of nine and exactly this question and

446
00:25:43,119 --> 00:25:45,720
Speaker 2: how in the end, just the norms and if the

447
00:25:45,760 --> 00:25:48,200
Speaker 2: norms change. That's it, Victor Schwetz, thank you so much

448
00:25:48,240 --> 00:25:49,440
Speaker 2: for coming back on outlass.

449
00:25:49,440 --> 00:25:51,000
Speaker 1: Always a thrill to catch up with it.

450
00:25:51,280 --> 00:25:52,040
Speaker 4: Thank you, Thank you.

451
00:25:52,080 --> 00:26:06,359
Speaker 1: Joe, Thanks so much, Tracy.

452
00:26:06,680 --> 00:26:11,080
Speaker 2: I love Victor's characterization of the US as a country

453
00:26:11,160 --> 00:26:12,760
Speaker 2: of norms in Europe as.

454
00:26:12,600 --> 00:26:16,200
Speaker 1: A country of rules, because I always.

455
00:26:15,880 --> 00:26:18,640
Speaker 2: Think, like I've said that, joked about every time I'm

456
00:26:18,640 --> 00:26:20,199
Speaker 2: in Europe and it's like you're with a group of

457
00:26:20,200 --> 00:26:22,760
Speaker 2: people and you try to get like five, squeeze five

458
00:26:22,760 --> 00:26:25,119
Speaker 2: people into a cab, you know, like, no, it's impossible,

459
00:26:25,200 --> 00:26:27,760
Speaker 2: it's impossible, and then they eventually like, okay, you can

460
00:26:27,840 --> 00:26:30,320
Speaker 2: like squeeze one, and they love saying that. Over there.

461
00:26:30,400 --> 00:26:33,040
Speaker 2: I've been observing this all No, it's impossible.

462
00:26:33,200 --> 00:26:35,120
Speaker 3: How often are you squeezing into.

463
00:26:34,880 --> 00:26:40,119
Speaker 2: Cabs drinking or something or whatever, like with friends and no,

464
00:26:40,200 --> 00:26:42,879
Speaker 2: it's impossible, it's impossible. Oh can we get one more person?

465
00:26:43,080 --> 00:26:43,680
Speaker 2: Can we wait?

466
00:26:43,880 --> 00:26:46,240
Speaker 1: And anyway, well, okay, I think at the.

467
00:26:46,200 --> 00:26:48,240
Speaker 2: Point I just want to go on this rant about

468
00:26:48,440 --> 00:26:51,280
Speaker 2: this impulse in Europe to always say everything's against the rules.

469
00:26:51,440 --> 00:26:56,119
Speaker 3: I mean, it's right, it's yeah, okay, all right. I

470
00:26:56,160 --> 00:26:59,240
Speaker 3: do think the norms point is really important and We've

471
00:26:59,280 --> 00:27:01,640
Speaker 3: been bringing it up on the podcast quite a lot,

472
00:27:01,760 --> 00:27:04,000
Speaker 3: Like so much of the US is based on habits,

473
00:27:04,119 --> 00:27:07,119
Speaker 3: and I guess a sense of shared values or a

474
00:27:07,200 --> 00:27:10,119
Speaker 3: sense of this is the way things have always been done,

475
00:27:10,400 --> 00:27:12,119
Speaker 3: and we're just going to be polite and keep to

476
00:27:12,160 --> 00:27:15,520
Speaker 3: the guardrails that exist. Well, they don't really exist, they're

477
00:27:15,560 --> 00:27:18,520
Speaker 3: not codified necessarily in the law, but we're going to

478
00:27:18,600 --> 00:27:20,720
Speaker 3: keep them because if we don't, that would be bad.

479
00:27:21,359 --> 00:27:24,479
Speaker 3: That's gone for sure. And I think this is feeding

480
00:27:24,520 --> 00:27:27,600
Speaker 3: into some of the risk premium that we're seeing around

481
00:27:27,720 --> 00:27:31,560
Speaker 3: US assets dollars in US treasuries. As Victor pointed out,

482
00:27:31,600 --> 00:27:37,560
Speaker 3: like we're kind of getting a denormalization discount on US assets.

483
00:27:37,680 --> 00:27:40,359
Speaker 2: Yeah, it feels like it certainly does. And like again,

484
00:27:41,000 --> 00:27:46,080
Speaker 2: you know, the most simple norm is that policy Bakers

485
00:27:46,119 --> 00:27:47,239
Speaker 2: wants ducks to go up.

486
00:27:47,400 --> 00:27:48,760
Speaker 1: Yeah, and they were.

487
00:27:50,400 --> 00:27:53,640
Speaker 2: Now I think maybe right now the middle of this week,

488
00:27:53,720 --> 00:27:57,040
Speaker 2: we're seeing a little change because I think there is

489
00:27:57,080 --> 00:27:59,040
Speaker 2: this a little bit of whoa, Like, Okay, maybe we

490
00:27:59,119 --> 00:28:01,399
Speaker 2: left our hand on this dove a little bit too long.

491
00:28:02,040 --> 00:28:05,560
Speaker 2: You can't just have multiple days of meltdown that or

492
00:28:05,600 --> 00:28:08,040
Speaker 2: as intense as March twenty twenty or nineteen eighty seven.

493
00:28:08,080 --> 00:28:10,000
Speaker 2: So you get these headlines about deals and there was

494
00:28:10,000 --> 00:28:13,280
Speaker 2: a report about Scott Bessen, but like you know, it's

495
00:28:13,480 --> 00:28:16,400
Speaker 2: very it's very chaotic, but it does feel like maybe

496
00:28:16,400 --> 00:28:19,640
Speaker 2: there's some sort of sensitivity going on to what's going

497
00:28:19,640 --> 00:28:21,520
Speaker 2: on in the market. But this was a great point

498
00:28:21,520 --> 00:28:23,960
Speaker 2: of Victor's like, what are the thresholds that kick in?

499
00:28:24,800 --> 00:28:27,919
Speaker 2: The soft data has been absolutely terrible. It seems like

500
00:28:27,960 --> 00:28:31,760
Speaker 2: only a matter of time before that spills into hard data.

501
00:28:31,840 --> 00:28:32,320
Speaker 2: We'll see.

502
00:28:33,200 --> 00:28:35,359
Speaker 3: Uh. Well, the other thing I would say is the

503
00:28:35,440 --> 00:28:40,000
Speaker 3: administration has set up many different goalposts and it kind

504
00:28:40,000 --> 00:28:42,560
Speaker 3: of switches between them. So Trump will talk about how

505
00:28:42,640 --> 00:28:44,960
Speaker 3: much stocks went up in his first term. Yeah, but

506
00:28:45,000 --> 00:28:48,080
Speaker 3: then there's also this narrative that if stocks go down,

507
00:28:48,560 --> 00:28:50,680
Speaker 3: you know, lots of people who were shut out of

508
00:28:50,720 --> 00:28:53,040
Speaker 3: the market are going to get their chance to buy.

509
00:28:53,320 --> 00:28:56,360
Speaker 3: The same with housing. So I don't know, they can

510
00:28:56,440 --> 00:28:58,400
Speaker 3: kind of spin it either way, like if stocks go

511
00:28:58,520 --> 00:29:01,680
Speaker 3: down a lot, that's successful for them, and if stocks

512
00:29:01,680 --> 00:29:06,760
Speaker 3: go up that's successful. It's weird. Yeah, all right, shall

513
00:29:06,760 --> 00:29:07,240
Speaker 3: we leave it there.

514
00:29:07,280 --> 00:29:07,960
Speaker 2: Let's leave it there.

515
00:29:08,120 --> 00:29:10,600
Speaker 3: This has been another episode of the aud Loots podcast.

516
00:29:10,720 --> 00:29:14,080
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.

517
00:29:13,800 --> 00:29:15,959
Speaker 2: And I'm Joe wisan Thal. You can follow me at

518
00:29:15,960 --> 00:29:18,480
Speaker 2: the Starwort. Check out Victor Schwetz is writing. Just google

519
00:29:18,560 --> 00:29:21,160
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520
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521
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523
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