WEBVTT - Viktor Shvets on Trump's Historical, Revolutionary Moves 0:00:02.480 --> 0:00:10.600 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.120 --> 0:00:22.040 Hello and welcome to another episode of the Odd Lots Podcast. 0:00:22.160 --> 0:00:23.919 I'm Jill Wisenthal. 0:00:23.480 --> 0:00:24.600 And I'm Tracy Alloway. 0:00:24.640 --> 0:00:25.759 Tracy, you know what I'm proud of. 0:00:26.400 --> 0:00:28.120 Oh, I don't you know. 0:00:28.280 --> 0:00:30.880 I look, I'm not a trader or anything like that. 0:00:31.080 --> 0:00:33.080 I don't like try to make a lot of calls 0:00:33.360 --> 0:00:34.639 or oh look at you. 0:00:34.560 --> 0:00:35.600 Know, I'm not even a pundit. 0:00:35.720 --> 0:00:38.440 It gets things right that big said. You know what 0:00:38.520 --> 0:00:42.160 I thinically did well. I think we took the prospect 0:00:42.320 --> 0:00:45.400 of a serious change in the US trading relationship with 0:00:45.479 --> 0:00:48.960 the rest of the world is a serious possibility. 0:00:49.600 --> 0:00:51.559 Trump both seriously and literally. 0:00:51.680 --> 0:00:54.320 We definitely Yeah, I think we took it pretty literally 0:00:54.520 --> 0:00:56.600 when he was talking on the campaign trail and in 0:00:56.640 --> 0:00:59.720 the early days after the election, when the markets were 0:01:00.120 --> 0:01:02.560 lying because all they were talking about was tax cuts 0:01:02.560 --> 0:01:05.919 and the regulation. I think we were giving serious airtime 0:01:06.600 --> 0:01:10.440 and writing time to the aspects of trump Ism that 0:01:10.560 --> 0:01:11.839 might not be so market friendly. 0:01:12.160 --> 0:01:15.000 I think that's right. Also, in our newsletter just a 0:01:15.040 --> 0:01:17.160 couple of weeks ago, we were talking about how weird 0:01:17.240 --> 0:01:20.480 the markets actually were because we weren't seeing that much 0:01:20.640 --> 0:01:24.839 risk priced in, right, like spreads on credits still pretty low. 0:01:25.240 --> 0:01:28.360 FX volatility at the time was pretty low. Just lots 0:01:28.360 --> 0:01:31.880 of weird stuff going on in the markets. And there's 0:01:31.880 --> 0:01:33.480 someone else who noticed this. 0:01:33.800 --> 0:01:37.039 Well, that's right, So I'm looking at a edition of 0:01:37.080 --> 0:01:40.760 the Odd Lots newsletter. Everyone should google Odd Lots Newsletter 0:01:40.800 --> 0:01:42.839 and sign up for it. And we had a guest contributor. 0:01:44.120 --> 0:01:47.120 He wrote a piece for us on November twenty seventh, 0:01:47.160 --> 0:01:50.279 twenty twenty four, when markets were surging, and he said, 0:01:50.480 --> 0:01:52.640 this time really is different. 0:01:52.880 --> 0:01:53.360 And he's a. 0:01:53.360 --> 0:01:56.280 Frequent odd Laws guest and he has been very in 0:01:56.360 --> 0:01:59.440 tune with the big changes going on in the world 0:01:59.440 --> 0:02:02.720 in major turning points. Some thrilled to have him back. 0:02:03.200 --> 0:02:06.000 We are speaking, of course, with the one and only 0:02:06.080 --> 0:02:09.919 Victor Schwetz, head of Global Desk Strategy at McCrory Capital, 0:02:10.520 --> 0:02:12.920 who said, this time is different, and I think it 0:02:12.960 --> 0:02:13.959 turned out to be different. 0:02:14.040 --> 0:02:16.120 Huh, yes, yes it did. 0:02:16.400 --> 0:02:17.360 Yes, not to be different? 0:02:18.400 --> 0:02:21.799 Why, okay, let's just go back. What were you thinking? 0:02:21.840 --> 0:02:26.119 On Wednesday, April second Liberation Day, the chart came out, 0:02:26.800 --> 0:02:30.519 massive tariffs announced on the rest of the world. Virtually 0:02:30.520 --> 0:02:33.960 every country, friend, foe, et cetera. 0:02:33.919 --> 0:02:35.760 Even small islands even small. 0:02:35.440 --> 0:02:39.480 Islands, depopulated islands, tariff levels that are like higher than 0:02:39.520 --> 0:02:42.200 smooth holly or whatever. What went through your mind? 0:02:42.560 --> 0:02:46.440 The question I keep asking myself what is this administration 0:02:46.680 --> 0:02:47.399 trying to do? 0:02:48.160 --> 0:02:48.200 So? 0:02:48.440 --> 0:02:50.639 In other words, what is the objective? Is objective to 0:02:50.720 --> 0:02:53.680 raise revenue in order to partly pay for tex Scotts? 0:02:53.800 --> 0:02:57.920 Is objective to reshape America into some form? Is it 0:02:57.960 --> 0:03:01.520 to bring manufacturing back? Is easy to change the flow 0:03:01.560 --> 0:03:04.920 of savings and investments on a global basis. What is 0:03:04.960 --> 0:03:09.320 this administration trying to do? And my answer consistently is 0:03:09.360 --> 0:03:12.200 they want to remake America. They want to make it 0:03:12.520 --> 0:03:15.799 different to what it was before. But you can't remake 0:03:15.840 --> 0:03:18.840 America unless you remad the world at the same time. 0:03:19.200 --> 0:03:24.440 So it's a revolutionary movement rather than just a little 0:03:24.440 --> 0:03:27.600 bit of a bypassing it through problems, navigating a few 0:03:27.639 --> 0:03:31.320 bumps on the road, it's much much deeper. The only 0:03:31.400 --> 0:03:35.000 question that I keep coming back is what is a 0:03:35.160 --> 0:03:41.160 pain threshold and what are the sort of breaks on 0:03:41.200 --> 0:03:44.279 the system? Because most of the breaks we've been discussing 0:03:44.560 --> 0:03:47.760 for the last four or five months have either disappeared 0:03:48.240 --> 0:03:51.440 or were in some form co opted by the system. 0:03:51.640 --> 0:03:54.280 So there is only very few breaks left, and so 0:03:54.440 --> 0:03:57.640 one of the breaks is really the pain threshold, at 0:03:57.680 --> 0:04:01.600 which stage people will feel that their lives have gone 0:04:01.680 --> 0:04:04.640 much worse than they used to be. And the other break, 0:04:04.720 --> 0:04:09.880 of course, is everything to do with electoral cycle associated 0:04:09.960 --> 0:04:12.640 with it. And so to me, that's the only question. 0:04:12.720 --> 0:04:17.520 It's not that there is any consistent economic theory behind 0:04:18.000 --> 0:04:21.400 what this administration is trying to do. Every time I listen, 0:04:21.680 --> 0:04:26.560 it's very clear that they don't fully understand sexual balances. 0:04:26.839 --> 0:04:30.760 They don't fully understand that you can't have declining deficits 0:04:30.800 --> 0:04:34.479 and rising capital influence at the same time. So it's 0:04:34.520 --> 0:04:39.120 clearly not guided by some conventional economics. It's sort of 0:04:39.200 --> 0:04:44.160 guided by by a desire, as I said, to change America, 0:04:44.240 --> 0:04:48.320 and different parts of administration of different views. So there 0:04:48.400 --> 0:04:52.839 is a technocratic part, which is Ellen Musk and recent 0:04:53.040 --> 0:04:56.880 Peter Teel. They have very different views. They're much more global, 0:04:57.160 --> 0:05:00.440 they want technology to progress, they open to immigration, there's 0:05:00.440 --> 0:05:03.120 all range of things. Then there is a populist wing, 0:05:03.400 --> 0:05:06.400 probably Jed Events is the most obvious example of that, 0:05:06.640 --> 0:05:10.560 which are completely opposite. Returning America back to nineteen fifties 0:05:11.080 --> 0:05:14.920 or maybe even late nineteenth century closing the borders. Then 0:05:14.960 --> 0:05:18.320 there's a little bit more technocratic wing saying that what 0:05:18.400 --> 0:05:21.840 Bernaki and Greenspin were discussing in the past, which is 0:05:22.400 --> 0:05:25.520 making sure that savings an investment on a global basis 0:05:25.920 --> 0:05:29.240 actually balance us at some point in time somewhere. And 0:05:29.279 --> 0:05:32.120 so all of those wings are in conflict. If they 0:05:32.160 --> 0:05:37.160 are in conflict, expect irrational moves, quick shifts, but do 0:05:37.320 --> 0:05:40.479 not expect that suddenly tariffs are going to go away, 0:05:40.880 --> 0:05:44.919 suddenly restructuring of capital flows will just go away and 0:05:45.000 --> 0:05:46.160 normality will return. 0:05:46.520 --> 0:05:49.479 Okay, So you mentioned capital inflows, and this to me 0:05:49.760 --> 0:05:54.799 seems to be the big hole in the Trump administration strategy, 0:05:54.920 --> 0:05:58.480 such as it is, and it's we want to build 0:05:58.640 --> 0:06:01.400 a bunch of stuff in America. Ostensibly we want to 0:06:01.440 --> 0:06:04.880 boost manufacturing. Maybe that goal sits alongside a bunch of 0:06:04.960 --> 0:06:08.839 other goals. As you just mentioned, that's really expensive and 0:06:08.880 --> 0:06:12.039 when I look at the markets right now, it's very 0:06:12.120 --> 0:06:14.960 unclear to me where that money is actually going to 0:06:15.000 --> 0:06:15.880 come from. 0:06:16.200 --> 0:06:20.599 Yeah, I agree. One of the ways you can try 0:06:20.640 --> 0:06:25.560 to handle basically deglobalization of capital, because so far we've 0:06:25.560 --> 0:06:28.839 been talking mostly about the globalization of goods. We have 0:06:28.960 --> 0:06:33.000 not yet spoken about diglobalization of services. But with goods 0:06:33.040 --> 0:06:36.839 and services comes capital. And so when we start talking 0:06:36.839 --> 0:06:42.080 about diglobalization and fracturing of capital, that's where Welsh funds 0:06:42.160 --> 0:06:46.800 come in. That's where various superinnuation and pension funds come in. 0:06:47.080 --> 0:06:49.919 Now a lot of countries already either started that or 0:06:50.240 --> 0:06:54.560 significantly increase the size of those funds. For example, Korea 0:06:54.680 --> 0:06:58.839 will start much higher contribution to their pension funds. So 0:06:59.000 --> 0:07:01.800 if you sing of Austria, Australia already done it, Singapoore 0:07:01.800 --> 0:07:04.400 has done it, Norway has done it. More and more 0:07:04.440 --> 0:07:08.080 countries are talking about creating some form of pool of 0:07:08.160 --> 0:07:12.000 capital within those countries. But once again, is it efficient 0:07:12.600 --> 0:07:17.160 allocation of capital? Not? Not necessarily. Is it looking after 0:07:17.240 --> 0:07:21.520 the interest of pensioners that they're supposed to service. Not necessarily, 0:07:21.800 --> 0:07:24.800 But that could be one way that you actually will 0:07:24.800 --> 0:07:28.480 accumulate some capital of a time in order to fund it. 0:07:29.280 --> 0:07:30.760 I want to go back to your point about the 0:07:30.800 --> 0:07:36.200 revolutionary element within trump Ism. Do we need to start 0:07:36.520 --> 0:07:40.200 looking at lenin the Russian Revolution maould say tongue to 0:07:40.240 --> 0:07:43.480 get it or China to get a better understanding of 0:07:43.520 --> 0:07:46.240 what the sort of like Zeitgeist or impulsary. 0:07:46.240 --> 0:07:49.880 Can I just say, can you imagine asking that question 0:07:50.200 --> 0:07:51.000 like a year ago? 0:07:51.360 --> 0:07:51.840 Yeah? 0:07:52.040 --> 0:07:53.080 Well I change. 0:07:53.280 --> 0:07:55.280 I got into my you know, I got into my 0:07:55.360 --> 0:07:58.080 twentieth century history, have it like right at the right times? 0:07:58.080 --> 0:07:59.880 I read a bunch of Middle eight. 0:08:00.680 --> 0:08:03.760 And what I'm trying to really ask Victor is I 0:08:03.840 --> 0:08:08.240 want him to validate my choice to take up a 0:08:08.280 --> 0:08:12.120 twentieth century revolutionary history hobby, am I was I right 0:08:12.200 --> 0:08:14.880 to go back and study. I'll start reading all those books. 0:08:14.600 --> 0:08:19.040 As you do, and you can go to nineteenth century 0:08:19.040 --> 0:08:23.080 as well. Basically anything that resembles more or less the 0:08:23.120 --> 0:08:26.640 modern times and the way various breaks in the system. Now, 0:08:26.760 --> 0:08:29.360 remember US, I keep highlighting, is not a nation of 0:08:29.480 --> 0:08:32.559 laws or rules. It's a nation of habits. It's a 0:08:32.640 --> 0:08:36.679 nation of norms. Usually laws in the US are designed 0:08:36.800 --> 0:08:40.000 very sloppily, and the idea is that we need to compromise. 0:08:40.440 --> 0:08:44.360 Eventually is a judiciary branch will figure out where exactly 0:08:44.400 --> 0:08:48.760 the limits are. And so founding fathers never knew whether 0:08:48.840 --> 0:08:51.600 they want to have monarchy or whether they want to 0:08:51.600 --> 0:08:54.920 have democracy. Like initially George Washington was supposed to be 0:08:54.960 --> 0:08:58.040 an addressed as his majesty. It was George Washington who 0:08:58.080 --> 0:09:01.040 insisted on being called mister President rather, So they were 0:09:01.080 --> 0:09:04.160 never quite sure what to do, so they never delienated 0:09:04.440 --> 0:09:07.240 the power. What is an executive power, what is the 0:09:07.280 --> 0:09:09.959 state power? What is a federal power? What is legislative? 0:09:10.760 --> 0:09:13.600 Was judicial? And so the result is US is a 0:09:13.679 --> 0:09:17.160 nation of norms, whereas Europe is a nation of rules 0:09:17.200 --> 0:09:19.520 or the nations of rules. And so the result is 0:09:19.520 --> 0:09:22.679 in the US, it's actually relatively easy to smash those 0:09:22.720 --> 0:09:26.160 norms if anybody wants to. That's what Andrew Jackson tried 0:09:26.200 --> 0:09:29.920 to do. That's what Abraham Lincoln did, That's what Theodore 0:09:29.960 --> 0:09:33.720 Roosevelt did, that's what FDR did, that's what Richard Nixon did. 0:09:33.960 --> 0:09:37.880 And so what you're seeing is every time those changes occurred, 0:09:37.880 --> 0:09:42.040 there is a reason why Andrew Jackson or FDR behaved 0:09:42.360 --> 0:09:44.480 the way they did, and there was a reason why 0:09:44.480 --> 0:09:48.440 they were pushing executive branch as aggressively. And so the 0:09:48.480 --> 0:09:52.120 reason for that is some kind of a displacement within 0:09:52.280 --> 0:09:56.680 those countries. And so you can't necessarily compare to cultural 0:09:56.720 --> 0:10:01.000 revolution because some of the drivers were different necessarily compared 0:10:01.120 --> 0:10:04.520 to Bolsheviks in Russia. But the essence is the same. 0:10:04.679 --> 0:10:07.880 In every one of those cases, there was a dislocation, 0:10:08.480 --> 0:10:11.880 and one of the answers during dislocation is some form 0:10:11.920 --> 0:10:15.880 of populist approach, because the right wing usually does it 0:10:15.920 --> 0:10:19.160 better than a left wing, because the right wing essentially 0:10:19.280 --> 0:10:21.840 saying in many ways, cultural revolution was the right wing. 0:10:22.400 --> 0:10:26.680 They essentially saying, blame blame the foreigners, blame the elite, 0:10:26.920 --> 0:10:32.120 blame cosmopolitanism. We must go back to tradition, whereas left 0:10:32.400 --> 0:10:36.560 tends to be dominated by more complex social and economic issues. 0:10:52.559 --> 0:10:57.360 So I understand the analogy with other countries and their history, 0:10:57.400 --> 0:10:59.839 but can you talk about the parallel that you see 0:11:00.400 --> 0:11:05.440 in US history? What time period is you know, twenty 0:11:05.520 --> 0:11:07.199 twenty five most similar. 0:11:06.880 --> 0:11:11.360 To well, if you go back through a relatively short 0:11:11.520 --> 0:11:17.440 US history, probably the times of Andrew Jackson, probably the 0:11:17.480 --> 0:11:21.480 times of Abraham Lincoln. And I would argue that times 0:11:21.640 --> 0:11:25.520 of Fdr. Franklin Delana Roosevelt probably will be the most 0:11:25.520 --> 0:11:28.520 similar periods. You can add Richard Nixon, but that was 0:11:28.640 --> 0:11:32.280 very different in my view. The same with Theodore Roosewold, 0:11:32.280 --> 0:11:34.800 who also was smashing quite a few things. I sing, 0:11:34.840 --> 0:11:37.800 it was different, but those three I sing in my view, 0:11:37.800 --> 0:11:40.840 which is the beginning of the US with the first 0:11:40.920 --> 0:11:43.960 populist wave in eighteen twenty s eighteen thirties, the Civil 0:11:44.000 --> 0:11:46.600 War in the nineteen thirties was FDR. 0:11:46.960 --> 0:11:50.520 Why FDR though, because it seems like, you know, the 0:11:50.520 --> 0:11:54.000 Trump administration is backing away from a lot of fiscal spending. 0:11:54.800 --> 0:11:58.920 Yeah. Well, the idea is not whether you're fiscally spent 0:11:59.240 --> 0:12:03.320 or not. The idea essentially is what is executive branch 0:12:03.440 --> 0:12:04.920 allowed and not allowed to do? 0:12:05.040 --> 0:12:05.599 Oh, I see it. 0:12:05.840 --> 0:12:09.840 And the other idea is the government penetrates more and 0:12:09.880 --> 0:12:12.840 more of your life. So, on the one hand, Republican 0:12:12.880 --> 0:12:15.640 Party says we're going to deregulate some of the regulations. 0:12:15.760 --> 0:12:18.120 On the other hand, they're telling companies what their margins 0:12:18.120 --> 0:12:20.679 should be, and what their prices should be, and what 0:12:20.720 --> 0:12:24.520 policies they should pursue internally, whether culturally or otherwise. So 0:12:25.160 --> 0:12:28.360 is Republican Party deregulating party? Well, the answer is no, 0:12:28.520 --> 0:12:33.120 it isn't. It's actually penetrating government much deeper. And that's 0:12:33.320 --> 0:12:36.559 very much what I've did through a variety of programs 0:12:36.559 --> 0:12:38.200 that you tried through nineteen thirties. 0:12:38.880 --> 0:12:41.160 You know, I would obviously love to just sit here 0:12:41.280 --> 0:12:43.880 and talk history and political theory with you too. But 0:12:44.080 --> 0:12:47.360 I know also you know, in your day job, you 0:12:47.440 --> 0:12:49.679 go around the world and you talk to people and 0:12:49.679 --> 0:12:53.280 they ask you questions, etc. One of the things that 0:12:53.320 --> 0:12:55.400 we've been talking about is this sort of like, you know, 0:12:55.559 --> 0:12:58.720 the end of American exceptionalism, which has been at least 0:12:59.360 --> 0:13:01.760 probably long but in some sense at least a fifteen 0:13:01.800 --> 0:13:04.679 year story. In markets, the only game in town is 0:13:04.760 --> 0:13:08.800 the US. Global diversification is for suckers and losers, et cetera. 0:13:09.520 --> 0:13:12.679 Now suddenly you get these little impulses of change when 0:13:12.760 --> 0:13:15.640 you're around the world talking to people, do you sense 0:13:15.720 --> 0:13:19.600 that there is a real opportunity for a meaningful shift 0:13:19.760 --> 0:13:23.640 in terms of allocations of discretionary investment capital. 0:13:23.800 --> 0:13:26.760 Yes, there is no doubt that the last three months 0:13:27.080 --> 0:13:32.160 was a incredible shift away from American exceptionalism. The view, 0:13:32.280 --> 0:13:35.360 essentially if you go too late last year was, yes, 0:13:35.400 --> 0:13:37.040 there will be a lot of stuff going in the 0:13:37.080 --> 0:13:39.560 social and cultural areas, there will be a lot of 0:13:39.600 --> 0:13:42.200 stuff going on and other stuff in other things, But 0:13:42.280 --> 0:13:45.560 from an economic point of view, US will continue to 0:13:45.600 --> 0:13:50.040 pursue a relatively rational policy. So as soon as you're 0:13:50.080 --> 0:13:53.640 sort of undermined that pillar, then people start asking question, 0:13:53.840 --> 0:13:56.760 what is exceptionalism of the United States? Why US has 0:13:56.800 --> 0:13:59.720 been growing faster than other countries over the last fifteen 0:13:59.720 --> 0:14:02.520 to twenty years. What were the drivers? Do you are 0:14:02.520 --> 0:14:06.520 you undermining those pillars? Are you undermining those drivers? Now? 0:14:06.559 --> 0:14:10.280 Other countries are not necessarily exceptional. So if you think 0:14:10.280 --> 0:14:14.640 of Europe, they're suffering from access capital unlike the United States, 0:14:14.760 --> 0:14:18.560 they have slower growth rates. They're mostly mercantilists. But on 0:14:18.600 --> 0:14:22.200 the other hand, if Europe is shifting, the growth rates 0:14:22.240 --> 0:14:25.480 will improve, utilization of capital will improve, and they will 0:14:25.480 --> 0:14:27.840 not be as dependent on trade as you go forward. 0:14:28.200 --> 0:14:31.400 So if you think of US equities, adjusting for inflation 0:14:32.080 --> 0:14:34.280 risk premia did go up from two and a half 0:14:34.280 --> 0:14:36.160 to three and a half percent. But if you think 0:14:36.200 --> 0:14:38.760 of Europe, or if you think of China, for example, 0:14:39.080 --> 0:14:42.680 you're looking at about six to nine percent inflation adjusted 0:14:42.800 --> 0:14:46.600 risk premia. So should that risk premia come down? In 0:14:46.640 --> 0:14:49.760 other words, if u AS is not such so distinctly 0:14:49.800 --> 0:14:52.960 different to Europe or China, why should be trading at 0:14:53.000 --> 0:14:56.040 twenty times when Chinese trading at eleven times? And so 0:14:56.280 --> 0:15:00.280 increasingly those questions are asked when you tell people, but 0:15:00.360 --> 0:15:04.480 you know US might have an existential problem, but Europe 0:15:04.520 --> 0:15:08.360 and China have a massive structural problems. You do understand 0:15:08.520 --> 0:15:11.240 that China is an liquidity trap that they will not 0:15:11.400 --> 0:15:14.240 be able to get out very easily unless there is 0:15:14.280 --> 0:15:17.720 a paradigm shift. You understand that Europe also have a 0:15:17.800 --> 0:15:20.600 structural problem than need to overcome. And so there is 0:15:20.640 --> 0:15:23.640 a limitation. The way I describe it, we gradually go 0:15:23.680 --> 0:15:27.480 into the world that no one is exceptional, and therefore 0:15:27.520 --> 0:15:31.840 it becomes much more tradeable opportunity between the markets. Rather 0:15:31.920 --> 0:15:34.560 than saying, as you correctly said, Joe, over the last 0:15:34.600 --> 0:15:38.360 fifteen years, you never bet against the US. And by 0:15:38.360 --> 0:15:40.200 the way, if you think of that phrase, never bet 0:15:40.240 --> 0:15:42.760 against the US, if you said it in nineteen thirties, 0:15:42.760 --> 0:15:45.000 it would not have resonated. If you said it in 0:15:45.080 --> 0:15:48.320 nineteen seventies, it would not have resonated with people that 0:15:48.400 --> 0:15:51.680 you don't bet against the United States. So we kind 0:15:51.680 --> 0:15:55.320 of going into this period a largely, I must say, 0:15:55.400 --> 0:15:59.200 for self inflicted reasons. But nevertheless, I think you're right 0:15:59.240 --> 0:16:02.560 there will be more cross flow capital into other markets. 0:16:02.720 --> 0:16:05.520 So, speaking of risk premia, one of the things, just 0:16:05.600 --> 0:16:08.280 one of the things that has happened in recent days 0:16:08.360 --> 0:16:11.440 is we saw a spike in US treasure yields, and 0:16:11.520 --> 0:16:16.000 I think again we're recording this on April eighth, yesterday, Monday, 0:16:16.080 --> 0:16:19.840 April seventh, we saw the yield on the benchmark ten 0:16:19.960 --> 0:16:23.360 year ago from like just below four percent up to 0:16:23.760 --> 0:16:27.480 I think around four point two percent. And everyone's kind 0:16:27.480 --> 0:16:31.040 of scratching their heads because normally you would see treasure 0:16:31.120 --> 0:16:35.280 yields go down because people buy bonds as a safe haven. Right, 0:16:36.080 --> 0:16:38.800 what's your explanation for yields going up? 0:16:39.080 --> 0:16:42.840 Well, to me, there are two explanations. The same applies 0:16:42.880 --> 0:16:46.400 to you as dollar because normally you would argue that 0:16:46.520 --> 0:16:49.360 when uncertainty is high, a risk is high, people go 0:16:49.520 --> 0:16:52.800 into U as dollars and into US treasuries. But now 0:16:52.880 --> 0:16:55.480 they do not. They go into other places. There is 0:16:55.560 --> 0:16:59.560 even discussion that a European bonds or Japanese bonds might 0:16:59.600 --> 0:17:02.520 be a better place to be. So there are two things. 0:17:02.560 --> 0:17:05.800 One is US exceptionalism that we've just discussed with Joe. 0:17:06.240 --> 0:17:10.520 The other one is potentially liquidation of positions that is 0:17:10.560 --> 0:17:14.520 occurring because remember, an average American is probably if you 0:17:14.600 --> 0:17:17.840 include the currency, ten fifteen percent wars off than what 0:17:17.920 --> 0:17:20.760 they were all poorer than what they were say on 0:17:20.880 --> 0:17:24.639 January first, and so there is some liquidation that is 0:17:24.640 --> 0:17:25.960 actually occurring as well. 0:17:26.280 --> 0:17:29.440 So sell what you cannot, necessarily what you want, sell 0:17:29.440 --> 0:17:29.840 what you can. 0:17:29.960 --> 0:17:32.639 So to me, there are two answers. One answer is 0:17:32.680 --> 0:17:38.800 the sunsetting of US exceptionalism, and the other answer is liquidations. However, 0:17:39.080 --> 0:17:42.600 coming back to that historical perspectives, you know, Roman Empire 0:17:42.640 --> 0:17:47.679 survived many anomalies and many poor administrators, so to speak, 0:17:48.320 --> 0:17:53.160 and the reason was the underlying strengths of Roman society 0:17:53.160 --> 0:17:56.600 in Roman economy. And so the question is whether the 0:17:56.720 --> 0:18:00.840 underlying strengths of the US, which it can contribute less capital, 0:18:00.880 --> 0:18:04.280 it's growing multi factor productivity, it's got the best balance 0:18:04.320 --> 0:18:09.560 of tangible and intangible assets, it's got a tremendous geopolitical position. 0:18:09.960 --> 0:18:15.080 Whether those positives ultimately will reassert themselves or at the 0:18:15.160 --> 0:18:19.600 very least reduce the degree of drag that otherwise would 0:18:19.600 --> 0:18:22.199 have occurred. And to me, I'm still hopeful that that 0:18:22.480 --> 0:18:23.600 is the answer. 0:18:41.080 --> 0:18:44.080 By the way, we're recording this April late right now, 0:18:44.119 --> 0:18:47.159 it's nine to twenty am. President Trump posting to his 0:18:47.320 --> 0:18:50.320 truth social account. I just had a great call with 0:18:50.400 --> 0:18:53.080 the acting President of South Korea, it says that people 0:18:53.400 --> 0:18:56.480 on the plane right now, they're clearly in the mode 0:18:56.640 --> 0:18:59.199 now where they're like over like trying to try this 0:18:59.240 --> 0:19:02.440 is ideal because there was another I mean, yesterday, for example, 0:19:02.640 --> 0:19:05.600 there was an FT column from Peter Navarro say this 0:19:05.640 --> 0:19:08.199 isn't about deal making. So even the question of is 0:19:08.240 --> 0:19:11.480 this about negotiations or deal making is fluid, and there's probably, 0:19:11.480 --> 0:19:14.440 if we're being honest, some sensitivity. 0:19:13.800 --> 0:19:15.840 To the market going. I mean, I mean, there are 0:19:16.119 --> 0:19:21.200 plenty of inconsistent stuff, but the question you're raising, would 0:19:21.200 --> 0:19:24.439 the market react positively when we get more and more 0:19:24.480 --> 0:19:27.600 announced when the countries are negotiating. Absolutely. You have to 0:19:27.640 --> 0:19:30.960 remember small countries have no leverage whatsoever. So whether you're 0:19:30.960 --> 0:19:34.399 Sri Lanka, Malaysia, talent, whatever you are, you have no leverage, 0:19:34.720 --> 0:19:37.920 nothing to offer. Well, well, the thing is, the thing 0:19:38.040 --> 0:19:42.320 is that at least Korea does have some domestic market. 0:19:42.600 --> 0:19:46.359 To ask a country like Sri Lanka to who is 0:19:46.440 --> 0:19:51.720 poorer and relatively small, to run a balanced trade with 0:19:51.760 --> 0:19:55.199 the United States is impossible. So the only countries that 0:19:55.280 --> 0:19:59.960 are capable of a pushbag is Canada, UK, European Union, China, 0:20:00.040 --> 0:20:04.600 in Japan. Now UK and Japan decided not to do it. Uh, 0:20:04.800 --> 0:20:08.320 And so the question comes down to Canada, European Union 0:20:08.359 --> 0:20:11.719 and China and extent to which they're going to play 0:20:11.880 --> 0:20:15.080 a hard ball. But to have fifty countries or sixty 0:20:15.080 --> 0:20:18.320 countries or whatever the number is coming in trying to negotiate, 0:20:18.640 --> 0:20:21.480 that's an easy part. Now the market will react to it, 0:20:21.640 --> 0:20:24.480 but it's just temporary. It's not saying more than that. 0:20:24.600 --> 0:20:26.840 By the way, Tracy Trump says he's also waiting for 0:20:26.880 --> 0:20:29.359 a call from China, and he says China really wants 0:20:29.359 --> 0:20:30.360 a deal. So I'm just. 0:20:30.640 --> 0:20:33.639 Yeah, I have this image in my head of Trump 0:20:33.720 --> 0:20:36.400 like sitting by the phone in the Oval office, just. 0:20:36.320 --> 0:20:37.960 Like hearing me. 0:20:38.040 --> 0:20:41.919 Yeah, exactly. Okay, So is it okay to text twice? 0:20:42.119 --> 0:20:42.639 I texted? 0:20:43.240 --> 0:20:47.040 I feel man like, Oh, he doesn't ever reading, doesn't 0:20:47.080 --> 0:20:49.080 ever read receipts on I have no idea. That's where 0:20:49.119 --> 0:20:49.680 I keep going. 0:20:49.760 --> 0:20:52.800 That's right, Okay. So we mentioned in the intro that 0:20:53.160 --> 0:20:58.120 up until recently, markets had been like pretty quiet, pretty complacent, 0:20:58.280 --> 0:21:01.160 you might say, given what's happened over the past week 0:21:01.280 --> 0:21:05.439 or so. Now that we've seen the big crash in stocks, 0:21:05.480 --> 0:21:09.879 we've seen spreads on high yield investment grades start to 0:21:10.240 --> 0:21:13.040 go up. It's not a blowout necessarily, but it is 0:21:13.200 --> 0:21:17.919 up significantly. Is risks sufficiently priced it, at least for 0:21:17.960 --> 0:21:18.760 the short term. 0:21:19.080 --> 0:21:22.320 Nobody knows, because it depends what the policies will be. 0:21:22.800 --> 0:21:25.399 If the policies are not changed, then the risk is 0:21:25.440 --> 0:21:28.840 nowhere near priced. And in fact, if the high yields, 0:21:29.200 --> 0:21:32.080 say triple c which are now ten eleven percent spreads, 0:21:32.320 --> 0:21:35.000 if they go up to fifteen, the world will freeze. 0:21:35.240 --> 0:21:37.920 If the average spreads, which are now more like four 0:21:37.960 --> 0:21:41.199 and a half, go to six, both global economy and 0:21:41.240 --> 0:21:44.040 the US economy will freeze. So there are some breaks. 0:21:44.080 --> 0:21:46.080 As I said, on the system, at the end of 0:21:46.080 --> 0:21:48.560 the day, you can't freeze it. We saw what happened 0:21:48.560 --> 0:21:51.760 in Pennsylvania and Wisconsin and Florida. At the end of 0:21:51.760 --> 0:21:53.880 this year, you're going to have Virginia and New Jersey 0:21:53.920 --> 0:21:55.960 coming up. Then you have, of course, you have a 0:21:56.040 --> 0:22:01.440 mid terms, so that there has to be if certain taxes. 0:22:02.640 --> 0:22:06.239 Senators are coming out and saying that that there's going 0:22:06.280 --> 0:22:08.760 to be a blood buss in midterm if this continues, 0:22:09.119 --> 0:22:13.159 is absolutely right. So there are checks and balances still 0:22:13.240 --> 0:22:16.720 in a system. But one of the sayings to remember 0:22:16.800 --> 0:22:20.240 that even if you, even if we pass the high 0:22:20.280 --> 0:22:23.800 point of terrors, we might not have passed the high 0:22:23.840 --> 0:22:26.120 point of other things that are going to come through. 0:22:26.480 --> 0:22:29.080 And so the question is over the next several years, 0:22:29.119 --> 0:22:31.720 are you going to continue seeing it? And I think 0:22:31.800 --> 0:22:35.119 the answer the answer is yes. We didn't talk about geopolitics, 0:22:35.119 --> 0:22:37.680 for example, an extent to which that could shift as well, 0:22:37.920 --> 0:22:40.080 so it's not just terrorfs. 0:22:40.800 --> 0:22:44.280 So speaking of breaks and checks and balances you mentioned earlier, 0:22:44.400 --> 0:22:48.399 this idea of a pain threshold for Americans. Talk to 0:22:48.520 --> 0:22:50.639 us a little bit more about that, like where do 0:22:50.680 --> 0:22:54.600 you sense the pain threshold actually is and what matters 0:22:54.680 --> 0:22:56.520 most to potential voters. 0:22:56.760 --> 0:22:59.000 Well, I think the way I look at it, there 0:22:59.080 --> 0:23:02.800 is a very soul part of the population which actually 0:23:02.880 --> 0:23:05.679 bought into the idea that you must burn down the 0:23:05.760 --> 0:23:09.600 house in order to build a bright future. And I 0:23:09.600 --> 0:23:12.040