Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. We begin this out
Speaker 2: with Stock's looking to recover after sliding into correction territory.
Speaker 2: Chris Frown of stratigas a bad company writing equities are
Speaker 2: attempting to stabilize in the fifty five to fifty zone.
Speaker 2: The sentiment conditions are coming together for a rally, but
Speaker 2: it's usually a day of very strong breadth of screams.
Speaker 1: Game on.
Speaker 2: Chris joins us now for more. Chris cammonnin let's be here.
Speaker 2: What a week?
Speaker 3: What a week?
Speaker 2: Let's start with that. Are we screaming game on?
Speaker 3: Yet?
Speaker 4: I don't think quite yet. I think we're in the
Speaker 4: ballpark of kind of the conditions that we like to
Speaker 4: see to mark at least some tactical low. And this
Speaker 4: last week again as a reminder of what I believe
Speaker 4: is the undefeated rule of Wall Street. It's that attitudes
Speaker 4: are shaped by price action.
Speaker 3: Not the other way around.
Speaker 4: And I think, in particular, as we entered the year,
Speaker 4: and we talked about it on this show, the hurdle
Speaker 4: for twenty five would be the game of expectations.
Speaker 3: The bar was high, and all.
Speaker 4: Year we thought the challenge would be chipping away at
Speaker 4: that bar of expectations. I think we're much closer in
Speaker 4: that regard today.
Speaker 3: We've seen just.
Speaker 4: This week a lot of the surveys flip upside down
Speaker 4: where you have more bears than bulls, and a lot
Speaker 4: of the investors surveys, you've seen this big swelling and
Speaker 4: inverse ETF volume, so people buying the short cues or
Speaker 4: the short SMP funds. You've seen the VIX curve invert
Speaker 4: to a pretty meaningful degree. So spot vix, how you've evolved.
Speaker 4: The future should never be above where you'vee evolve down
Speaker 4: the road, yet it is right now. So you have
Speaker 4: these conditions that I think are starting to come together,
Speaker 4: whether it's fifty five to fifty or fifty four to fifty,
Speaker 4: I don't know, but I suspect we're in the ballpark
Speaker 4: of some type of a good trading love.
Speaker 2: Things are a lot worse than that ten percent, seems
Speaker 2: to imply because beneath the surface. I was gone through
Speaker 2: some of the tank nights this morning. METSA down twenty
Speaker 2: percent from a record last month, and Vidia down twenty
Speaker 2: two from the highs of this year. Apple down nineteen
Speaker 2: percent from the highs of ascent, but Amazon down twenty
Speaker 2: Since it's not a February, what gives for big tech?
Speaker 3: Not fun? Right? Well, I think let's remember a couple things.
Speaker 4: It's not like deep seak happened six weeks ago and
Speaker 4: suddenly tech began to express weakness.
Speaker 3: Tech relative to the SMP peaked on July tenth of
Speaker 3: twenty twenty four. You know, it also peaked on July
Speaker 3: tenth of last year.
Speaker 4: Dollar yet so we've talked about this at nauseum in
Speaker 4: our work. I think it would be silly to underestimate
Speaker 4: the impact of the degree to which yen carry for
Speaker 4: so many years, dictated how money moved around the world.
Speaker 3: And I think in.
Speaker 4: Particular the very large stocks in our index are beginning
Speaker 4: to see kind of the waight of that.
Speaker 3: Now.
Speaker 4: I don't want to forget kind of another undefeated rule
Speaker 4: of Wall Street. It's that corrections end on bad news.
Speaker 4: They don't end on good news. If they ended on
Speaker 4: good news, this game would be easy.
Speaker 3: Right.
Speaker 4: Market's top on great news and they bottom on bad news. So,
Speaker 4: you know, as we kind of work through this growth
Speaker 4: scare underlying the word scare, but I still think it's
Speaker 4: in the context of a bull market. And one main
Speaker 4: reason I still feel that way is despite these kind
Speaker 4: of very big declines in some of the equities, you
Speaker 4: really haven't seen an equal response from credit conditions.
Speaker 3: We did a study this week.
Speaker 4: We looked at how big is the move in double
Speaker 4: B spreads off the lows relative to the decline in stock.
Speaker 3: So double B spreads right now are up about thirty.
Speaker 4: Basis points off their lows, pretty modest for a ten
Speaker 4: percent decline in equities. You actually historically would expect double
Speaker 4: B spreads to be about one hundred basis points wider.
Speaker 4: So you've actually seen some relative resilience there in credit
Speaker 4: verse equity.
Speaker 5: Oh does that signal broken? Is that signal broken because
Speaker 5: we have a now buffer of private credit has really
Speaker 5: shifted some of the credit incoming information from public markets.
Speaker 4: So I think no, but let's assume yes for a moment.
Speaker 4: Let's assume I'm wrong and you're right, and the explosion
Speaker 4: of private credit over the last number of years is
Speaker 4: really where the threat of.
Speaker 3: The warning may be.
Speaker 4: So therefore, I think we ought to look at what
Speaker 4: these black holders in the public markets of private credit
Speaker 4: are telling us.
Speaker 3: You know, it's Apollo, it's Blue Alo.
Speaker 4: It's Blackstone, its areas, and you've had good correction in
Speaker 4: those stocks, but in uptrends. I think if we're sitting
Speaker 4: here in three or four months from now and these
Speaker 4: stocks which are over sold have tried to rally and
Speaker 4: rally tepidly and don't rally the leaders and roll back over,
Speaker 4: then I think we can kind of begin to move
Speaker 4: more towards your view, Lisa, But I thought my view.
Speaker 5: I'm just presenting the hypothetical, just throwing it out there.
Speaker 4: I just think it's interesting, though, are we really going
Speaker 4: to get the R word without credit in mass public
Speaker 4: credit really deating?
Speaker 5: Well, okay, the R words right. I love that we
Speaker 5: can't even say recession who I mean, there's this question
Speaker 5: of just putting aside a recession. There's a question about
Speaker 5: whether there's been a structural shift in the overall market flows,
Speaker 5: the disadvantages the United States after advantaging the United States
Speaker 5: for so many years. You mentioned the peak in dollar yen,
Speaker 5: and that has sort of preceded some of these big
Speaker 5: moves downward in equities. George Saravellos of Deutsche Bank put
Speaker 5: out or report this morning titled pain, talking about how
Speaker 5: European investors and US equities are down some thirty percent
Speaker 5: simply because the dollar has not rallied in tandem with
Speaker 5: the weakness and equities. Is there a structural shift underway?
Speaker 4: We think so, And again I think that structural shift
Speaker 4: is dated back to when the most important price in
Speaker 4: the world began to change, which was dollar yen. It
Speaker 4: was just congruent with this wholeble market in tech for
Speaker 4: twelve or thirteen years weekend.
Speaker 3: Now.
Speaker 4: I think one of the reasons I'm at least longer
Speaker 4: term a little bit more seguine about a lot of
Speaker 4: this is simply because this weakness in US equities over
Speaker 4: the last month or two has really not been accompandated
Speaker 4: with weakness and global staffs. I mean, Europe has corrected
Speaker 4: here modestly, but it's held up much much better. The
Speaker 4: Chinese market has frankly held up fantastic.
Speaker 3: Throughout all of this.
Speaker 4: So you're not seeing like the global bear market come
Speaker 4: together or the global recession come together.
Speaker 3: Copper is breaking out here.
Speaker 4: So I think maybe one of the most important charges
Speaker 4: in the world for your viewers are Chinese two year
Speaker 4: olds are now going up for the first time in
Speaker 4: two or three years. You've arrested the kind of financial
Speaker 4: crisis message from China, which was just bond yields and
Speaker 4: free fall.
Speaker 3: That has changed if it.
Speaker 2: Was like developments sound swam. We were talking about this
Speaker 2: early this week, particularly in places like Europe, Pentagon in China,
Speaker 2: reducing the so called risk mitigation characteristics of treasuries. It's
Speaker 2: interesting that you mentioned what equities have done and what
Speaker 2: high yield hasn't done. I would look at equities this week,
Speaker 2: we're down again, and bonn Yold's on a ten year maturity,
Speaker 2: you're basically flat. There are days where it provides me comforted.
Speaker 2: There are days where it really doesn't provide me any
Speaker 2: comfort at all. What is the ten year bonio telling
Speaker 2: you at the moment about what it trades on and
Speaker 2: what it doesn't trade on.
Speaker 4: Yeah, it's probably been the hardest call for two years,
Speaker 4: and I think we've all wrestled with it one way
Speaker 4: or another.
Speaker 3: And the reality is.
Speaker 4: For two years we've basically been in a range. There's
Speaker 4: been no right call. We're sitting literally on the two
Speaker 4: year average of ten year yields. It's four twenty one
Speaker 4: is the two year average, and we're basically there this morning.
Speaker 3: I generally have leaned more bullish bonds.
Speaker 4: We wrote, I think in yesterday's work, you know, as
Speaker 4: rates went up on a soft CPI, which is always
Speaker 4: a surprise, right, we thought the best you would do.
Speaker 3: Is maybe four forty four to forty five on tens.
Speaker 4: I ultimately think you will still get a three handle
Speaker 4: on ten year yields.
Speaker 3: But there's a pull on the other side here.
Speaker 4: And the pull on the other side is German tenure
Speaker 4: yields look like they want to go to three fifty,
Speaker 4: and Chinese yield are going up, and we certainly know
Speaker 4: Japanese yields. So I think we're kind of in this
Speaker 4: very unsatisfying moment for global bonds again. I lean generally
Speaker 4: more constructive, particularly on the short end, for yields lower.
Speaker 4: But I just want to make sure I don't get
Speaker 4: too too cute with that call.
Speaker 2: We'll just sit on that coade just for a little
Speaker 2: bit longer. Developments in Germany, how big aunt those developments?
Speaker 2: How could that change? The White tries to yes, Trent,
Speaker 2: because typically we think about striving the global bomb market.
Speaker 2: We don't think about the bomb markets doing that to
Speaker 2: trace race.
Speaker 3: It's funny.
Speaker 4: I was on your set in early January during Davos
Speaker 4: and Christine Leguard was speaking about how she was peak
Speaker 4: pessimistic on Europe, and I remember telling you guys, you know,
Speaker 4: I want to be a buyer of pessimistic central bankers.
Speaker 3: I remember, right, And you think about that.
Speaker 4: Why have European equities or Chinese equities, or particularly the
Speaker 4: cyclicals in those parts of the world held up better
Speaker 4: even as rates have gone up sharply in Germany and
Speaker 4: sharply in China. I think it's because you have much
Speaker 4: more accommodative monetary policy, both in Europe and in China.
Speaker 4: And that's the one difference today with this growth scare
Speaker 4: that we're going through. This is not the first growth
Speaker 4: scare of the last two or three years. It's not
Speaker 4: the first time cyclicals I've corrected, but it's the first
Speaker 4: time it's happened where you don't really have a FED
Speaker 4: that's particularly eager to kind of get back on the
Speaker 4: easy train. So that I think explains a lot of
Speaker 4: the resiliency x US. And still a lot of stress here,
Speaker 4: like who gives first? Is it the administration or is
Speaker 4: the central bank? I lean towards the central bank, and
Speaker 4: I think the two yearield will ultimately get us there.
Speaker 3: But that's the big debate of the day.
Speaker 2: As soon as next week. Let's too early.
Speaker 4: I think that's too early. And John, when you talk
Speaker 4: about corrections, right, we're down ten. There's a price and
Speaker 4: a time component to every correction. And when I say that,
Speaker 4: you know, I think we're probably eighty ninety percent of
Speaker 4: the way there on price. I do wonder if the
Speaker 4: time component is almost still in front of us where
Speaker 4: we need to just grind this out, you know, rally retest,
Speaker 4: rally retest.
Speaker 3: That would not surprise me. Kind of given this framework here.
Speaker 2: I could be features this morning. They are positive by
Speaker 2: three quarters of one percent. Special thanks to Christopher on
Speaker 2: of shoutagus. So here's the lass this morning, President Trump
Speaker 2: standing firm behind his tariff agenda re it's writing plans
Speaker 2: to keep still and aluminum teriff in place and move
Speaker 2: forward with fresh tariffs on April second, at any research sciencing, Trump,
Speaker 2: as he count says year s and p target to
Speaker 2: sixty four hundred from seven k, writing quote, we can't
Speaker 2: ignore the potential stagflation re impact of the policies that
Speaker 2: Trump two point zero is currently implementing. Joined just now
Speaker 2: for more and welcome to the program sir. An important
Speaker 2: distinction here. Your revision is off the back of a
Speaker 2: change to the multiple and not to learnings. Can we
Speaker 2: start there? Just explain the difference between the two.
Speaker 6: Well, look, it's pe time z when we try to
Speaker 6: think about where the market's going, and I'm still hanging
Speaker 6: on to the idea that the economy is resilient. Over
Speaker 6: the past three years, we've had a tightening of monetary policy,
Speaker 6: and despite the tightening of monetary policy, the economy has
Speaker 6: continued to grow. So I'm hoping that that experience demonstrates
Speaker 6: that the economy will be able to withstand this mix
Speaker 6: of stagflationary policies. On the one hand, we've got a
Speaker 6: policy that's increasing the tariffs, which could potentially slow the
Speaker 6: economy down. And then of course we've got the Doge
Speaker 6: boys cutting back perils pretty aggressively in the federal government.
Speaker 6: Yet despite all that, initial unemployment claims remain remarkably low.
Speaker 6: And there's lots of articles about how the consumer is
Speaker 6: going to retrench. But I think we're actually going to
Speaker 6: find that once we get marched in April data and
Speaker 6: the spring, that will be growth. As Chauncey Gardner once said,
Speaker 6: Remember Chauncey, the idea is that the consumer will prove resilient.
Speaker 6: There was a lot of weakness in the consumer in
Speaker 6: January and February because both months were actually colder than average,
Speaker 6: and so I'm expecting that the economy will actually hang
Speaker 6: in there.
Speaker 5: Sow much. Is this revision downward to your SMP call
Speaker 5: by year end a bond market call and not really
Speaker 5: a stock market hall, with the expectation that bond deals
Speaker 5: will remain higher in the face of inflationary pressures.
Speaker 6: Yeah, Well, we've been expecting that the bond deal would stay.
Speaker 6: We think that bond yields are kind of normal. They're
Speaker 6: back to basically four and a half percent plus minus
Speaker 6: twenty five basis points is kind of where we think
Speaker 6: bond yield should be. And as we've all noted, notwithstanding
Speaker 6: some of the weak numbers that we've had of late,
Speaker 6: the bond yield has actually gone up. No, it's basically
Speaker 6: a call on the fact that valuation multiples have been
Speaker 6: high historically, and they've been historically justifiably if the economy
Speaker 6: continues to grow and giving us plenty of opportunities for
Speaker 6: earnings to kind of fill in for valuation multiples. But
Speaker 6: clearly there's at least a recession scare. Lots of people
Speaker 6: are talking about a recession. As a matter of fact,
Speaker 6: last week, we raised the odds of a recession from
Speaker 6: twenty five percent to thirty five percent. So we're not
Speaker 6: we're not saying that there's no way the economy is
Speaker 6: going to slow in the face of what's going on,
Speaker 6: but we're still betting on the resilience of the economy
Speaker 6: and earnings where we think valuation multiples have already come
Speaker 6: in and what will stay lower than we thought.
Speaker 5: Just a couple of weeks ago at you were sticking
Speaker 5: with the seven thousand target on the s and p
Speaker 5: for the your end, and you did make this revision
Speaker 5: just now of moving it down to sixty four hundred,
Speaker 5: which is still a sixty percent upside from where we
Speaker 5: closed yesterday.
Speaker 3: What triggered that?
Speaker 5: What made you think, Okay, we need to take action
Speaker 5: because what's going on gives us a sense that maybe
Speaker 5: this isn't going to pass so quickly.
Speaker 6: Well, that's a good point. I think we are going
Speaker 6: to get some teriffs, obviously, but I think there are
Speaker 6: going to be negotiations. Maybe in some areas, as you
Speaker 6: just showed the President's going to be stubborn on aluminum
Speaker 6: and steel, but I think there's a room for negotiations
Speaker 6: on tariffs in lots of other areas. So that's what
Speaker 6: I'm expecting. The April second is going to be kind
Speaker 6: of important because that's when we're going to have the
Speaker 6: reciprocal tariffs across the board, and I think that obviously
Speaker 6: will could trigger more downside in the market in the
Speaker 6: short term, but I think it'll also triggered a lot
Speaker 6: of the negotiations to reciprocally bring those tariffs down.
Speaker 2: I had as a tho full cold and we appreciate
Speaker 2: your time breaking it down. This morning, Attani atty research
Speaker 2: on the LESNS for US secreces.
Speaker 7: Well, the man that was turning down the temperature yesterday
Speaker 7: in the Oval Office was the new Secretary General of NATO,
Speaker 7: Mark Rutta, and we're so excited he's.
Speaker 2: Joining us today.
Speaker 7: His first interview following that meeting with President Trump. So
Speaker 7: this is your first trip to Washington as a secretary
Speaker 7: general sitting down the Oval Office.
Speaker 1: How was your.
Speaker 7: Conversation with the President. We saw the forty minutes or
Speaker 7: so that was out to the public, but then you
Speaker 7: guys had lunch. What did you take away from that meeting?
Speaker 1: It was a very positive meeting. We became friends when
Speaker 1: he was trimp forty five and I was still prem
Speaker 1: minentsaud in thatlands, so we worked fairbell together and it
Speaker 1: was a very friendly lunch and also absolute clear commitments
Speaker 1: to the Alliance, to NATO, to what the alliance stands for.
Speaker 1: So that was very optimistic and very positive.
Speaker 7: So you took away that Trump is one hundred percent
Speaker 7: committed to the alliance, even though individuals in his orbit
Speaker 7: like Elon Musk are calling for the.
Speaker 1: US to leave. He was absolutely clear there was no
Speaker 1: room for doubt there, and he did, by the way,
Speaker 1: stayed the same when he was meeting with Michael, the
Speaker 1: French President, and with Starmer, the Brilateist Prime minister two
Speaker 1: weeks before. So I tell some of my European colleagues
Speaker 1: when they say, well, it's the US still connected and
Speaker 1: committed to NATO, I tell them you might want to
Speaker 1: turn on your television and listen to the President when
Speaker 1: he says this, because he was on the records and
Speaker 1: again yesterday stating this. So I have no doubt and
Speaker 1: there's no reason to doubt that. Did you see Elon
Speaker 1: Musk yesterday?
Speaker 7: Was there any individuals at this table that you had
Speaker 7: convinced for the reasons why the US should be a
Speaker 7: part of the alliance?
Speaker 1: Englan was not there, but in the conversation there was
Speaker 1: nobody there doubting the need for alliance. But of course
Speaker 1: everybody very much pushing for more spending, and particularly on
Speaker 1: the European side, because we are lacking behind. But luckily
Speaker 1: we are now ramping up and we're spending much more
Speaker 1: on the European side of netto look what is happening
Speaker 1: now in Germany. This is staggering, potentially in half jillion
Speaker 1: euro slash dollars extra on defense spending. That's historic.
Speaker 7: So the Germans have reached this morning reporting out of
Speaker 7: Germany on this debt package. As you say, it's going
Speaker 7: to be a lot more money coming out of Germany
Speaker 7: for defense.
Speaker 1: I think they had to deal with the Greens, but
Speaker 1: it seems that they're getting there.
Speaker 7: Yeah, it seems like they're getting there, and then there
Speaker 7: will be an agreement in place.
Speaker 1: There is a debate though.
Speaker 7: When it comes to Europe or whether or not Trump
Speaker 7: is helpful because of things like this. The Germans are
Speaker 7: finally starting to spend on things like defense, not having
Speaker 7: to outsource it to the United States. Or is Trump
Speaker 7: unhelpful because he really is shaking up the global order,
Speaker 7: not just when it comes to militarily, but also things
Speaker 7: like tariffs yesterday two hundred percent on European wine, champagne
Speaker 7: and cheeses. How do you view his impact on the continent.
Speaker 1: I think when it comes to defense spending, he is
Speaker 1: extremely helpful. And I told him yesterday trim forty five
Speaker 1: again his first term. We had pledged in twenty fourteen
Speaker 1: to go to the famous two percent. Nothing happened. He
Speaker 1: came in in sixteen seventeen, and then immediately you see
Speaker 1: the defense spending coming up. Now the aggricate amounts about
Speaker 1: seven hundred billion going into one tillion. Excellent. That was
Speaker 1: Trim forty five. Now the second Trim presidency. He is
Speaker 1: only in his fiftieth days. Now I think of fifty
Speaker 1: first day. We have seen eight hundred billion from the Europeans.
Speaker 1: We have seen this half to impactus from the Germans,
Speaker 1: but also the Bridge, the Suits, the Czechs, the Belgians,
Speaker 1: so many others picked up. And this is because they
Speaker 1: since that with Trimp in the White House, this is necessary,
Speaker 1: but also of course because we all realize in Europe
Speaker 1: and here in the US that Russia and China both
Speaker 1: has read and that we have to rearm ourselves because
Speaker 1: they are doing this at an incredible pace.
Speaker 7: But on trade, he definitely is ratcheting up the tension
Speaker 7: when it comes to trade policy tarfs with the European Union.
Speaker 7: That's in the wrong message to NATO adversaries.
Speaker 1: Well, I would leave that to the EU and the US.
Speaker 1: But when I look at home from a line sport
Speaker 1: of perspective, I would argue that Europeans are buying four
Speaker 1: times more when it comes to defense, industrial products here
Speaker 1: in the US than the US is spending in Europe,
Speaker 1: and I don't mind the difference. So it's a four
Speaker 1: to one. So you guys are getting much more a
Speaker 1: better deal here than the Europeans, and that will only
Speaker 1: become more because if we keep the equation the same
Speaker 1: and spending more, you will have the overall a mouth
Speaker 1: being involved, really getting up. And already it's a couple
Speaker 1: of one hundred billions of the last couple of years,
Speaker 1: the F thirty five s to pay SIA systems and
Speaker 1: all the other great products from the defense industrial base
Speaker 1: here in the US being bolt by the Europeans. And
Speaker 1: that's good news.
Speaker 7: I know you're preparing for the Hague summit this summer.
Speaker 7: Do you think you're going to increase defense spending to
Speaker 7: what the Trump administration is calling for five percent GDP
Speaker 7: for all NATO members.
Speaker 1: Well, but what we're doing is we have a process
Speaker 1: in place where we exactly determine what are the gaps,
Speaker 1: and these gaps are big, so we have to do
Speaker 1: a lot more than we are doing now, so it
Speaker 1: will be considerably more than two percent. We first now
Speaker 1: the next couple of weeks will decide on exactly what
Speaker 1: the gaps are in terms of long range missiles, in
Speaker 1: terms of our armies which are depleted, in terms of
Speaker 1: our defense, our defense against ballistic missiles, our command and
Speaker 1: control systems, all that data is a priority now. And
Speaker 1: then you will come to a new number, and that
Speaker 1: will be much more than two percent. I believe it
Speaker 1: will be more than three percent, but I cannot now
Speaker 1: totally and fits its readful end up. And then you
Speaker 1: look at it. One hundreds of billions pouring in now
Speaker 1: basically it is whatrea be happening, and that's the good hus.
Speaker 7: Do you think that's an optimistic goal or will that
Speaker 7: be a red line for this administration?
Speaker 1: Say five percent? I think what we need to do
Speaker 1: collectively is to make sure that we can defend ourselves.
Speaker 1: And at this moment, we cannot defend ourselves going forward.
Speaker 1: Yes now, but not in four or five years. Because
Speaker 1: the Rugussians, for example, ammunition are producing in three months,
Speaker 1: but all of the alliance, including the US and up
Speaker 1: to an including Turkeia, is producing in a year. So
Speaker 1: we have to ramp up defense industrial production, and we
Speaker 1: have to ramp up on the European side, on the
Speaker 1: Canadian side to defense spending and we will decide on
Speaker 1: that over the next couple of months, and it has
Speaker 1: to be content based, but it will be much much more.
Speaker 1: And again when you look at the numbers coming in now,
Speaker 1: the Trump effect of this new triump presidency is clearly there.
Speaker 7: When it comes to the defense of Europe. Did you
Speaker 7: and the President talk about potentially amending where troops are
Speaker 7: American troops on the continent, because there were reports that
Speaker 7: he was thinking maybe pulling out from Germany and putting
Speaker 7: more troops on the eastern flank, maybe to Hungary.
Speaker 1: Well, we didn't go into that detail, but what we
Speaker 1: know when Pete ha said the secutive defense was visiting NATO,
Speaker 1: he was on the record saying, hey, guys, you have
Speaker 1: to understand that as a United States we also have
Speaker 1: to pivot towards the Inner Pacific. So that means that
Speaker 1: we have to take care of more than one theater,
Speaker 1: yes to European theater, also the Middle East, also the
Speaker 1: Inner Pacific. This of course history made you the leader
Speaker 1: as the United States. That means that you have to
Speaker 1: attend these various issues. And that also will mean probably
Speaker 1: over time, the Europeans spending more that you guys will
Speaker 1: have to look at, Okay, where it can you best
Speaker 1: deploy our troops, but that will be a gradual process,
Speaker 1: taking time and not aprupt.
Speaker 7: There was definitely with this administration coming in more troops
Speaker 7: being put on the US southern border. Under the Biden administration,
Speaker 7: though there was a surge of about twenty thousand troops
Speaker 7: to Europe. Is this administration going to pull back that
Speaker 7: Biden surge of twenty thousand troops because they have other
Speaker 7: priorities like the southern border, like the Red Sea, in
Speaker 7: the Middle East, like the Asia Pacific.
Speaker 1: But we didn't discuss those numbers in that detail.
Speaker 3: So would that concern you now?
Speaker 1: But I think it's important is that the US is
Speaker 1: committed to NATO, committed to the whole of the alliance,
Speaker 1: and is also committed to if over time the Europeans
Speaker 1: are doing much and much more, and for the US
Speaker 1: also to attend to other issues like in the Pacific.
Speaker 1: And by the way, as an alliance, as a collector
Speaker 1: of thirty two countries, we can also be helpful in
Speaker 1: a sense of projecting more American power at the world
Speaker 1: stage because the US not being on its own but
Speaker 1: embedded in an organization with thirty one other allies giving that.
Speaker 7: Role that was missing in the past four years. American
Speaker 7: power on the world stage.
Speaker 1: I think it was there, but I think we could
Speaker 1: have done much more. And when it comes to the
Speaker 1: European side of NATO, we were still lacking behind in
Speaker 1: terms of our defense spending. And I get the hot.
Speaker 7: War in Europe right now, and that's what I want
Speaker 7: to talk to you about.
Speaker 3: What's going to the.
Speaker 7: Ukraine While you were in the Oval office. Steve Wikoff,
Speaker 7: the President's longtime friend, his special advisor, second meeting he
Speaker 7: had with President Putin in Moscow. Coming out of that meeting,
Speaker 7: Dmitry Peskov is saying he's cautiously optimistic. When do you
Speaker 7: think we could see a thirty day ceasefire?
Speaker 1: Well, I cannot predict that. What I can say is that.
Speaker 7: I am there are more rooms than I have.
Speaker 1: Yeah, but let me say this, first of all, the
Speaker 1: Trump administration, the President themselves, broke the deadlock on this
Speaker 1: on this war because he started to engage with solutions.
Speaker 1: I think that's positive. With the Ukrainians, that's positive. And
Speaker 1: there was a deal last Tuesday in Saudi Arabia between
Speaker 1: the US and you on pushing for the ceasefire, so
Speaker 1: this is all good. Obviously, the US administration is now
Speaker 1: dialoguing with the Russians to see where there are on this,
Speaker 1: and that will be a step by step approach. But
Speaker 1: this is literally developing over the next couple of hours
Speaker 1: and days, so very hard to predict when that will happen.
Speaker 1: But I think this idea of having a thirty day
Speaker 1: ceasefire is a very wise plan because it gives you
Speaker 1: the room to go into more detail on what next.
Speaker 7: You've heard from the Ukrainians they want security guarantees. Did
Speaker 7: you get a sense from your meetings yesterday the US
Speaker 7: is willing to do that.
Speaker 1: Well, the US is saying this first, we need a
Speaker 1: peace deal, slash the ceasefire, and the person that's very
Speaker 1: clear on this that obviously there will be many issues
Speaker 1: to be discussed and debated when a ceasefire slash a
Speaker 1: peace deal is there, But to discuss how to keep
Speaker 1: a peace deal if there is not yet a peace
Speaker 1: deal is also a bit strange. You of course, you
Speaker 1: have to think aparently.
Speaker 7: Taken off, He's already taken off Ukraine joining NATO off
Speaker 7: the table. So Ukraine is left asking this question, how
Speaker 7: are we going to know, we're going to have proper security.
Speaker 1: But he he was also very clear Pitasett and Brussels,
Speaker 1: but also the President self that when there is a
Speaker 1: deal on Ukraine, it has to be lasting, it has
Speaker 1: to be durable, putting should not have to try this again.
Speaker 1: So the question is then, how how do you do
Speaker 1: this post a piece deal? Then I would side with
Speaker 1: sup Pressident to first need to have a peace deal
Speaker 1: before you can get into these details. Obviously, behind the
Speaker 1: screens there will be discussions on the what if there
Speaker 1: is a peace deal, how then to maintain that? But
Speaker 1: there are many ways to do that, and we know,
Speaker 1: of course the Diffrench.
Speaker 7: Ship be involved Lensky's calling for a monetaring mechanism coming
Speaker 7: from the Alliance itself.
Speaker 1: I mean, there are many ways to do this, but
Speaker 1: I think for NATO to be as NATO involved will
Speaker 1: be difficult. But NATO will maybe always advise and look
Speaker 1: into what is the best way to do this. But
Speaker 1: in the end, what we're seeing now is the French
Speaker 1: and the bridge and the bridge in the Americans discussing
Speaker 1: how could you organize that? But again I would caution
Speaker 1: a little bit and that before you get in too
Speaker 1: much detail in terms of how too many tain the piece.
Speaker 1: You first need to have the deal, and it's a
Speaker 1: step by step approach and one after the other, and
Speaker 1: they're I think trumpet right, Do.
Speaker 7: You think we get a deal this year? Do you
Speaker 7: think the fighting stops this year?
Speaker 1: I'm optimistic, yes, And then.
Speaker 7: Paskof is cautually optimistic. I believe the National Security Advisor
Speaker 7: Mike watterificast.
Speaker 6: So are you.
Speaker 1: I would also be cautiously optivists about this year, but
Speaker 1: I hope it is sooner because the amount of people
Speaker 1: dying there, the destriction of whole cities happening as we speak,
Speaker 1: it is really very very painful, and it is having
Speaker 1: an impact on so many families and so many people
Speaker 1: in Ukraine, but also on the Russian side. We know
Speaker 1: that there were days detruitions. We're losing up to fifteen
Speaker 1: hundred people dying or seriously wounded a day, but also
Speaker 1: in the Ukrainian side, so many people that and so
Speaker 1: many people seriously wounded.
Speaker 7: Before you were Secretary General of NATO, you ran a
Speaker 7: European country. Would you be willing to do business again
Speaker 7: with Russia after this? Because we are hearing reports of
Speaker 7: things like maybe gas deals come back into play.
Speaker 1: Well, I mean, I'm not there because first of all,
Speaker 1: you have to maintain the pressure on Russians to make
Speaker 1: sure that they do whatever is necessary. That's why we
Speaker 1: have the sanctions. And let's not be naive about the Russians.
Speaker 1: But longer term, Russia is there. I mean, Russia will
Speaker 1: not goblebey. And I've had many dealings with President put
Speaker 1: In till twenty fourteen. In my first four years as
Speaker 1: Prime minister, we had many negotiations, and I think it
Speaker 1: is normal if the war would have stopped, for Europe
Speaker 1: to somehow step by step and also for the US
Speaker 1: step by step to restore normal relations with Russians. But
Speaker 1: if you are absolutely not there yet, we have to
Speaker 1: maintain the pressure on them to make sure that they
Speaker 1: are revealing to engage seriously in talks with the American
Speaker 1: administration and of course also with the Ukrainian I.
Speaker 7: Think the markets and business leaders might be a step
Speaker 7: ahead of the leaders in this one. We have to
Speaker 7: end on Greenland because you were in the middle of
Speaker 7: this Oval Office meeting and the President's talking about how
Speaker 7: he wants to go after Greenland. He wants the critical minerals.
Speaker 1: There, are you concerned.
Speaker 7: At any point you'll be mediating between two NATO members.
Speaker 1: No, I know that they are in close dialogue, Denmark
Speaker 1: and the US, so I will leave it. That's the
Speaker 1: discussion between the two of them. But there is a
Speaker 1: bigger issue at stake here, and that is the High North,
Speaker 1: the Arctic, and this includes the US who Alaska, it
Speaker 1: includes Canada, that includes Iceland, norwaysed freedom in Finland and
Speaker 1: Denmark because of Greenland. And I think the President is
Speaker 1: totally right in saying, and others are arguing also the
Speaker 1: Russians rearming there, the Chinese using these zeroes knowing that
Speaker 1: we have a lack of icebreakers. There is a reason
Speaker 1: for these seven countries and NATO would be somehow involved
Speaker 1: here also in terms of advising and bringing the group
Speaker 1: together that we have to take care of our defense
Speaker 1: in the High North. So this general issue he put
Speaker 1: on your GENA. I think that's positive and it's.
Speaker 7: Something data we'll talk about this summer potentially.
Speaker 1: Potentially, and I think the seven countries are coordinating and
Speaker 1: if there is a.
Speaker 7: Role for NATO, we will always be present and we
Speaker 7: hope to see you there at the summit.
Speaker 8: Thank you so much, you so much, thank you so
Speaker 8: much for joining in his first interview of the day
Speaker 8: after his over office meeting with President Trump, and made
Speaker 8: it very clear to me, Jonathan and our audience, President
Speaker 8: Trump is committed to the alliance.
Speaker 2: Towson Stock of Apollo, writing, this is a weight and
Speaker 2: see economy consumers are more reluctant. The bottom line is
Speaker 2: that this eventually leads to a slow down in the
Speaker 2: hard data, and markets should prepare for that scenario. Towson
Speaker 2: joins us now for more tost than good.
Speaker 3: Morning, good morning.
Speaker 2: We've seen the shift and the soft data. The last
Speaker 2: time we spoke, you raise the issue our believe. Lisa
Speaker 2: asked to the question, with that soft data bleed into
Speaker 2: the hard data, do you sense a inevitability now towards
Speaker 2: that We.
Speaker 9: Are beginning to see that if you look at the
Speaker 9: high frequency data, so over the last several weeks, we
Speaker 9: have seen and I know some of these indicators are a
Speaker 9: little bit special, but we've seen the number of people
Speaker 9: who are going to movie theaters, number of people going
Speaker 9: to Broadway shows.
Speaker 1: If you look at the TSA.
Speaker 9: Data for how many people flying airplanes, even if you
Speaker 9: look at how many people visiting the statue of living
Speaker 9: here in New York City, all that has actually started
Speaker 9: to weaken. And now we get another soft data print
Speaker 9: here at ten with the Michigan centiment for consumers. So
Speaker 9: overall it is still a little bit too early, but
Speaker 9: given that we have this weight and see situation both
Speaker 9: for consumers and for corporates, it does make sense that
Speaker 9: the soft data should eventually begin to spill over to
Speaker 9: at least some weakening in the hot data.
Speaker 2: One feture of this cycle that I think a lot
Speaker 2: of people underestimated, you not included is the resilience of
Speaker 2: this economy. What is our capacity to absorb sharks now
Speaker 2: has that been reduced?
Speaker 9: Well, that's a very important question because that depends on
Speaker 9: the nature of the sharks, and we're facing two sharks
Speaker 9: at the moment, namely DOGE, which is laying off government workers.
Speaker 9: Estimate suggests that that will be around three hundred thousands
Speaker 9: workers that might be losing their jobs. Remember that for
Speaker 9: every federal worker, there are two contractors, according to Brookings.
Speaker 9: So Brooking start to show that in total, true employment
Speaker 9: in the federal government is roughly around nine ten million people.
Speaker 9: So if you now think about number of households is
Speaker 9: one hundred and thirty million, and someone in the federal
Speaker 9: work or contractor lives together with someone in the private sector,
Speaker 9: you get that as much as ten fifteen percent of
Speaker 9: all households in some way or another is being impacted
Speaker 9: from a sentiment perspective by DOJA loon and tariffs of
Speaker 9: course also in particular impacts anyone who is associated with
Speaker 9: trade with Canada and Mexico, and you have that that
Speaker 9: is also a particular of course across the border to
Speaker 9: the north and to the south, playing a significant role in.
Speaker 1: A number of states.
Speaker 9: So the bottom line is is not only terriffs and
Speaker 9: trade war, it's also the combination of the risk that
Speaker 9: government workers and contractors potentially losing their jobs. That are
Speaker 9: the main reasons why the soft data is weakening the
Speaker 9: way it is. And it's not only consumer soft data
Speaker 9: is also corporate. If you look at the CAPEX planning
Speaker 9: from the regional feds Dallas Fed, Field Deelpha Fed, New
Speaker 9: York Fed, that's showing that businesses in those districts are
Speaker 9: saying we're beginning to cut back CAPICS plans. Likewise, NFIB
Speaker 9: also roundtable surveys CAPEX planning is also moving lower, So
Speaker 9: both consumer confidence moving lower corporate confidence moving lower. It
Speaker 9: is a precursor for slowdown coming in the hot data.
Speaker 5: There's an argument being made that if what was propping
Speaker 5: up the United States economy was government spending, it wasn't
Speaker 5: that strong to begin with, and this is actually somewhat
Speaker 5: of a withdrawal from a sugar high from an incredible
Speaker 5: amount of fiscal spend in the direct aftermath of the pandemic.
Speaker 9: Do you buy that there is some truth to the
Speaker 9: detox argument in the sense that if you look at
Speaker 9: hiring in nonfound payrolls over the last two years, twenty
Speaker 9: five percent of jobs created in twenty twenty three and
Speaker 9: twenty four where government jobs. The previous years it was
Speaker 9: like five ten percent much month or less, So a
Speaker 9: very significant part of jobs in the last two years had.
Speaker 1: Been coming from the government sector.
Speaker 9: So it is true that job growth has been slowing
Speaker 9: in the private sector, even going into these shocks that
Speaker 9: we're looking at the moment.
Speaker 5: Heading into twenty twenty five, you are pretty clear that
Speaker 5: you think that the inflationary shock was going to be
Speaker 5: maintained and that it was going to create a real
Speaker 5: problem for the FED to actually offer response to that
Speaker 5: kind of weakness in the economy. Do you continue to
Speaker 5: see that even though the shocks that we're seeing right now,
Speaker 5: to see might have a bigger ramification on growth than
Speaker 5: you'd previously expect it.
Speaker 9: Well, the real challenge is that going into tariffs, we
Speaker 9: had that inflation unfortunately was still too high at around
Speaker 9: three percent, and most calculations suggest that you will add
Speaker 9: roughly half a percentis point to core PCE as a
Speaker 9: result of teriffs.
Speaker 1: So it makes a huge difference where you start. If
Speaker 1: you start with inflation at three and you add half
Speaker 1: a percent.
Speaker 9: Of course, the risk is that you will have too
Speaker 9: much upside and we're way above the feeds target. Whereas
Speaker 9: if inflation had started at one and a half, which
Speaker 9: is where we were in twenty sixteen, and you add
Speaker 9: half a percent, then inflation will move up towards the
Speaker 9: feed target. So the problem was really that the starting
Speaker 9: point for inflation when these policies came along was that
Speaker 9: it was, unfortunately well and above the FETs target. So
Speaker 9: the risk is in this situation that you have inflation
Speaker 9: moving higher and growth flowing down, which of course is
Speaker 9: a definition of a steflationary shock.
Speaker 5: We were talking to Mohammad Olarian earlier this week, and
Speaker 5: he made the point that given these dual shocks, the
Speaker 5: FED should probably allow inflation to run a little bit
Speaker 5: hotter for a longer period of time and address the
Speaker 5: growth issues and cut rates at least once this year.
Speaker 5: Do you agree that that's more prudent at a time
Speaker 5: where there are these stagflationary forces starting to loom?
Speaker 9: Absolutely, because the FED has the dual mandate on on
Speaker 9: the one side, if growth is slowing is saying the
Speaker 9: fat should be cutting. If inflation is going up is
Speaker 9: saying the fetch you should be hiking. I think the
Speaker 9: FED will look at if growth starts to slow and
Speaker 9: if we're with the next several weeks, begin to see
Speaker 9: that unemployment begins to go up. Let's not forget that
Speaker 9: non farm payroll is always done in the week of
Speaker 9: the twelfth means this week, so this is the week
Speaker 9: when they do the survey for the employment report. And
Speaker 9: if we do believe that this week was somewhat intense
Speaker 9: on the policy front, then there is of course a
Speaker 9: change that non farm payrolls for March could.
Speaker 1: Be on the weaker side.
Speaker 9: And if that's the case, then in the next seven weeks,
Speaker 9: and particularly going into April, and with the April second
Speaker 9: deadline also from Trump with a reciprocal tariffs, we come
Speaker 9: to the conclusion that the risk is that we might
Speaker 9: begin to see growth slow down, and the FED will say, well,
Speaker 9: as long as inflation expectations are anchored, yes, actually inflation
Speaker 9: may be higher. But if inflation explctiations are anchored, they
Speaker 9: will be focusing on growth slowing down.
Speaker 1: And therefore the risks are that markets will be pricing
Speaker 1: in more cuts at the time.
Speaker 9: And by the way, it looks like from stock markets
Speaker 9: that they are almost saying, well, thefet should be cutting
Speaker 9: many more times, whereas race markets are saying, no, no,
Speaker 9: we only need two more cuts. So there's almost an
Speaker 9: inconsistency between the messaging from stocks that are now in
Speaker 9: correction territory and race markets saying no, no, we only
Speaker 9: need two more cuts.
Speaker 2: In the news conference on March nineteenth, next Wednesday, how
Speaker 2: does Chairman Pound address those issues? What are you looking for?
Speaker 9: So I'm looking very much for how much he's focusing
Speaker 9: on the soft data slowing down. He did do that
Speaker 9: at the USMPF last Friday. Here in New York City,
Speaker 9: where he was in his prepared remarks saying, ah.
Speaker 1: Everything is generally okay.
Speaker 9: But when he was sitting down with Andrew Kashev and
Speaker 9: asked questions, he was more saying, Hey, something is going
Speaker 9: on that has some downside risks that we maybe should
Speaker 9: be putting more weight on.
Speaker 1: So I do think that he will begin to.
Speaker 9: Talk about, well, there's softness in the soft data, but
Speaker 9: maybe we're also worry about softness in the hot data.
Speaker 2: We have seen this incremental shift from the November meeting
Speaker 2: into December. Assume, we don't guess, we don't speculate. Then
Speaker 2: in December there was some assumption, some guessing, some speculation,
Speaker 2: and then I agree with you the recent address we
Speaker 2: had from Chairman Power, there was another subtle shift. Just
Speaker 2: started to tackle policy issues head on in a way
Speaker 2: he hadn't done in the previous few months.
Speaker 5: And on some level he kind of has to, because
Speaker 5: there is a sort of scenario analysis that has to
Speaker 5: come from the FED for them to even be relevant
Speaker 5: about how they're measuring some of these aspects. And that's
Speaker 5: probably why the statement of economic projections, which could be
Speaker 5: a dartboard, but it is sort of a messaging tool
Speaker 5: about how they're going to potentially respond to what is
Speaker 5: transpiring in policy and how it's transpiring and data, even
Speaker 5: if it doesn't necessarily come to full pass.
Speaker 2: The difference now, I guess is we're actually getting the policy.
Speaker 2: They don't have to speculate about it anymore. But that
Speaker 2: policy comes with a lot of volatility and tolson. They've
Speaker 2: got to manage interest rates through the cycle. Maybe Chairman
Speaker 2: Power steps down in the next couple of years. I
Speaker 2: imagine he will. I don't know for sure, but I
Speaker 2: think we all think he will. I want to understand
Speaker 2: from that perspective. You sit there and you acknowledge the
Speaker 2: risk right now, but also you've got to think about
Speaker 2: tax cuts, the potential for loocid regulation further down the road.
Speaker 2: How do you manage through the cycle with that in mind.
Speaker 9: Well, that's why this debate about is it policy dependent
Speaker 9: is it data dependent becomes really really important, because, of
Speaker 9: course the policy that's in place suggests that well so far,
Speaker 9: the two things that we have seen from the beginning
Speaker 9: is those which is putting the unemployment rate up, and
Speaker 9: also terrorists, which is.
Speaker 1: Putting inflation up.
Speaker 9: So if that's the case, they need to deal with
Speaker 9: that shock as the first thing. Even as you say,
Speaker 9: if there are other policies coming on deregulation, on lower
Speaker 9: taxes and potentially also more energy.
Speaker 2: Production, Tostan Clinic has always got to say you said.
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