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Speaker 3: I'm joined by the US Treasury Secretary Scott Bessett this
Speaker 3: morning on the heels of this agreement the President announced
Speaker 3: last night last week, you joined me, John and Lisa,
Speaker 3: and you said you were going to Japan.
Speaker 4: For the World Expert, wasn't really going to be focused
Speaker 4: on trade.
Speaker 5: You came back.
Speaker 4: The President had a seventy five minute meeting as well
Speaker 4: last night with the trade negotiator. You were in the room,
Speaker 4: and he got this deal with you alongside him over
Speaker 4: the finish line. And even though the reporting at Washington
Speaker 4: that actually the discussions with Japan were quite difficult, what
Speaker 4: changed in the last twenty four hours.
Speaker 6: Look, Anne Marie, we had some discussions about the overall
Speaker 6: US Japan relationship, which was one of the strongest in
Speaker 6: the world when I was in Tokyo and Osaka, and
Speaker 6: then we got back.
Speaker 7: There are elections on Sunday.
Speaker 6: LEDP did slightly better than expected. They don't have a majority.
Speaker 6: Japanese government was ready to deal, and as president, only
Speaker 6: President Trump could do. He brought the Japanese trade delegation
Speaker 6: into the Oval and had a very fulsome negotiation with them,
Speaker 6: and I tell you they're tough negotiators for President Trump's tougher.
Speaker 5: Well, there's a.
Speaker 4: Photo circulating on Twitter from Dan Scavino and you actually
Speaker 4: see a sharpie x out of some what looks like
Speaker 4: preliminary deals for even more concessions with Japan. I want
Speaker 4: to ask you about this fifteen percent tariff free. Is
Speaker 4: that the new floor now for trading partners when you're
Speaker 4: going into these negotiations.
Speaker 6: Well, I think it's very important to note that fifteen
Speaker 6: percent for Japan for reciprocal terrorists for autos, that is
Speaker 6: a different kind of deal. But because the Japanese proposed
Speaker 6: a very innovative solution, we've been working with them for months,
Speaker 6: the trade team, myself, Ambassador Greer, Secretary Lutnik, and they
Speaker 6: came to US with the idea of a Japan US
Speaker 6: partnership where they are going to provide equity, credit guarantees
Speaker 6: and funding for major projects.
Speaker 7: In the US.
Speaker 6: So they got the fifteen percent rate because they were
Speaker 6: willing to provide this innovative financing mechanism.
Speaker 4: There's a lot of Japanese FDI into the United States already.
Speaker 5: Is this new capital?
Speaker 7: Oh no, this is all new capital.
Speaker 6: This is all new capital, and it is going to
Speaker 6: be targeted at the strategic industries. The President Trump and
Speaker 6: this administration believe that we have to de risk on
Speaker 6: During COVID, we saw our vulnerabilities, whether it was in
Speaker 6: medicine semiconductors. So we are going all in over the
Speaker 6: next few years to de risk our supply chains and
Speaker 6: this deal, thanks to President Trump, is going to be
Speaker 6: part of that.
Speaker 4: When it comes to the fifteen percent rate on autos,
Speaker 4: this means that Toyota is basically paying a cheaper rate
Speaker 4: than say GM if they have inputs from other countries.
Speaker 4: Still they're still at the twenty five percent auto rate.
Speaker 4: Do you see the auto rate leveling out to something
Speaker 4: lower than twenty five percent.
Speaker 7: We'll have to see.
Speaker 6: And again those are just GM components. There's also the
Speaker 6: US NCA, the portion of any autos assembled in the US,
Speaker 6: and then of course GM and especially Ford. I think
Speaker 6: Ford has the largest US production. You're building in the US,
Speaker 6: there are no.
Speaker 4: Tariffs, so when it comes to what's next, we know
Speaker 4: the EU negotiators are in town. This fifteen percent rate
Speaker 4: feels like potentially a floor.
Speaker 5: Could anyone get below fifteen percent?
Speaker 4: Is the European Union still trying for ten percent minimum
Speaker 4: baseline tariff?
Speaker 7: Well?
Speaker 6: Again, the fifteen percent is a result of this very
Speaker 6: innovative package that the Japanese came with and your President
Speaker 6: Trump being able to push them to do even more so.
Speaker 5: Has Russels come up with anything innovative?
Speaker 6: Not yet, But again, talks are going better than they
Speaker 6: had been. I think that we are making good progress
Speaker 6: with the EU. But as I've said before, Emory and
Speaker 6: the EU has a collective action problem twenty seven countries.
Speaker 6: Great thing about dealing with the Japanese. I've been going
Speaker 6: to Japan since nineteen ninety. I think this weekend my
Speaker 6: fifty second trip, and the Japanese government moves of one entity.
Speaker 6: They're highly organized across all level of government.
Speaker 4: So you say that talks are going better, we just
Speaker 4: have a story hitting the terminal this morning from our
Speaker 4: colleagues in Europe that the European Union is readying one
Speaker 4: hundred billion dollars euros. If there is no deal in place,
Speaker 4: they will impose thirty percent tariffs on those one hundred
Speaker 4: billion euros worth of goods.
Speaker 5: Do you think we're going to get to that place.
Speaker 6: I think it's a negotiating tactic and it's what I
Speaker 6: would do if I were in their place. But Amory,
Speaker 6: remember we are the deficit nation. They're the surplus nations,
Speaker 6: so any kind of a escalation in trade problems will
Speaker 6: always hit them worse.
Speaker 4: I want to also talk about what's going on with China.
Speaker 4: You're going to Stockholm Monday Tuesday to meet with your
Speaker 4: Chinese counterparts. Are we going to continuously see the discussions
Speaker 4: revolve around where Earth's and export controls or they're going
Speaker 4: to be other items on the table.
Speaker 7: I think we're in.
Speaker 6: A very good place with China now and we can
Speaker 6: start moving on to bigger discussions. As I've said many times,
Speaker 6: there is a potential for a big, beautiful rebalancing between
Speaker 6: the US and China. President Trump is committed to bringing
Speaker 6: back precision manufacturing to the US and as we become
Speaker 6: more of a manufacturing economy, China is highly imbalanced. They
Speaker 6: account for thirty percent of all the manufacturing output in
Speaker 6: the world. That's not sustainable. We believe they should become
Speaker 6: more of a consumption economy. If they are willing to
Speaker 6: go down that route, then we could actually do it together.
Speaker 6: And then there are lots of other things we can
Speaker 6: talk about, whether it's them buying sanctioned Russian or Iranian oil,
Speaker 6: a number of security things, and so a purchasing agreement.
Speaker 4: From Trump's first administration, he had to deal with China
Speaker 4: on the Phase one purchasing agreement on agriculture.
Speaker 6: Well, again, that's another way that we could bring this
Speaker 6: in balance relationship into balance. So we will be talking
Speaker 6: about purchasing agreements, especially ag and to refresh everyone's memory,
Speaker 6: we had the purchase agreements. Chinese lived up to the
Speaker 6: purchase agreements during President Trump's final year in office, and
Speaker 6: then the Biden administration didn't enforce those purchase agreements. So
Speaker 6: we're going to let bygones be bygones. We're going to
Speaker 6: look forward, and I think we can come up with
Speaker 6: some very interesting purchasing agreements. As you know, President Trump
Speaker 6: is committed to the American farmers.
Speaker 4: Well, looking forward, you told me John and Lisa last week.
Speaker 4: The market doesn't need to worry about August twelfth. That's
Speaker 4: the deadline for this current dayton between Washington and Beijing.
Speaker 5: What's the new deadline going to be?
Speaker 6: Well again, I think that we could roll it forward,
Speaker 6: maybe in a ninety day increment. And I think the
Speaker 6: good news here is that we are back on track
Speaker 6: with the Chinese negotiations. On April second, President Trump told countries,
Speaker 6: here's your reciprocal rate. But that was the ceiling if
Speaker 6: you do not escalate. If you don't escalate, this is
Speaker 6: the max. The Chinese chose to escalate. But now we
Speaker 6: both sides have de escalated, and I think we can
Speaker 6: get into a very good cadence of regular meetings with them.
Speaker 6: And look, we're the two largest economies in the world.
Speaker 6: We do not want to decouple with the Chinese. We
Speaker 6: just need to de risk part of our supply chain.
Speaker 4: Does regular incremental meetings include a meeting between President Trump
Speaker 4: and Shijiping this fall.
Speaker 6: I do know that a party chair she has invited
Speaker 6: President Trump to visit China. I don't know. I don't
Speaker 6: have dates on that. I don't know if the President's accepted.
Speaker 6: I know they have a fantastic relationship on a personal level,
Speaker 6: which I think forms the basis of everything between the
Speaker 6: US and China.
Speaker 4: Local reports in China, we're talking about the two meeting
Speaker 4: on the sidelines of the APAX summit in South Korea
Speaker 4: this fall at the end of October early November, or
Speaker 4: maybe President Trump going to China first. Could we see
Speaker 4: a meeting that soon? You think a meeting within this
Speaker 4: year can happen.
Speaker 6: Again, I'm not privy to the President's travel schedule beyond September,
Speaker 6: so we'll see.
Speaker 4: Nothing before a meeting with Chighing paid before September.
Speaker 7: Nothing before Labor Day.
Speaker 4: So in the last week, I do want to go
Speaker 4: through something that's going on with China. They've imposed exit
Speaker 4: bands on a Wells Fargo banker, a commerce department employee,
Speaker 4: and according to Microsoft, they hacked into their software. Will
Speaker 4: you address these actions at the talks in Stockholm.
Speaker 6: We're going to address a whole host of things, and
Speaker 6: you know, obviously things like that will be on the
Speaker 6: agenda with my Chinese counterpart.
Speaker 4: You had said to me last week that the Nvidia
Speaker 4: H twenty chip was potentially a chip in negotiations, a
Speaker 4: mosaic part of the deal. Do you think China is
Speaker 4: doing this for leverage at the trade table?
Speaker 6: Absolutely not, absolutely not, because again, the H twenty, while
Speaker 6: it is an advanced chip, is not one of the
Speaker 6: most advanced chip. I think if we were to think
Speaker 6: about the Nvidia stack, the HP would be something fourth
Speaker 6: fifth down the stack. And my understanding is that Huawei
Speaker 6: can produce something with similar advocacy.
Speaker 4: China's malicious behavior, even just in the past week, even
Speaker 4: targeting a commerce department employee, do you think they're doing
Speaker 4: this to have leverage with the United States?
Speaker 6: Well, I can tell you in Stockholm it's not going
Speaker 6: to give them any leverage with me. And it's a big,
Speaker 6: sprawling bureaucracy, and sometimes I think we may see the
Speaker 6: arrests may have been in a province, the central government
Speaker 6: may not be aware of it. So you know, I
Speaker 6: would highly doubt that something at that level they have
Speaker 6: wanted to engage with the US. We are engaging with
Speaker 6: them and I think both sides want to move forward
Speaker 6: in a productive way.
Speaker 5: But you'll raise these issues.
Speaker 4: Yes, So now that the administration is getting trade deals
Speaker 4: across the finish line Japan, Indonesia, Philippines yesterday, you say
Speaker 4: the European Union potentially in sight.
Speaker 5: Do you think the Federal.
Speaker 4: Reserve is going to have enough clarity by September to
Speaker 4: cut interest rates?
Speaker 6: Again, I'm not really sure what the Federal Reserve is
Speaker 6: looking at because thus far, we have not seen, or
Speaker 6: we've seen very little, if any price pressures from the tariffs,
Speaker 6: and if we were to see, those wouldn't be inflationary,
Speaker 6: be a one time price adjustment. So again, I think
Speaker 6: that their analysis of tariffs is a bit off.
Speaker 5: Well.
Speaker 4: Governor Waller made this exact case to us on surveillance
Speaker 4: on Friday, and it sounds like he might dissent at
Speaker 4: this meeting. He also said the President hasn't called him yet.
Speaker 4: He's one of these names that are circulating around. Could
Speaker 4: he replace FED chair J Powell? Is he a name
Speaker 4: you're looking at? Have you reached out to him?
Speaker 6: I think there are a lot of strong candidates, including
Speaker 6: several who are on the main board and perhaps regional
Speaker 6: bank presidents.
Speaker 4: So are there other names outside of Kevin Hassett, Kevin Walsh,
Speaker 4: Christopher Waller and you yourself has been circulating.
Speaker 6: There's a long list, and like I said, there's some
Speaker 6: great candidates.
Speaker 4: And have you reached out to everyone on both those lists.
Speaker 6: I'm not going to talk about the process, but we
Speaker 6: are getting the process underway. Obviously it's going to be
Speaker 6: President Trump's decision and we're not in a rush.
Speaker 5: So oh, you're not in a rush.
Speaker 4: But the President continuously says he wants to get rid
Speaker 4: of the FED chair J Powell. Mahmade Larian yesterday said
Speaker 4: he should resign.
Speaker 5: Do you think J. Powell should step down to protect
Speaker 5: the institution?
Speaker 7: Couple of things.
Speaker 6: One, the President said he is not going to fire
Speaker 6: Chair Palell. I was somewhat surprised that Muhammad al Arian
Speaker 6: came out and said that. And what I've come out
Speaker 6: and said is that I believe that it would do
Speaker 6: Chair Palell a favor, and he would be doing the
Speaker 6: institution of favor if he did an internal review. Separate
Speaker 6: monetary policy from everything else. And this is something that
Speaker 6: Larry Summers and I agree on, is this mission creep
Speaker 6: from the FED is endangering their independence of monetary policy.
Speaker 6: So all these other things they're engaging in could threaten
Speaker 6: monetary policy. So it is a big, sprawling institution. The
Speaker 6: central budget for the Board is up four x since
Speaker 6: two thousand and four, and every institution needs to examine themselves.
Speaker 5: But you want the.
Speaker 4: Man that you guys don't think is doing a good
Speaker 4: job to run that review.
Speaker 7: What's up?
Speaker 4: You want the man J Powell, which you and a
Speaker 4: president don't think is doing a very good.
Speaker 5: Job to run the review of the institution.
Speaker 6: Well, I think that it could be a committee, it
Speaker 6: could be a group. They could invite outside experts. In
Speaker 6: the Bank of England after the twenty twenty two rape hike,
Speaker 6: Shock went back and did a very good examination of
Speaker 6: what went wrong with monetary policy that brought in outside experts.
Speaker 6: You know, I think an internal review would be a
Speaker 6: good start, and if the internal review didn't look like
Speaker 6: it was serious, then maybe they could be an external review.
Speaker 4: Have you communicated this directly with J Powell? Do you
Speaker 4: guys continuously have your once a week breakfast lunches either
Speaker 4: at the Fed or the Treasury.
Speaker 6: I gave a speech on Monday night on Bank deregulation,
Speaker 6: bank regulation, the future of regulation, which is, aside from
Speaker 6: monetary policy, I think the most important thing for the economy.
Speaker 6: The FED is one of three regulators. There's the FED,
Speaker 6: the Office of Control of the Currency which sits under Treasury,
Speaker 6: and the FDIC. And I believe that all three of
Speaker 6: those should have important voices. And I believe that the
Speaker 6: regulation has been much too stringent. Since the Great Financial Crisis,
Speaker 6: we are seeing this big build up outside the regulated
Speaker 6: financial system. I think I saw something two days ago.
Speaker 6: The private credit is up ten XM not saying it's
Speaker 6: a financial stability problem, but I am saying that there's
Speaker 6: a regulatory arbitrage going on. But that was a long
Speaker 6: way of saying I saw a chair pale at that speech.
Speaker 4: And your lunches in breakfast continue always, so you have
Speaker 4: a good relationship with him.
Speaker 5: At the moment, we.
Speaker 7: Have continuing communication.
Speaker 4: Last time you were on, you also talked about the
Speaker 4: potential next FED chair. You said his or her nomination
Speaker 4: is Governor Bowman also in the running.
Speaker 7: Again I'm not going to name names, but.
Speaker 6: There are good candidates. As I said on the board
Speaker 6: at their several female regional bank presidents and then there
Speaker 6: are some fantastic women outside the FED.
Speaker 4: There's also Governor Kugler's chair that is open in January.
Speaker 5: Have you started that process.
Speaker 6: It's a simultaneous process. The Coogler chair is a fourteen
Speaker 6: year seat, so we'll be looking at that also. And again,
Speaker 6: I think we have some very good candidates.
Speaker 5: Given you just saw J. Powell.
Speaker 4: Has he yet to tell you whether or not he
Speaker 4: is going to leave the board his governor seat by
Speaker 4: before twenty twenty eight?
Speaker 6: He hasn't yet. My belief is that he will, and
Speaker 6: I think that it would be very good for the
Speaker 6: institution for him to do it, and I think it'd
Speaker 6: be very good for him personally to do it.
Speaker 4: The President once said that he goes out and rile's
Speaker 4: financial markets and then he sends you his Treasury secretary
Speaker 4: out to calm things. Things are pretty calm today. But
Speaker 4: when it comes to the FED chair, I know you
Speaker 4: love college basketball, and you talk about the president being
Speaker 4: Bobby Knight, and I know you love Dean Smith. Are
Speaker 4: you guys playing this good cop bad cop when it
Speaker 4: comes to talking about the FED talking about J.
Speaker 5: Powell?
Speaker 7: Not at all, Marie.
Speaker 6: The reason I think that I'm to the extent I'm
Speaker 6: able to calm the markets, and that doesn't always happen.
Speaker 6: I was in the investment business for thirty five forty years.
Speaker 6: But I think more importantly than that, I understand what
Speaker 6: President Trump is doing, and a lot of times he's
Speaker 6: one to three steps ahead of the market. And as
Speaker 6: you know better than anyone, the market wants instant explanations.
Speaker 6: They want they want clarity, they want immediate gratification. So
Speaker 6: I think that I am able to as a former practitioner,
Speaker 6: I think about when President Trump tells me what his
Speaker 6: goals are, I think about what is the best way
Speaker 6: for me to give good framing to market participants for
Speaker 6: them to understand what he's doing. Because he always has
Speaker 6: a plan, it's not always obvious.
Speaker 4: So you are communityating almost the strategic ambiguity that he
Speaker 4: likes to operate from well.
Speaker 6: And I'm also trying to explain that there is a
Speaker 6: plan because look, these letters went out, everyone was, oh
Speaker 6: my gosh, these are high rates, and I think the
Speaker 6: president created maximum negotiating leverage, and the market actually took
Speaker 6: it pretty well, took it pretty well.
Speaker 4: Just to finish on that final point, then, do you
Speaker 4: think he's more in boldened to go for higher rates
Speaker 4: with trading partners. Now, given the market is not pushing back.
Speaker 6: Well, I think he's created a lot of leverage because
Speaker 6: he's created an ab situation. He is able to go
Speaker 6: to the trading partners and say, look, I am happy
Speaker 6: to take in this tariff income if you don't want
Speaker 6: to negotiate.
Speaker 7: This is a high rate.
Speaker 6: But the US is taking a massive amount tariff income.
Speaker 6: We had the first June budget surplus since twenty fifteen
Speaker 6: last month. We reported it this month, and so we
Speaker 6: are taking in substantial income. So President Trump is creating
Speaker 6: this leverage by saying, if you don't want to negotiate
Speaker 6: with me, I've sent you a letter with a high rate.
Speaker 6: You have at the high rate, or come and negotiate
Speaker 6: in better fashion. Because I'll tell you what was fascinating
Speaker 6: for me, and this was President Trump at his best.
Speaker 6: At his best was the Indonesians came with what I
Speaker 6: thought was a very good offer out of the Blox.
Speaker 6: President Trump kept pushing them. He raised the reciprocal rate
Speaker 6: when he sent them the letter, and five iterations later,
Speaker 6: the Indonesian trade deal was greatly improved, turned into a
Speaker 6: great deal for both Sides.
Speaker 5: Secretary Scott Besson, Thank you so much for your time
Speaker 5: this morning.
Speaker 2: Jill Ford, co head of equity capital Markets for wels Fonco,
Speaker 2: expects activity to pick up in the second half of
Speaker 2: twenty twenty five.
Speaker 8: Joe joins us now for more joke and morning. Good morning.
Speaker 8: Market's wide open. Is it healthy?
Speaker 2: Is the kind of activity that you're across right now
Speaker 2: what you would describe as healthy?
Speaker 9: Well, I would say, you know, IPO volumes have certainly
Speaker 9: been lackluster for the first six months of this year,
Speaker 9: particularly contrasted versus all the expectations post the election late
Speaker 9: last year. We are starting to see signs of life
Speaker 9: within the equity capital markets, and particularly with IPOs. They
Speaker 9: are pricing well, they're trading well, buyers are making money.
Speaker 9: They're looking outwards now as we get more clarity with
Speaker 9: these with these tariff deals, they're looking for new ideas
Speaker 9: as opposed to hunkering down and trading what they know,
Speaker 9: and that's really really healthy for the IPO market.
Speaker 5: So I'm optimistic.
Speaker 9: There are lots of IPOs coming. Many IBOs came in June,
Speaker 9: there are many more coming in July, and the fall
Speaker 9: is looking pretty good as well.
Speaker 2: The typical lifespan of a company is obviously shifted. They're
Speaker 2: staying private for a whole lot longer. Can you describe
Speaker 2: to us as to why why they're not going public?
Speaker 2: Are they push factors or pull factors? You just see
Speaker 2: people sucked into private markets and stank there because the
Speaker 2: options available to them are so good.
Speaker 9: You know, a lot of it is driven by the
Speaker 9: companies that own them, the private equity sponsors. They are
Speaker 9: very unemotional about when they sell things. They want to
Speaker 9: sell at full value. They want to realize the full
Speaker 9: value that they that they deserve for their assets. And
Speaker 9: when IPO markets have larger than normal IPO discounts, they're
Speaker 9: going to sit back and say, what are my other options?
Speaker 9: And there's lots of options for treading water. I can
Speaker 9: give you a whole list of ways that private equity
Speaker 9: firms have decided to keep their companies private longer. The
Speaker 9: flip side is when they do come out, they're more mature.
Speaker 9: They have acted almost like a private company for longer.
Speaker 9: The management teams have become accustomed to managing expenses, not
Speaker 9: growth for growth sake. So you're getting a higher quality
Speaker 9: company that is coming out.
Speaker 1: It also indicates that they see the market is frothy
Speaker 1: enough to handle some of the potential valuations that they
Speaker 1: would like to see for those exits that they might
Speaker 1: not be getting in previous markets. The market's been opened
Speaker 1: a long time, it's just not at the price that
Speaker 1: they want. And I wonder if it tells you something
Speaker 1: about where we are in markets that a lot of
Speaker 1: companies are starting to say, Okay, if we're not going
Speaker 1: to pull the trigger now, i'm not sure when we can.
Speaker 9: You know two things at play here. The first one
Speaker 9: is the IPO market as a cohort for twenty twenty
Speaker 9: five is up close to fifty percent. Now, there's a
Speaker 9: couple of high flyers in there that are driving it higher,
Speaker 9: but versus the average fifteen percent pop, that's really meaningful
Speaker 9: for people's portfolios. The second thing that's going on is
Speaker 9: that people are starting to realize the queue is getting
Speaker 9: so large we couldn't cycle through it in a single year.
Speaker 9: You know, the IPO backlog right now is about two
Speaker 9: hundred companies or so that have filed. Confidently, there's probably
Speaker 9: another two to three hundred companies beyond that or IPO
Speaker 9: worthy who have not yet gone through that process. So
Speaker 9: if you take an average IPO year of call it
Speaker 9: seventy five to one hundred IPOs, you're looking at several
Speaker 9: years to try to clear this queue. Do you want
Speaker 9: to be in the front of the queue or do
Speaker 9: you want to be in the.
Speaker 1: Back of We keep hearing this, the idea of the
Speaker 1: backlog building and the idea of the pipeline is full.
Speaker 1: It's just a matter of what you're going to pull
Speaker 1: the trigger. And I wonder if the tariff levels that
Speaker 1: we've gotten overnight are enough enough certainty, especially when paired
Speaker 1: with the legislative certainty that we've seen in Washington, d
Speaker 1: C for a lot more companies to pull the trigger.
Speaker 9: Well, I do think that IPOs love boring, right.
Speaker 5: They don't want volatility.
Speaker 9: They're out for seven to eight days of market exposure.
Speaker 9: And the great news is that over the last few
Speaker 9: months we've started to see the market shrug off a
Speaker 9: lot of that newsflow right, And so with continued clarity
Speaker 9: on tariffs, A, we've got a calmer market hopefully, But
Speaker 9: b CEOs and CFOs are going to be able to
Speaker 9: forecast their business more accurate.
Speaker 5: If you can't forecast.
Speaker 9: Your business because of tariffs here, there, and everywhere in
Speaker 9: your supply chain, you're really going to struggle to give
Speaker 9: people comfort to come into a new and eam. So
Speaker 9: those two things are at play and we're starting, hopefully
Speaker 9: to be on the road to more clarity around that.
Speaker 2: Joe, could we finish on the resilience of corporate America?
Speaker 2: This has been an ongoing theme now for the last
Speaker 2: several months. You talked about the big batslhard and battle
Speaker 2: tested once they became public companies. Can you reflect on
Speaker 2: your experience of just how resilient corporate America actually is.
Speaker 2: The ability to borrow a frase from my good friends Tik,
Speaker 2: to adapt and to adjust.
Speaker 9: No question twenty twenty one. We obviously saw a lot
Speaker 9: of nonsense go on and a bit of a bubble
Speaker 9: and then very very little activity in the years following.
Speaker 9: I think companies have had to learn to be much
Speaker 9: more prudent, conservative, to manage not just growth, but to
Speaker 9: manage margins if they're not profitable, to have a bridge
Speaker 9: towards near term profitability, and overall that's created a really
Speaker 9: healthy backdrop.
Speaker 7: You know.
Speaker 9: The other thing to focus in on is the health
Speaker 9: of the consumer. Right if your consumer's not healthy. It's
Speaker 9: now the right time to be going public. As the
Speaker 9: consumer also appears to be very resilient. We're seeing those
Speaker 9: corporations that are have them as customers become even more
Speaker 9: resilient and healthy. And so we're optimistic through the the
Speaker 9: second half of twenty twenty five and certainly well into
Speaker 9: twenty twenty six. As it released to IPO volumes.
Speaker 8: Joe, this was great. It's going to catch up. Thanks
Speaker 8: for the update.
Speaker 2: Joe full Dent of Wells Fonco's if you were more
Speaker 2: Street this morning, Jack Caffrey of JP Morgan Rights and
Speaker 2: the Rally suggests traders are expecting another positive quarter of
Speaker 2: earnings and sales upside against full costs.
Speaker 8: Jack joins us now for more. Jack and Mornick, good morning.
Speaker 8: How low is the bar.
Speaker 7: It?
Speaker 10: You know, as you were talking right before you cut
Speaker 10: to me, it's very almost stock specific. I mean, earlier
Speaker 10: this week we heard from you know, a semiconductor company
Speaker 10: that sells to the auto industry. They were down six percent.
Speaker 10: Last night we heard the update from Texas Instruments. Good numbers,
Speaker 10: weak guidance. They're down nine percent. This morning. Doesn't feel
Speaker 10: like it's supposed to be shocking after what we'd heard
Speaker 10: earlier in the week, And at the same time you're
Speaker 10: seeing names but the average companies up one percent the
Speaker 10: day after their report. So on the whole things are
Speaker 10: quite nice. But the fact is there are a lot
Speaker 10: of potholes and seeming land mines that people are still
Speaker 10: stepping on as we work our way through this. And
Speaker 10: I think at some point over the next month, we're
Speaker 10: going to be spending more of our time talking less
Speaker 10: about twenty twenty five and the very modest expectations for
Speaker 10: twenty twenty five and talking about how things accelerate so
Speaker 10: dramatically into twenty twenty six that hopeful we get policy
Speaker 10: certainty at some point or policy consistency.
Speaker 8: Is that all you want, just consistency.
Speaker 7: I just want to know what the.
Speaker 10: Rules are and then then I think I think ultimately
Speaker 10: US companies are exceptional at driving profitability once they understand
Speaker 10: what they're going to operate under. If we went back
Speaker 10: to the first Trump administration, a lot of focus on
Speaker 10: trying to get tax policy and then you created a
Speaker 10: trade war within days later, and for the most part,
Speaker 10: companies sat on their hands in terms of thinking about
Speaker 10: their investment. Today, now we actually have some tax clarity.
Speaker 10: That's the good news. Ideally we'll get some trade clarity
Speaker 10: that might lead to actually understanding where investments go. But
Speaker 10: at the same time, I think I and other investors
Speaker 10: thought that perhaps when you looked at where prior budgets
Speaker 10: were allocating capital in terms of trying to think about
Speaker 10: subsidies and goals, a lot of that's not been thrown
Speaker 10: up as you've ripped up parts of the goal of electrication,
Speaker 10: say in the One Big Beautiful Bill. So I don't
Speaker 10: know if the battery complex of Georgia makes as much sense,
Speaker 10: if the ev manufacturing in Tennessee makes quite as much
Speaker 10: sense on a go forward basis, if the cost structure
Speaker 10: underwriting those investments is as durable as we initially.
Speaker 5: Thought on a broad market basis.
Speaker 1: Have we priced in a certainty before we've gotten it?
Speaker 10: Kind of feels like it when you think about you know,
Speaker 10: implied volatility effectively at year lows. If you look at
Speaker 10: put buying that's running at sort of year lows, if
Speaker 10: you average it not only one day's number, but smooth
Speaker 10: that out. If you look at corporate credit spreads again,
Speaker 10: you know, at fifty two week lows. So for the
Speaker 10: most part, I think risk markets are saying we got this,
Speaker 10: and I think that's where things get trickier, especially as
Speaker 10: we go into the next month or so when look
Speaker 10: coward to the does tend to be a little bit
Speaker 10: punkier overall, and people try to go on vacation.
Speaker 1: Right, well, this is sort of by the rumor and
Speaker 1: sell the news. And a question about whether you agree
Speaker 1: with Julian Emmanuel over at EVERCOREI s I when he
Speaker 1: came out earlier and he said he sees the next
Speaker 1: seven the next move inequity is to be something like
Speaker 1: seven to thirteen percent lower. Do you agree with that?
Speaker 10: Having not read the note, I'm not sure what he
Speaker 10: was looking to.
Speaker 1: I think on a theoretical basis, agree with good lower.
Speaker 10: I think I think you know now next CA at
Speaker 10: sixty days, I think it's going to be hard to
Speaker 10: get a big rally unless you get something truly dramatic
Speaker 10: in the way of blowout sorts of news. I think
Speaker 10: underpinning that, though you know, we're looking for a mid
Speaker 10: teens growth in earnings coming out of the MAC seven,
Speaker 10: I think the trick is that the forlorn four ninety
Speaker 10: three we're supposed to have earnings growth of like three
Speaker 10: or four percent for the course of this year. That
Speaker 10: accelerates the twelve percent next year. So actually the momentum
Speaker 10: in earnings is shifting away from the mac seven into
Speaker 10: the forlorn and I think that speaks to a stable,
Speaker 10: growing economy. And ultimately, I think maybe we spend too
Speaker 10: much time talking about the economy. Does this look at
Speaker 10: the consumer. The consumer continues to work, the consumer continues
Speaker 10: to spend, and I think that's really the flywheel that
Speaker 10: people really need to pay the most attention to, because
Speaker 10: it's set stable consumer spending that's driving the earnings and
Speaker 10: cash flow that underpins their transition to AI. You know,
Speaker 10: when you think about who the capital spenders are versus
Speaker 10: who the capital providers are, it's the consumer keep working
Speaker 10: and spending every dollar they get.
Speaker 2: Oh, by Lisa, that's seven percent call at Judy in
Speaker 2: seven to fifteen, whatever it was to me. There's a
Speaker 2: common theme I think for a lot of the analysts
Speaker 2: who are making this call at the moment is that
Speaker 2: they want to buy it. So they'll say, like, you know,
Speaker 2: I expect the equity markets to have a draw down
Speaker 2: and maybe ten percent, but ultimately want to buy. The
Speaker 2: dep heard the same thing from Mike Wilson and Morgan
Speaker 2: Stanley exactly the same, so the same thing from Goldman Sacks.
Speaker 2: They said, we anticipate a less favorable growth inflation mix
Speaker 2: in the second half, challenging the Goldilocks scenario. Still neutral
Speaker 2: and still moderately positive on stocks over a twelve month
Speaker 2: time arise, and I see that on repeat across Wall Street.
Speaker 5: Yeah, how person is it?
Speaker 1: Can you get when ultimately you're talking about a draw
Speaker 1: down that's going to be a great opportunity, Please please
Speaker 1: sell off so that we can buy it?
Speaker 5: Raises this question.
Speaker 10: I mean, let's remember also that we also have a
Speaker 10: FED that's planning to cut. The debate might be do
Speaker 10: they cut in July or are they cutting in September?
Speaker 10: But the Fed is trying to be our friend. They
Speaker 10: are actually moving in a direction that tends to be
Speaker 10: risk supportive. And so, you know, having started my having
Speaker 10: started as a strategist and having to live by trying
Speaker 10: to get the timing right, you know, I appreciate being
Speaker 10: a portfolio manager and getting to step a little bit
Speaker 10: away from the noise and be like, what's the main thing,
Speaker 10: and let's focus on the main thing. The direction remains,
Speaker 10: you know, a growing economy, growing earnings and cash getting returned.
Speaker 10: Less cash probably gets returned to us as investors going forward.
Speaker 10: When you think about the mass of investment demands that
Speaker 10: we're starting to try to underwrite, and I think that's
Speaker 10: going to make things, you know, perhaps a bit trickier
Speaker 10: and where you have to deliver versus you it would
Speaker 10: be nice if you delivered and.
Speaker 2: A boss through jacentristrits. As you say, Jack, appreciate your time,
Speaker 2: Jack Caffrey, a JP.
Speaker 4: Nolton And with another negotiator that was at that table,
Speaker 4: the president last night, Commerce Secretary Howard Lutnik. I want
Speaker 4: to pick up on this idea and good morning, thanks
Speaker 4: for joining us. I want to pick up this idea
Speaker 4: of innovative financing mechanisms and this five hundred and fifty
Speaker 4: billion dollar five and the Japanese are going to be
Speaker 4: investing into what exactly is that fund going to look like?
Speaker 11: So the Japanese are going to give America the ability
Speaker 11: to choose the projects, to side the projects, and execute
Speaker 11: the projects. So let's say we want to build generic pharmaceuticals, right,
Speaker 11: we don't make antibiotics in America, so the President says,
Speaker 11: let's go make antibiotics in America. The Japanese will finance
Speaker 11: the project. They will finance the project, and then we'll
Speaker 11: give it to an operator whill run it, and the
Speaker 11: profits will be split ninety percent to the taxpayers in
Speaker 11: the United States of America and ten percent to the Japanese.
Speaker 11: So they basically bought down their tower freight by this
Speaker 11: commitment of we will back what you, the President want,
Speaker 11: and you America want to build in America that are
Speaker 11: key to national security concerns, will back that, and therefore
Speaker 11: we'll be on your side.
Speaker 4: The Prime Minister Sheiba says, these are loan guarantees.
Speaker 5: Is it more than that. Of course it's more than that.
Speaker 11: It's equity loans and loan guarantees. They have to deliver
Speaker 11: the project. So we say, let's build semiconductors. We want
Speaker 11: to build one hundred billion dollar worth of semiconductor fabs
Speaker 11: is what you call them, because we want to make
Speaker 11: those chips in America. The Japanese will finance that whole project.
Speaker 11: They've got to put down equity loans.
Speaker 5: Whatever they want to do.
Speaker 11: They have to deliver the hundred billion.
Speaker 4: Or Japanese companies.
Speaker 11: Oh no, no, anybody does it. It's the Japanese or
Speaker 11: the financer. They're the banker, they're not the operator. It's
Speaker 11: not Japanese companies. So when people get confused, this isn't
Speaker 11: like a Japanese company like you know, like Toyota coming
Speaker 11: in and building a factory.
Speaker 7: No, that's Toyota.
Speaker 11: This is literally America is saying we want to build
Speaker 11: generic pharmaceuticals, semiconductors, critical minerals.
Speaker 2: Here.
Speaker 5: This exists.
Speaker 4: Now, like, what can we think of a model afters That's.
Speaker 11: Why you have someone like me who joins the government.
Speaker 11: I mean, this was my the idea in January. So
Speaker 11: I started because the Japanese are never going to really
Speaker 11: open their market the way Donald Trump wants them to
Speaker 11: open it. I mean open it, open it, you know.
Speaker 11: So what's happened is they had to come up with
Speaker 11: another way to really make it work and the tariff
Speaker 11: model work. So I suggested to them a four hundred
Speaker 11: billion dollar fund where they would give to the president
Speaker 11: and they would give to America the financing to go
Speaker 11: build out your whatever you think for national security, go
Speaker 11: build it, will back you.
Speaker 7: And that's the model.
Speaker 4: It reports the Prime minister, though maybe resigning. Could this
Speaker 4: deal transcend domestic politics in Japan?
Speaker 11: Of course, I mean it's vital. You saw what happened
Speaker 11: to their car companies. They were all up more than
Speaker 11: ten percent today. So a twenty five percent tariff delivers
Speaker 11: what Donald Trump said, build it in America. A fifteen
Speaker 11: percent is right on the edge to write on the
Speaker 11: edge of the Japanese car manufacturers can still produce in Japan.
Speaker 11: And that's what the Japanese wanted to buy. They wanted
Speaker 11: to buy that line where they could stay in Japan
Speaker 11: for some cars build of course huge amounts here. But
Speaker 11: also what they did is they'll invest and give Donald
Speaker 11: Trump the tools to invest in America.
Speaker 4: That fifteen percent tariff on autos is huge for Japan.
Speaker 4: Do you see the entire auto tariff, that sectoral tariff
Speaker 4: coming down from twenty five percent to fifteen percent, Because
Speaker 4: for some inputs, this would mean Toyota has a fifteen
Speaker 4: percent rate, but GM still has a twenty five percent rate.
Speaker 11: Well, GM doesn't have a twenty five percent rate unless
Speaker 11: they build certainly.
Speaker 5: Important South Korea.
Speaker 11: Or well, okay, if you're building, if you're building South Korea,
Speaker 11: that's a South Korea thing, and if you're importing from
Speaker 11: South Korea, that's a South Korea thing. So Europe is
Speaker 11: now paying twenty five percent, South Korea is paying twenty
Speaker 11: five percent. The Japanese have bought, if you will, by
Speaker 11: giving a huge investment to Donald Trump in America. They
Speaker 11: bought the ability to be down to fifteen percent. And
Speaker 11: Donald Trump can then really vest in America on the
Speaker 11: projects that he thinks are the most important for America.
Speaker 11: And we'll see what happens with Europe. We'll see what
Speaker 11: happens with South Korea. But right now Donald Trump has
Speaker 11: put the pressure on them. Let's be clear, Well, this
Speaker 11: is model the pressure on them.
Speaker 5: Is this a model for Brussels?
Speaker 7: It could be.
Speaker 11: I mean, that's up to them to negotiate. Right, are
Speaker 11: they willing to open their market? I don't think. I
Speaker 11: don't think anybody. Europe's not going to go and give
Speaker 11: us a trillion dollars too.
Speaker 4: Well, can they get below fifteen percent?
Speaker 5: Or is fifteen percent now.
Speaker 7: The floor right for autos?
Speaker 5: Would I would know?
Speaker 4: Forcipical tariff for the European.
Speaker 5: Union, I don't think that they're willing to accept.
Speaker 11: I don't think big countries can get low like that,
Speaker 11: I think. I think small countries have a possibility of
Speaker 11: being low, and that's up to the president to decide.
Speaker 11: But larger countries will have a hard time with that.
Speaker 5: They will have a hard time.
Speaker 4: So to be clear, with the European Union right now
Speaker 4: and the trade negotiations are in Washington, I know you're
Speaker 4: talking to them every single day. The rate floor that
Speaker 4: they would have to accept is fifteen percent what Japan accepted.
Speaker 11: I think what everybody in the world has seen is
Speaker 11: Donald Trump. So I'm the table center, if you will, right.
Speaker 11: I set the table right. I organize things. I structure things.
Speaker 11: You know, there was a picture that the President posted
Speaker 11: over his shoulder with the big board. That of course
Speaker 11: I created the big board and put it there. But
Speaker 11: the answer is the negotiator in chief of the United
Speaker 11: States of America is sitting behind the desk. You know,
Speaker 11: Donald Trump is sitting there created negotiating.
Speaker 4: The also created the board on Liberation Day and we
Speaker 4: saw the sky high terrafs.
Speaker 5: You created last night's board.
Speaker 4: I'm trying to understand from you what the European board
Speaker 4: is going to look like. So if say this's a
Speaker 4: fifteen percent across the board rate. What can the Europeans
Speaker 4: be buying that can assuage the concerns of the president.
Speaker 5: Are you talking about LNG purchases?
Speaker 4: Is there agricultural purchases.
Speaker 11: The Europeans have a twenty trillion dollar economy, right, we
Speaker 11: have just under thirty trillion, and the Chinese and the
Speaker 11: Europeans are similar in size at about twenty trillion dollars.
Speaker 11: So if they say to the President, we will open
Speaker 11: our market to you like Maro, and I mean really
Speaker 11: open it, meaning we will take us cars like think
Speaker 11: of what the Japanese did. They said, we will take
Speaker 11: us cars based on US standards. So you don't have
Speaker 11: to make a different car. You can take the car
Speaker 11: you're make in Detroit, put it on a boat, and
Speaker 11: send it. If the Europeans will accept that, and they
Speaker 11: will accept really really accepting US products in Europe, that's
Speaker 11: a giant. That's hundreds of billions of dollars of export
Speaker 11: opportunity for Americans. That's going to move the President because
Speaker 11: he's going to say that opportunity for Americans is so great.
Speaker 11: That's what well we've been We've been talking about it
Speaker 11: four months. I mean, holy moly, I can't. I can't tell.
Speaker 4: They're saying they're going to retaliate if they don't get
Speaker 4: a deal owns.
Speaker 11: I understand. Then the President wrote them a letter saying,
Speaker 11: if you don't get a deal, and we're charging.
Speaker 4: You thirty periating tactics out in public.
Speaker 7: Well, of course it is.
Speaker 11: I mean, Donald Trump writes a letter and says, if
Speaker 11: you don't make a deal, it's thirty percent. And the
Speaker 11: thing about Donald Trump is he's dead serious. If you
Speaker 11: don't make a deal, it's thirty percent. Now that puts
Speaker 11: the pressure on them right to say, Okay, that's my alternative.
Speaker 11: They want to get a deal done, for sure, they
Speaker 11: want to get a deal done. But does Donald Trump
Speaker 11: want to get a deal done? How much does he
Speaker 11: value the fact that they open their market? Do they
Speaker 11: completely open their market, because that's what he's looking for.
Speaker 11: I think they will. I think they will really really
Speaker 11: open their market, and I mean open it, which is
Speaker 11: something the United States of America has never had the
Speaker 11: idea that Donald Trump is opening the world's markets for Americans.
Speaker 11: The ranchers, the fishermen, right are farmers. I mean, these
Speaker 11: are amazing opportunities that no one in the world has
Speaker 11: ever seen. We have Stockholm syndrome.
Speaker 7: Right.
Speaker 11: The world has so held us off for so long.
Speaker 11: Can't even imagine a world where we can export freely
Speaker 11: the way everybody.
Speaker 7: Else exports to us.
Speaker 11: And that world is coming. That's what Donald Trump calls
Speaker 11: the Golden Age. That's what it calls. Our ability to
Speaker 11: export to the world the way they treat us, we
Speaker 11: can now finally treat them.
Speaker 4: You're gonna have to step away from the Europeans though,
Speaker 4: potentially for a moment next week, because I believe you're
Speaker 4: going to be headed to the Stockholm talks with China. Yes,
Speaker 4: So what we saw with China and this administration, Jensen
Speaker 4: Wang had a conversation with the president. I imagine you
Speaker 4: were there when it comes to the Nvidia H twenty chips.
Speaker 4: What did Jensen Wang say to you and the president
Speaker 4: that gave him the green light to start selling those
Speaker 4: H twenties back into China.
Speaker 11: Well, the H twenties were open during Biden, So Biden said, really, well, they.
Speaker 4: Were developed during Biden because.
Speaker 7: They were so China.
Speaker 11: We were actually sold to China, and then we came
Speaker 11: in and we said, whoa, whoa, whoa, that's a pretty
Speaker 11: powerful chip. In April, and we held that back and
Speaker 11: that was then held back, and now we had the
Speaker 11: whole magnet, which is very exciting. We're trying to make
Speaker 11: sure that magnets are being delivered to our producers, which
Speaker 11: was the deal, and these have export controls on them,
Speaker 11: and they'll come off. As the Chinese deliver their magnets,
Speaker 11: then the H twenties will come off. But it is
Speaker 11: logical since they were free to sell last time, it
Speaker 11: seems reasonable that we'll get to me.
Speaker 5: You said they were a powerful chip.
Speaker 4: Are you concerned about national security issues when it comes
Speaker 4: to allowing the Chinese now to.
Speaker 5: Get their hands on the H twenty, Well, the.
Speaker 11: H twenty was the third best chip in the world,
Speaker 11: and now it's the fourth best, right because the Blackwell
Speaker 11: is the best. There's an H two hundred and H
Speaker 11: one hundred, so in H twenty is the fourth best chip.
Speaker 11: And I think the President has decided that if things
Speaker 11: are going well with China that they can buy them.
Speaker 11: So I think that decision has been made. We are
Speaker 11: putting on the licensing mechanism and we are getting that going.
Speaker 11: But the President has decided that the Chinese can buy them.
Speaker 11: But that's in a balanced way with the Chinese delivering
Speaker 11: on the deal that we made with them, and they're
Speaker 11: delivering rare earths to American manufacturers.
Speaker 4: So when you sit across from Chinese counterparts next week,
Speaker 4: what do you plan to discuss with them? Is loosening
Speaker 4: export controls?
Speaker 5: More export controls on the table.
Speaker 11: I think what we talk about is there's a line
Speaker 11: right below the line. We are giant economies. We should
Speaker 11: trade with each other. Right, they want to buy our produce,
Speaker 11: They want to buy our vegetables, right, they need They
Speaker 11: don't grow everything. They don't have the bread basket of
Speaker 11: America that we have, so they want to buy those products.
Speaker 11: And you know what, there's lots of things that they
Speaker 11: make that we want to buy that we want inexpensive
Speaker 11: things on our shelves.
Speaker 5: So let's talk below the line.
Speaker 11: Let's open the market better in China and let us
Speaker 11: sell more things in China. And then at the line
Speaker 11: where we're competitive. You know where is that line? Where
Speaker 11: above that line, they're not going to sell us their
Speaker 11: hypersonic missiles and we're not selling them our best chips.
Speaker 11: Those two things are not happening because they're a competitor.
Speaker 11: They are a competitor, and what we're really going to
Speaker 11: discuss is where's that line? Are the h twenties above
Speaker 11: the line below the line? That's really nuanced and that's discussion.
Speaker 11: But of course would we like to buy baby clothes
Speaker 11: that are inexpensive? Of course we would figure that makes
Speaker 11: perfect sense. So let's open the market down here, right,
Speaker 11: We're never opening the market up here, And what do
Speaker 11: we discuss?
Speaker 5: We discussed that line.
Speaker 11: Of what's over it and what's under it? But do
Speaker 11: we want more of this them selling it to us
Speaker 11: and not selling it to them? The president and President
Speaker 11: Sheif from China agreed that they would like to do
Speaker 11: more business there, So we're going to talk about opening
Speaker 11: their market more for things that make sense to open it.
Speaker 11: And we're really going to discuss the areas that maybe
Speaker 11: we should really be addressing.
Speaker 5: Is that yes or is that no? One area? I
Speaker 5: just want to finish on this.
Speaker 4: I'm curious if you're going to address directly because it's
Speaker 4: the commerce department and employee of yours is facing an
Speaker 4: exit ban right now from China.
Speaker 5: Do any update on this?
Speaker 11: It's unbelievable, right, so he has there was an employee
Speaker 11: of Bars He's a Chinese nasal who was working in
Speaker 11: the patent office and he went home and he was
Speaker 11: arrested and they're holding his passport.
Speaker 7: I mean, it's so.
Speaker 11: I give that to the State Department, and the State
Speaker 11: Department deals with that, but it is it is outrageous, baby,
Speaker 11: It's just outrageous, baby.
Speaker 4: Secretary Verylatina, thank you so much for your time this morning.
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