WEBVTT - What If the ‘Powell Put’ Fails? 0:00:13.520 --> 0:00:16.520 Hello, and welcome to What Goes Up, a Bloomberg weekly 0:00:16.600 --> 0:00:20.120 Markets podcast. I'm Sarah Pantzak, a reporter on the Cross 0:00:20.160 --> 0:00:22.919 Asset team, and I'm Mike Reagan, a senior editor on 0:00:22.960 --> 0:00:25.560 the Markets team. This week on the show, we're still 0:00:25.600 --> 0:00:28.320 catching our breath after what has felt like the busiest 0:00:28.480 --> 0:00:31.760 week of the year. Seriously, First, the Fed cut rates 0:00:31.840 --> 0:00:34.680 for the first time in a decade. Then Wednesday and 0:00:34.720 --> 0:00:38.520 Thursday saw more trading volume midday than at any other 0:00:38.640 --> 0:00:43.160 point in President Trump announced fresh tariffs, and on top 0:00:43.200 --> 0:00:45.839 of all of that, it's been the most hectic period 0:00:45.880 --> 0:00:48.639 of the second quarter earning season. Right. And if all 0:00:48.680 --> 0:00:51.960 of that is not crazy enough, uh, don't worry. We 0:00:52.040 --> 0:00:55.120 still will have our traditional the craziest thing I ever 0:00:55.160 --> 0:00:58.000 saw in markets this week? And Sarah, as you know, 0:00:58.040 --> 0:01:01.160 I get excited on podcast today, I'm especially excited today. 0:01:01.280 --> 0:01:03.800 And you know why why we have a new hotline, 0:01:04.080 --> 0:01:06.679 What goes Up Hotline. So if you saw something in 0:01:06.760 --> 0:01:10.600 crazy in markets, please give us a ring and leave 0:01:10.640 --> 0:01:13.040 a voicemail with what you saw. Sarah, I of course 0:01:13.080 --> 0:01:15.040 forgot the number. Hopefully you have the number handing, Oh 0:01:15.120 --> 0:01:17.240 have it on hand. I memorized it already it's six 0:01:17.400 --> 0:01:21.479 or six three two four three four nine zero, So 0:01:21.720 --> 0:01:23.760 feel free to give us a call, leave us a 0:01:23.840 --> 0:01:26.720 voicemail of the craziest things that you guys have seen 0:01:26.760 --> 0:01:29.400 in markets, and if it's good enough, maybe we will 0:01:29.480 --> 0:01:31.759 even play it on the show. That's right, Well, two 0:01:31.800 --> 0:01:34.440 things that are not crazy are two guests this week. 0:01:37.120 --> 0:01:40.080 First guest is joining us from Footstee Russell. He's the 0:01:40.160 --> 0:01:44.000 managing director of Global market Research, Alec Young. Welcome to 0:01:44.040 --> 0:01:46.520 the show. A great to be here, guys, And also 0:01:46.640 --> 0:01:50.280 joining us from Bloomberg Television. He's an achorman and a reporter. 0:01:50.840 --> 0:01:53.240 Romaine Bostic and Sarah. I just want to paint a 0:01:53.240 --> 0:01:55.480 picture for the listeners who don't watch TV. I think 0:01:55.640 --> 0:01:58.760 Romaine is widely considered the best stress man on on Bloomberg, 0:01:59.280 --> 0:02:02.600 no doubt. Actually like I try, I try. We don't 0:02:02.640 --> 0:02:05.080 have a hotline on our show, though, I'm already to 0:02:05.440 --> 0:02:07.560 you know, two minutes into this podcast and I'm already jealous. 0:02:07.560 --> 0:02:14.120 You're gonna have a bigger budget, not a bigger clothing budget. 0:02:14.160 --> 0:02:16.520 I'll tell you that a Romaine dresses like he belongs 0:02:16.520 --> 0:02:18.640 on TV. I dressed like I should be selling TVs 0:02:18.680 --> 0:02:21.239 down at the mall, you know, like, hey, how about 0:02:21.240 --> 0:02:25.440 a six an zenith for you? Anyway, we got notes 0:02:25.480 --> 0:02:28.680 from Alec and his people about, you know, some of 0:02:28.720 --> 0:02:32.560 the research and stuff he's been up to recently. I 0:02:32.600 --> 0:02:34.359 gotta say he really nailed it. I gotta give you 0:02:34.360 --> 0:02:36.079 a round of appause, Alec. I just want to read 0:02:36.120 --> 0:02:38.560 a couple of the talking points from from your notes here. Now, 0:02:38.680 --> 0:02:41.799 remember this is a week where the Fed cut rates, 0:02:42.080 --> 0:02:47.400 but uh, did not really signal a full on easing campaign. Uh. 0:02:47.440 --> 0:02:50.320 You know, Powell referred to it as a mid cycle 0:02:50.360 --> 0:02:52.960 adjustment kind of signaling maybe one or two cuts, not 0:02:53.040 --> 0:02:56.880 a full blown easing campaign. That disappointed a lot of people. 0:02:57.080 --> 0:03:01.200 The next day we got President up announcing new TIFFs. 0:03:01.480 --> 0:03:03.600 Let me just read you some of the notes Alec 0:03:03.680 --> 0:03:08.000 wrote before all this happened. Uh. One, don't confuse the 0:03:08.040 --> 0:03:12.040 recent US China trade truths within all clear and clearly 0:03:12.040 --> 0:03:17.400 it's not check. And also, markets maybe over extrapulating both 0:03:17.400 --> 0:03:19.320 how much the Fed will ease and how much it 0:03:19.360 --> 0:03:23.800 will help. Now they definitely over extrapolated how much power 0:03:23.880 --> 0:03:26.359 is planning to ease. Now, the question is how much 0:03:26.360 --> 0:03:27.959 will it really help? Is that sort of a top 0:03:28.000 --> 0:03:30.600 of mind thing for you, Alec is you know, will 0:03:30.639 --> 0:03:35.000 these race cuts really be what the market needs to see? 0:03:35.040 --> 0:03:37.640 This data economic data firm up? Yeah. I mean I 0:03:37.680 --> 0:03:40.080 think the markets have been such a one way bet 0:03:40.280 --> 0:03:43.960 for for months, um really buoyed by this idea that 0:03:44.120 --> 0:03:47.280 of the power put and fundamentals are a little bit shaky, 0:03:47.320 --> 0:03:49.520 but it's okay. You know, the Fed's got our back 0:03:49.840 --> 0:03:52.200 that you really have to scrutinize, you know, kid, the 0:03:52.200 --> 0:03:54.440 market be over extrapolating things. And I think on a 0:03:54.480 --> 0:03:58.000 couple of fronts, One, will the Fed just numerically cut 0:03:58.040 --> 0:04:00.720 as much as expected? If we look at Fed fund futures, 0:04:00.760 --> 0:04:03.200 they're still pricing in about one eight on the two 0:04:03.240 --> 0:04:06.320 year note in a year versus there are the two 0:04:06.400 --> 0:04:08.280 year notes at one a d excuse me, and the 0:04:08.280 --> 0:04:10.280 Fed funds is two and a quarter. So the markets 0:04:10.320 --> 0:04:13.400 pricing in about forty five basis points of additional easing 0:04:13.680 --> 0:04:16.040 over the next year. So that's that's two more cuts. 0:04:16.080 --> 0:04:19.280 And and I think Gairman Powell's statements were more like 0:04:19.600 --> 0:04:22.240 we did an insurance cut, we're gonna watch. We're not 0:04:22.320 --> 0:04:25.200 ruling out further cuts, but don't confuse this with you know, 0:04:25.600 --> 0:04:29.279 a month after month rate cutting cycle, So the market 0:04:29.320 --> 0:04:31.039 may have gotten a little ahead of not only the 0:04:31.080 --> 0:04:33.640 amount of the cuts, but then, as you said, what's 0:04:33.680 --> 0:04:37.960 the impact, because things like housing will respond very favorably 0:04:38.000 --> 0:04:41.240 to lower rates, a lot of the traditional economic metrics will, 0:04:41.640 --> 0:04:45.400 but a lack of capex due to trade related anxiety. 0:04:45.440 --> 0:04:48.600 I'm not sure that that's the kind of metric you know, 0:04:48.880 --> 0:04:52.000 um CEO CFO competence. I'm not sure that that's the 0:04:52.080 --> 0:04:55.960 kind of metric that is as sensitive to modest reduction 0:04:56.040 --> 0:04:58.880 in the FED funds rates. So, given how much markets 0:04:58.880 --> 0:05:01.800 have run on the back of one positive catalyst, there's 0:05:01.920 --> 0:05:04.800 quite a bit to lose if the markets maybe overshot 0:05:04.800 --> 0:05:07.560 at skis a little bit on the positive impacts there, Alec, 0:05:07.600 --> 0:05:10.480 you've also called this a quote unquote show me market. 0:05:11.120 --> 0:05:12.680 Some of the latest data that we've got and has 0:05:12.760 --> 0:05:15.560 been some of the I s M data which came in, 0:05:16.560 --> 0:05:19.600 it wasn't It wasn't great by any means. Mis expectations 0:05:19.640 --> 0:05:23.200 still not in contractionary territory prices paid or lower as 0:05:23.279 --> 0:05:25.520 well at this point in time for it to be 0:05:25.640 --> 0:05:29.479 a show me market, now that trade is back in 0:05:29.560 --> 0:05:31.839 play and people are waiting for the Fed to ease. 0:05:32.400 --> 0:05:35.960 Is it better if economic data is good but not 0:05:36.120 --> 0:05:39.120 that good or at this point do you need a 0:05:39.160 --> 0:05:42.280 little bit rougher rougher economic dad to come out. Yeah. 0:05:42.279 --> 0:05:45.000 I think in the current macroeconomic environment, it is safe 0:05:45.040 --> 0:05:48.719 to say that bad economic news may be interpreted in 0:05:48.760 --> 0:05:52.760 a positive way by investors, given that, you know, additional 0:05:52.839 --> 0:05:56.360 FED easing is so important to the macro backdrop right now. 0:05:56.600 --> 0:05:59.080 We even saw that with the latest I S M report. 0:05:59.120 --> 0:06:01.880 It was a little soft and stocks actually welcome that news, 0:06:02.000 --> 0:06:05.760 so that we're in a very tricky environment right now. 0:06:05.839 --> 0:06:08.400 I call it a show me market because we've run 0:06:08.480 --> 0:06:12.240 up so much on hope versus actual you know, fundamental facts. 0:06:12.480 --> 0:06:16.839 The global leading economic indicators are soft. Earnings growth. While 0:06:16.880 --> 0:06:19.120 coming in better than expect it is still pretty weak. 0:06:19.160 --> 0:06:22.719 It's only up low single digits year over year. Valuations 0:06:22.760 --> 0:06:26.320 aren't through the roof, but we're about seventeen eighteen times 0:06:26.360 --> 0:06:29.760 forward earnings, So you need to see investors want to 0:06:29.960 --> 0:06:33.919 show me these great profits because on trailing earnings the 0:06:33.920 --> 0:06:36.880 markets much more expensive. So um, I think we're in 0:06:36.920 --> 0:06:39.719 that that show me phase. To really build on this rally, 0:06:39.800 --> 0:06:42.799 we need to see that investors positive hopes are coming 0:06:42.839 --> 0:06:46.560 to fruition that their their hopes are being fulfilled. Now, Romane, 0:06:46.600 --> 0:06:48.520 you spend a good part of your day talking to 0:06:48.720 --> 0:06:52.640 really smart investors, analysts, strategies. What is sort of the 0:06:53.880 --> 0:06:56.359 consensus out there is what Alec is saying? Does that 0:06:56.480 --> 0:06:58.440 ring true to to what a lot of the people 0:06:58.480 --> 0:07:00.360 you're hearing from? You know, what is sort of the 0:07:00.839 --> 0:07:04.040 what's the word on the street from Romans? Well, I 0:07:04.040 --> 0:07:06.240 think a lot of people. I mean, the cut itself 0:07:06.440 --> 0:07:09.120 wasn't really a disappointment. I think most people weren't really 0:07:09.160 --> 0:07:11.800 expecting more than that. But I definitely think the communication 0:07:11.800 --> 0:07:15.240 that we got during the press conference, Uh, you know, 0:07:15.280 --> 0:07:17.760 it created a lot more confusion. Uh, there were a 0:07:17.760 --> 0:07:20.040 lot of folks banking on this idea that we were 0:07:20.080 --> 0:07:22.200 that this was more than an assurance cut that we 0:07:22.200 --> 0:07:25.600 were embarking on, uh a little bit more of a prolonged, 0:07:25.720 --> 0:07:29.600 if even short, but still prolonged easing cycle. Remember the 0:07:29.640 --> 0:07:32.320 communication that we were getting out of FED members even 0:07:32.320 --> 0:07:36.640 in July Bullard clarata or early July was pretty much 0:07:36.680 --> 0:07:38.880 made it clear that we could potentially get, first of all, 0:07:38.920 --> 0:07:41.440 more than twenty five basis points in one fell swoop 0:07:41.520 --> 0:07:42.880 but that we were released going to get more than 0:07:42.880 --> 0:07:45.040 twenty five basis points this year. So a lot of 0:07:45.080 --> 0:07:48.320 people walked away from Wednesday's press conference with this sense 0:07:48.400 --> 0:07:50.520 of or confusion, I should say, of whether we were 0:07:50.520 --> 0:07:53.320 going to get maybe another twenty five basis points later 0:07:53.360 --> 0:07:55.760 in this year. Something in the market is largely priced 0:07:55.760 --> 0:07:57.600 in not only a twenty five, but really they've been 0:07:57.640 --> 0:08:00.400 They were pricing in about thirty basis points uh prior 0:08:00.440 --> 0:08:02.920 to the meeting, uh, and then once the meeting ended, 0:08:02.960 --> 0:08:05.120 you kind of saw a lot of fluctuations as people 0:08:05.160 --> 0:08:07.120 were trying to figure it out. I don't know if 0:08:07.160 --> 0:08:08.640 and I want to go back to a point that 0:08:08.680 --> 0:08:10.680 Alec made too about just sort of the impact of 0:08:10.720 --> 0:08:13.440 the rate cut, because there was this sense to that, 0:08:13.920 --> 0:08:16.400 what is Powell really trying to do here? If this 0:08:16.560 --> 0:08:21.320 was about a reigniting inflation or reigniting inflation expectations, he 0:08:21.360 --> 0:08:23.720 clearly failed on that level, at least in the short term. 0:08:23.920 --> 0:08:27.040 If this is about sort of reigniting business confidence, which is, 0:08:27.280 --> 0:08:29.600 let's face it, probably the weak spot of the economy 0:08:29.720 --> 0:08:33.240 right now, what does twenty five basis points do for capex? 0:08:33.280 --> 0:08:35.360 I mean, cost a capital hasn't been really an issue 0:08:35.520 --> 0:08:38.200 for companies. This is a confidence game for companies right now, 0:08:38.360 --> 0:08:41.080 and the confidence really has nothing to do with the FED. 0:08:41.120 --> 0:08:42.400 It has to do with what's going on in the 0:08:42.440 --> 0:08:45.400 White House. And I'm not sure that monetary policy can 0:08:45.440 --> 0:08:47.920 fix that, you know, Alec. A lot of people are 0:08:48.120 --> 0:08:52.560 clearly making the connection to the mid nineties, when the 0:08:52.640 --> 0:08:55.680 mid cycle adjustments from the FED a few two or 0:08:55.720 --> 0:08:59.800 three rate cuts to sort of, uh, you know, react 0:08:59.840 --> 0:09:02.720 to the Asian financial crisis, long term capital management, that 0:09:02.760 --> 0:09:05.240 type of thing. Do you see that parallel in this case? 0:09:05.280 --> 0:09:08.200 I mean, is that a valid comparison to make? I think, 0:09:08.440 --> 0:09:10.959 to really to know if if just one or two 0:09:10.960 --> 0:09:13.320 insurance cuts is all we need, you kind of have 0:09:13.400 --> 0:09:15.199 to have the answer to how does the whole trade 0:09:15.240 --> 0:09:19.080 situation play out? How does the deterioration in Europe and China? 0:09:19.400 --> 0:09:21.640 You know, is that about to bottom or is it 0:09:21.720 --> 0:09:24.760 just sort of getting started. There's a lot of unknowns, 0:09:24.800 --> 0:09:27.920 and I think, um, you know, sometimes people do a 0:09:27.960 --> 0:09:30.520 few things when they read the FED tea leaves One 0:09:30.600 --> 0:09:33.240 they I think, over extrapolate how much more the FED 0:09:33.320 --> 0:09:35.559 knows than the rest of us. Not to take anything 0:09:35.600 --> 0:09:37.200 away from them, but at the end of the day. 0:09:37.040 --> 0:09:39.680 They all have their Bloomberg terminals and they're doing what 0:09:39.760 --> 0:09:42.560 a lot of professional investors that scrutinize them so closely 0:09:42.559 --> 0:09:47.800 and reporters are doing so. You know, they're not omniscient scions, right, UM. 0:09:47.840 --> 0:09:50.440 And the second thing is, I think, unfortunately Chairman Powell 0:09:50.559 --> 0:09:54.680 seems to be maybe overly sensitive to the markets when 0:09:54.679 --> 0:09:57.360 the markets were very volatile. The more volatile the markets are, 0:09:57.640 --> 0:10:00.840 the more devishes commentary just in currently seems to be 0:10:01.120 --> 0:10:03.520 markets had recovered. To get him in front of the microphone, 0:10:03.679 --> 0:10:05.880 he doesn't sound as dublished. I think that seems to 0:10:05.920 --> 0:10:09.160 be the pattern. He's he's very he he's not a 0:10:09.760 --> 0:10:13.520 PhD economis. He comes from a market background, very popular 0:10:13.640 --> 0:10:16.080 in the in the financial community. I think, more in 0:10:16.160 --> 0:10:19.600 tune with market dynamics than maybe some of his predecessors, 0:10:19.640 --> 0:10:23.360 less of a formally trained economist. UM. So I'm very 0:10:23.400 --> 0:10:27.360 confident that UM, if we need further insurance cuts, the 0:10:27.400 --> 0:10:31.000 FED will be there to deliver them. The problem I 0:10:31.360 --> 0:10:33.880 don't think. I think the market was getting comfortable today 0:10:33.880 --> 0:10:36.960 with the idea that the UM, the FED is still 0:10:37.040 --> 0:10:39.960 has their back, even though the communication post meeting could 0:10:39.960 --> 0:10:42.120 have been a little bit better. The wild card here 0:10:42.240 --> 0:10:45.280 is trade, which people thought was on the back burner. 0:10:45.320 --> 0:10:48.319 They're continuing to talk no imminent breakthrough, but it's not. 0:10:48.760 --> 0:10:52.960 It's not deteriorating. That's obviously changed. Um So, I think 0:10:53.040 --> 0:10:54.800 I think it's really it's not so much on the 0:10:54.800 --> 0:10:57.760 insurance side. It's on the growth side of the ledger 0:10:57.920 --> 0:11:00.440 that investors are are struggling a little bit now. You know, 0:11:00.520 --> 0:11:02.720 I wonder if you sort of put yourself in the 0:11:02.760 --> 0:11:07.760 shoes of Jeromee pal Uh and even if you're thinking, well, 0:11:08.360 --> 0:11:11.360 we really are going to do a full on easing campaign, 0:11:12.080 --> 0:11:15.360 is there a danger in signaling that right away? I mean, 0:11:15.800 --> 0:11:16.920 is it the type of thing if you have a 0:11:17.000 --> 0:11:19.079 hungry kid in front of you and you're trying to 0:11:19.080 --> 0:11:21.040 get them neath the their broccoli, you don't want to 0:11:21.120 --> 0:11:23.080 let them know that there's ice cream coming up behind it, 0:11:23.160 --> 0:11:25.440 right I mean? Is it is there a danger in 0:11:25.800 --> 0:11:28.080 cutting a quarter point now and signaling more to come 0:11:28.080 --> 0:11:30.920 where it's sort of differs that behavior that you're trying 0:11:30.960 --> 0:11:33.400 to influence down the line. It can be self fulfilling, 0:11:33.440 --> 0:11:36.280 and there's always that risk that the markets will think, well, 0:11:36.320 --> 0:11:38.480 maybe the Fed knows something we don't. Maybe it's worse 0:11:38.480 --> 0:11:41.679 than we thought. It can also you know, give false 0:11:41.679 --> 0:11:44.199 incentives and get people to take you know, undue risk 0:11:44.280 --> 0:11:47.079 in the market. So you know, there's no perfect answer. 0:11:47.360 --> 0:11:49.880 But I think the bottom line is that for most 0:11:49.880 --> 0:11:52.200 of this year, the trend and risk assets has been 0:11:52.320 --> 0:11:55.160 up because the feeling has been that the Fed is 0:11:55.160 --> 0:11:58.040 going to be very supportive. I think now the narrative 0:11:58.040 --> 0:12:01.520 is shifting to growth risks. The focus is squarely on 0:12:01.679 --> 0:12:06.840 US China trade. Both sides wanna save faced domestically. I 0:12:06.840 --> 0:12:09.480 don't see China backing down from this latest news from 0:12:09.480 --> 0:12:11.960 the President. So if we don't see that, if they 0:12:12.000 --> 0:12:15.200 don't try to diffuse this, the next conclusion is, well, 0:12:15.240 --> 0:12:19.640 maybe they do something confrontational. How would the markets take that. 0:12:19.720 --> 0:12:23.040 I think, given the markets have really priced in global 0:12:23.080 --> 0:12:26.600 growth is bottoming, trade will be favorably resolved largely because 0:12:26.640 --> 0:12:29.640 of policy accommodation. I think that has to unwind a 0:12:29.640 --> 0:12:34.280 little bit at the margin. Policy accommodation underwhelmed the little 0:12:34.320 --> 0:12:37.800 The Feds a little less deverish than expected, admittedly from 0:12:37.800 --> 0:12:40.800 a that's relative to very devish expectations, and on the 0:12:40.840 --> 0:12:43.560 trade front, clearly things are a little worse than expected. 0:12:43.640 --> 0:12:46.840 So it's sort of a double whammy for for risk assets, 0:12:46.880 --> 0:12:50.800 whether it's equities, US are globally, probably more so globally, 0:12:50.840 --> 0:12:53.160 a bigger negative globally where they have less of a 0:12:53.200 --> 0:12:56.680 strong consumer to playoff. And for credit um, for high 0:12:56.720 --> 0:13:00.480 things like high yield, it's really um. It's really an 0:13:00.559 --> 0:13:03.560 incremental negative. Your insurance isn't as strong as you thought 0:13:03.559 --> 0:13:05.679 it was going to be, and the risks the reason 0:13:05.720 --> 0:13:07.960 you need that insurance is a little greater than you 0:13:07.960 --> 0:13:09.839 thought it was gonna be. When we came into the 0:13:09.880 --> 0:13:12.480 office Thursday morning, the probability of a rate cut for 0:13:12.520 --> 0:13:17.360 September was around Then President Trump dropped the tweets saying 0:13:17.400 --> 0:13:21.160 that tariffs on three billion dollars of extra imports from 0:13:21.240 --> 0:13:24.240 China we're going to go up to as September one, 0:13:24.320 --> 0:13:29.280 and that probability shot up to more than romaine. How 0:13:29.280 --> 0:13:33.280 do you see the relationship between trade and the Fed 0:13:33.480 --> 0:13:35.920 playing out here? Well, I mean, the market was largely 0:13:36.000 --> 0:13:39.560 pricing in this idea that the best case scenario, and 0:13:39.600 --> 0:13:42.880 part of that best case scenario was predicated on two things. 0:13:43.000 --> 0:13:45.400 Is that the FED would be there as a backstop 0:13:45.600 --> 0:13:49.000 quickly if things really went south, and that the trade 0:13:49.040 --> 0:13:52.040 dispute is still largely in the hands of one man 0:13:52.280 --> 0:13:54.520 who could turn on a dime tomorrow if you really 0:13:54.520 --> 0:13:57.000 wanted to and resolve this. And so there was always 0:13:57.040 --> 0:13:59.959 this this sort of faith that the President would only 0:14:00.040 --> 0:14:02.520 go so far that if the markets, uh, you know, 0:14:02.600 --> 0:14:04.760 got two out of whack, where the economy was getting 0:14:04.760 --> 0:14:06.760 too out of whack from the trade war, that somehow 0:14:06.800 --> 0:14:09.840 Trump would pivot. Now, I think that might have been 0:14:09.880 --> 0:14:11.920 a little bit wishful thinking, and I think somewhat of 0:14:11.920 --> 0:14:14.720 the reaction that you're seeing in the market right now 0:14:14.920 --> 0:14:16.440 is this idea that they are going to try to 0:14:16.480 --> 0:14:18.800 test the FED. They are going to try to test uh, 0:14:18.880 --> 0:14:21.760 the White House and and and the legislators as well, 0:14:22.120 --> 0:14:24.760 uh to sort of, you know, create some sort of 0:14:24.800 --> 0:14:27.400 resolution to all of this. And I think this tantrum 0:14:27.440 --> 0:14:29.800 that you could potentially see in this market has the 0:14:29.840 --> 0:14:33.360 potential to sort of create a really bizarre feedback loop 0:14:33.600 --> 0:14:36.080 where Powell and companies sort of still have to sort 0:14:36.080 --> 0:14:38.120 of look at the data and not really sort of 0:14:38.160 --> 0:14:39.960 just give in and you know, give the market their 0:14:40.000 --> 0:14:42.720 pacifier every time they start whining. But at the same 0:14:42.760 --> 0:14:45.240 time you have to understand that right now, this economy 0:14:45.560 --> 0:14:48.280 is and the markets are intertwined in a way that 0:14:48.360 --> 0:14:50.520 I don't think we've really seen, at least in sort 0:14:50.520 --> 0:14:52.880 of you know, this current generation. Now it's a great 0:14:52.880 --> 0:14:54.960 point because when you think of how we started the week, 0:14:55.360 --> 0:14:57.960 it was with some Trump tweets about oh, maybe this 0:14:58.000 --> 0:15:00.480 won't be resolved until after the election, and they'll they'll 0:15:00.520 --> 0:15:03.240 deal with sleepy Joe Biden. What do you think that's 0:15:03.240 --> 0:15:05.920 just posturing or yeah, you know, I don't know what 0:15:06.040 --> 0:15:08.040 China's position is, but but I can tell you, I mean, 0:15:08.040 --> 0:15:10.800 I think Trump has made it clear what he wants. 0:15:11.000 --> 0:15:12.880 I also think you can read from the t leaves 0:15:12.960 --> 0:15:16.360 with regards to the Trump administration that they are in 0:15:16.400 --> 0:15:18.160 tune to what's going on in the markets. They are 0:15:18.200 --> 0:15:20.360 in tune to what's going on with the economy, and 0:15:20.400 --> 0:15:23.600 that potentially they would make some sort of concessions if 0:15:23.640 --> 0:15:26.000 they thought that the damage was going to be severe 0:15:26.120 --> 0:15:29.960 enough to damage the economy and obviously damage Trump's re 0:15:30.080 --> 0:15:48.440 election champers to switch gears a little bit. Uh Roman. 0:15:48.520 --> 0:15:50.520 One of the things I don't envy you is when 0:15:50.640 --> 0:15:53.640 an earnings report comes out and you're reading it live 0:15:53.680 --> 0:15:55.840 on TV. They're trying to trying to make the sense 0:15:55.840 --> 0:15:58.720 out of headlines on an earnings release right as they hit. 0:15:59.000 --> 0:16:00.640 But I'm curious if you if you step back a 0:16:00.680 --> 0:16:02.760 little bit. I mean, we have almost three quarters of 0:16:02.800 --> 0:16:05.920 the markets reported for the second quarter. Any big takeaways 0:16:05.960 --> 0:16:08.760 for you that maybe we've missed well, I mean, the 0:16:08.760 --> 0:16:12.360 big takeaway here is that we are seeing declining earnings, 0:16:12.520 --> 0:16:18.080 uh period declining earnings. We're seeing declining revenue growth. Uh. 0:16:18.120 --> 0:16:20.400 These companies are still growing, and I think you're seeing 0:16:20.400 --> 0:16:22.720 sort of almost sort of a you know, this sort 0:16:22.720 --> 0:16:25.480 of corner being sort of uh notched out into the 0:16:25.520 --> 0:16:28.000 market where you have companies that are still able to grow, 0:16:28.040 --> 0:16:30.600 they still have a healthy demand from their customer base. 0:16:30.840 --> 0:16:33.160 That's where investors are flocking to. But I don't think 0:16:33.160 --> 0:16:35.640 you see a lot of confidence amongst investors in a 0:16:35.640 --> 0:16:38.240 lot of these earnings releases that this is something that 0:16:38.360 --> 0:16:40.760 is sustainable. And I'm just talking about an aggregate. There 0:16:40.760 --> 0:16:43.600 are there are some clear exceptions to this, but an aggregate. 0:16:43.760 --> 0:16:45.520 And I think that's why you're seeing this sort of 0:16:45.600 --> 0:16:48.680 rotation into defensive and then back into cilic and then 0:16:48.680 --> 0:16:51.040 back in defensive, because people are really trying to figure 0:16:51.080 --> 0:16:53.640 it out, you know, so we're half almost halfway through 0:16:53.680 --> 0:16:55.560 the earning season, and I think you have a clearer 0:16:55.600 --> 0:16:57.800 picture that this sort of rebound that a lot of 0:16:57.800 --> 0:17:00.240 people are expecting in the second half of the year, 0:17:00.840 --> 0:17:03.320 if it does materialize, it's certainly not going to be 0:17:03.360 --> 0:17:05.840 as strong as some thought in the first half. You 0:17:05.880 --> 0:17:07.639 look at the performance that we've seen this week, and 0:17:07.680 --> 0:17:09.840 it's clear that defensives are back at the driving seat. 0:17:09.880 --> 0:17:11.440 You look at those at the top of the leaderboard. 0:17:11.440 --> 0:17:15.520 It's real estate, it's utility, is consumers, stables, communication services, 0:17:15.840 --> 0:17:19.159 alec coming back to you. A lot of strategists year 0:17:19.160 --> 0:17:22.320 and forecast. We saw Goldman Sachs raise their forecast earlier 0:17:22.359 --> 0:17:27.119 this week. Much of that is predicated on multiple expansion 0:17:27.320 --> 0:17:33.359 valuation growth because we're not seeing it in actual corporate profits. 0:17:33.400 --> 0:17:36.560 Seeing where everything with the trade situation is going, and 0:17:36.640 --> 0:17:39.640 seeing the situation that we have with the FED as 0:17:39.680 --> 0:17:45.399 it stands, do you see multiple expansion growing even further 0:17:45.480 --> 0:17:48.600 from where we're at now, not based on the current 0:17:48.640 --> 0:17:52.040 macro environment. So something would have to give, most specifically 0:17:52.160 --> 0:17:55.840 on trade. I think the one thing we should focus 0:17:55.880 --> 0:17:58.080 on and maybe tying into what romains are saying about 0:17:58.080 --> 0:18:01.280 the earning season is that the increase on September one, 0:18:01.760 --> 0:18:04.240 a new ten percent tariff on three hundred billion and 0:18:04.280 --> 0:18:09.920 currently untariffed Chinese imports will be immediately um diluted to earnings. 0:18:09.960 --> 0:18:13.399 So we have a situation where companies manage the earnings process. 0:18:13.400 --> 0:18:16.200 They're beating expectations by about two or three hundred basis points, 0:18:16.240 --> 0:18:19.479 which they do on average every quarter. The problem is 0:18:19.560 --> 0:18:23.879 that the consensus numbers out the fourth quarter, first quarter. 0:18:23.920 --> 0:18:26.160 They're kind of like icebergs. They tend to melt. As 0:18:26.200 --> 0:18:27.600 you get within a couple of months, you have a 0:18:27.600 --> 0:18:29.880 better sense of a realistic number. You know it will 0:18:29.920 --> 0:18:32.920 be beaten if you apply that type of analysis. We're 0:18:32.960 --> 0:18:36.880 in a five six percent at best earnings growth environment 0:18:36.920 --> 0:18:39.760 here and we're trading at seventeen and a half times 0:18:40.200 --> 0:18:43.480 with with the the earnings numbers naturally tend to go 0:18:43.560 --> 0:18:46.240 down for numbers as analysts get more realistic and advise them. 0:18:46.359 --> 0:18:50.400 You put the tariff um macro dilution on top of that. 0:18:50.720 --> 0:18:53.560 No way you're gonna get multiple expansion. You're getting multiple 0:18:53.560 --> 0:18:56.800 expansion when people are thinking, oh, the Fed's gonna cut, 0:18:56.800 --> 0:18:59.879 the macro is going to improve, that's over FED is 0:19:00.119 --> 0:19:03.960 disappointing or at least a poor communicator, and the macro 0:19:04.240 --> 0:19:08.719 is visibly deteriorating now via Twitter. Right, no, no, no, 0:19:08.760 --> 0:19:11.159 you're not. We We took three cracks at thirty and 0:19:11.160 --> 0:19:14.120 a quarter on the SMP and couldn't break it before 0:19:14.240 --> 0:19:16.840 this latest that we're we're done. I mean, whether we 0:19:16.880 --> 0:19:20.800 can drop back, consolidate, recharge and take another shot. You know, 0:19:20.840 --> 0:19:22.639 we all know in this business things could look very 0:19:22.640 --> 0:19:25.160 different in October November. So I think you're in targets 0:19:25.160 --> 0:19:27.440 are a little bit of of a fool's earned and 0:19:27.480 --> 0:19:29.240 but but I think Goldman would probably want to have 0:19:29.280 --> 0:19:32.000 that one back. Yeah, maybe a little bit of bad timing. 0:19:32.080 --> 0:19:34.680 But looking even deeper to this next chaunch of terras, 0:19:34.760 --> 0:19:37.439 sure it's ten percent, which is a lesser rate than 0:19:37.480 --> 0:19:40.280 the percent that we've seen on the two fifty billions 0:19:40.320 --> 0:19:45.200 so far. But considering that this next list, the three billion, 0:19:45.320 --> 0:19:47.760 is going to be more so on consumer good, does 0:19:47.800 --> 0:19:50.840 a ten percent rate on that larger amount worry you 0:19:50.960 --> 0:19:54.000 more than we've seen so far. As you said, it's 0:19:54.000 --> 0:19:57.000 going to be more consumer centric. Apple doesn't have an 0:19:57.040 --> 0:19:59.240 exemption as of yet, and we know air pods and 0:19:59.280 --> 0:20:02.719 wearables were big part of um, you know, their their growth, 0:20:02.920 --> 0:20:05.600 and that's the kind of thing that gets that gets hit. 0:20:05.840 --> 0:20:07.840 So on the other thing is the president is the 0:20:07.880 --> 0:20:11.400 ultimate poker players. So it's ten percent now there's currently 0:20:12.359 --> 0:20:16.080 in place on the old money imports that were being tariffed. 0:20:16.280 --> 0:20:18.600 He's leaving himself room to go to twenty five on 0:20:18.680 --> 0:20:21.760 the new batch, you know, in the next round of 0:20:21.760 --> 0:20:24.719 of of poker, of betting as it were. So just 0:20:24.800 --> 0:20:27.280 because we're only going to ten now doesn't mean that 0:20:27.320 --> 0:20:30.920 the final resting stop isn't um isn't twenty five. I mean, 0:20:30.920 --> 0:20:33.520 it's pretty clear that his people came back from the 0:20:33.640 --> 0:20:36.040