1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow. Along 3 00:00:15,440 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and am Marie Hordern join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,080 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Joining us now 10 00:00:37,159 --> 00:00:39,920 Speaker 2: the former senior Trum Trade advisor Kelly. I'm Shaw Kelly, 11 00:00:40,000 --> 00:00:42,320 Speaker 2: and welcome back to the program. The Press Secretary says 12 00:00:42,400 --> 00:00:44,920 Speaker 2: it will work. Our question is what will work? What 13 00:00:45,120 --> 00:00:46,640 Speaker 2: is the ultimate objective? 14 00:00:47,680 --> 00:00:50,599 Speaker 3: Well, good morning, as I'm saying to most of my clients, 15 00:00:50,680 --> 00:00:52,040 Speaker 3: Happy Liberation. 16 00:00:51,680 --> 00:00:54,800 Speaker 4: Day to those who observe, the truth is, we don't know. 17 00:00:54,840 --> 00:00:57,000 Speaker 3: When I heard your last guest say that he has 18 00:00:57,040 --> 00:00:59,319 Speaker 3: said I don't know seventeen times, and I think that's 19 00:00:59,360 --> 00:01:01,520 Speaker 3: where most advisors are at the moment. 20 00:01:01,920 --> 00:01:03,880 Speaker 4: It could be a number of actions. It could be 21 00:01:03,920 --> 00:01:04,800 Speaker 4: anything from. 22 00:01:04,920 --> 00:01:08,560 Speaker 3: Reciprocal tariffs where a series of countries have a number 23 00:01:08,800 --> 00:01:12,080 Speaker 3: that's assigned to them that represents their tariff and non 24 00:01:12,120 --> 00:01:15,720 Speaker 3: tariff barriers. It could be a global sweeping tariff, or 25 00:01:15,720 --> 00:01:17,480 Speaker 3: it could be some mix in between. 26 00:01:18,080 --> 00:01:20,960 Speaker 5: Kellyan, what is the goal of these tariffs? What is 27 00:01:21,000 --> 00:01:22,840 Speaker 5: the president leaning on at the moment? Because we heard 28 00:01:22,840 --> 00:01:24,960 Speaker 5: that they're supposed to be revenue raisers, and at the 29 00:01:25,000 --> 00:01:27,240 Speaker 5: same time, in the next breath, we hear people from 30 00:01:27,240 --> 00:01:30,120 Speaker 5: thedministration say that he wants to cut deals with some 31 00:01:30,240 --> 00:01:31,080 Speaker 5: trading partners. 32 00:01:32,440 --> 00:01:32,720 Speaker 6: Yeah. 33 00:01:32,959 --> 00:01:37,160 Speaker 3: From my perspective, I think the president has two primary objectives. 34 00:01:37,319 --> 00:01:41,080 Speaker 3: So first is to address the long standing trade deficit, 35 00:01:41,440 --> 00:01:44,400 Speaker 3: that trillion dollar trade deficit that the United States has 36 00:01:44,480 --> 00:01:47,800 Speaker 3: with a number of countries around the world and predominantly 37 00:01:47,800 --> 00:01:52,400 Speaker 3: coupled in about fifteen economies. The second goal is really 38 00:01:52,440 --> 00:01:55,120 Speaker 3: about just this uneven playing field. And when I was 39 00:01:55,160 --> 00:01:57,400 Speaker 3: in the first Trump administration, I heard him talk about 40 00:01:57,400 --> 00:01:59,200 Speaker 3: this all the time, the fact that it was just 41 00:01:59,240 --> 00:02:02,880 Speaker 3: fundamentally unfair that other countries had higher tariffs than the 42 00:02:03,000 --> 00:02:05,520 Speaker 3: United States, And so I think he's looking to level 43 00:02:05,560 --> 00:02:09,040 Speaker 3: the playing field. Now he does talk about revenue as well, 44 00:02:09,120 --> 00:02:11,800 Speaker 3: but to my mind, that really is a secondary concern 45 00:02:12,200 --> 00:02:14,959 Speaker 3: and I think he's really going after the brass ring, 46 00:02:15,040 --> 00:02:17,960 Speaker 3: which is to remake the global trading system and to 47 00:02:18,120 --> 00:02:22,160 Speaker 3: rebalance it in a way that more accurately reflects US interests. 48 00:02:22,360 --> 00:02:24,720 Speaker 5: If that's the goal, and having worked for him and 49 00:02:24,960 --> 00:02:28,040 Speaker 5: being a trade expert, what do you think is the 50 00:02:28,080 --> 00:02:30,600 Speaker 5: appropriate prescription we might get from the President today? 51 00:02:32,120 --> 00:02:35,040 Speaker 3: Yeah, I think that the President is likely and again 52 00:02:35,040 --> 00:02:37,880 Speaker 3: I heavily caveat this with nothing is final until the 53 00:02:37,880 --> 00:02:41,080 Speaker 3: President says it, so I think he is likely to 54 00:02:41,360 --> 00:02:44,480 Speaker 3: target those countries that are the worst defenders in terms 55 00:02:44,520 --> 00:02:47,400 Speaker 3: of tariff and non tariff barriers. We may see a 56 00:02:47,440 --> 00:02:51,000 Speaker 3: more global measure applied to the rest of the economy, 57 00:02:51,280 --> 00:02:52,880 Speaker 3: but I think he's going to be focused on those 58 00:02:52,919 --> 00:02:54,200 Speaker 3: handful of countries. 59 00:02:54,639 --> 00:02:57,600 Speaker 4: And to my mind, this kicks off a negotiation. This 60 00:02:57,720 --> 00:02:58,400 Speaker 4: is not the end. 61 00:02:58,480 --> 00:03:00,600 Speaker 3: This is not the certainty that I know a number 62 00:03:00,600 --> 00:03:03,160 Speaker 3: of businesses and the markets are looking for. I think 63 00:03:03,240 --> 00:03:05,680 Speaker 3: this gives other countries an opportunity to come to the 64 00:03:05,680 --> 00:03:08,560 Speaker 3: table and say, look, we hear your concerns. We will 65 00:03:08,600 --> 00:03:11,239 Speaker 3: cut some of these barriers too, and that the United 66 00:03:11,240 --> 00:03:13,960 Speaker 3: States and those trading partners on a bilateral basis would 67 00:03:14,000 --> 00:03:16,519 Speaker 3: begin to reciprocally lower their barriers. 68 00:03:17,000 --> 00:03:18,720 Speaker 7: Kelly. And one of the questions I got asked on 69 00:03:18,840 --> 00:03:22,000 Speaker 7: Locked outside the US is how many rounds this is 70 00:03:22,040 --> 00:03:24,840 Speaker 7: going to be? And at what point do we know 71 00:03:24,919 --> 00:03:28,679 Speaker 7: that whatever we offer sticks? How should we answer those 72 00:03:28,680 --> 00:03:29,399 Speaker 7: two questions? 73 00:03:30,280 --> 00:03:32,960 Speaker 3: Yeah, I mean, one of the features of President Trump's 74 00:03:32,960 --> 00:03:37,040 Speaker 3: negotiating strategy and his style is ambiguity, and it is 75 00:03:37,240 --> 00:03:39,680 Speaker 3: very rare to get that kind of certainty. 76 00:03:40,160 --> 00:03:41,640 Speaker 4: But what we did see play out. 77 00:03:41,560 --> 00:03:43,920 Speaker 3: During Trump one were a number of deals that were 78 00:03:43,960 --> 00:03:48,520 Speaker 3: cut and inked, including the NAFTA renegotiation which became the USMCA. 79 00:03:48,880 --> 00:03:51,680 Speaker 3: We saw the Coorus agreement renegotiated. There was a deal 80 00:03:51,720 --> 00:03:54,760 Speaker 3: with Japan, there was a deal with China. So I 81 00:03:54,840 --> 00:03:57,680 Speaker 3: do think that there is precedent for having that certainty 82 00:03:57,720 --> 00:04:01,000 Speaker 3: at the end of what will be a rocky negotiateation period. 83 00:04:01,320 --> 00:04:02,360 Speaker 4: But I do think we're. 84 00:04:02,160 --> 00:04:04,280 Speaker 3: Looking at the next several months to next couple of 85 00:04:04,360 --> 00:04:06,920 Speaker 3: years with some of those trading partners before we actually 86 00:04:06,920 --> 00:04:07,320 Speaker 3: get there. 87 00:04:07,440 --> 00:04:07,680 Speaker 8: Kelly. 88 00:04:07,800 --> 00:04:10,360 Speaker 1: And this raises execution risk, and people have talked about 89 00:04:10,360 --> 00:04:15,320 Speaker 1: this repeatedly that confidence among CEOs CFOs consumers has been 90 00:04:15,320 --> 00:04:18,160 Speaker 1: falling off a cliff amid the uncertainty that may be 91 00:04:18,279 --> 00:04:20,839 Speaker 1: a feature and may be prolonged over the next months 92 00:04:20,880 --> 00:04:24,159 Speaker 1: and years. How concerned are you about this execution risk. 93 00:04:25,200 --> 00:04:25,479 Speaker 9: Yeah. 94 00:04:25,680 --> 00:04:28,080 Speaker 3: I think two things are happening at the same time, 95 00:04:28,160 --> 00:04:30,800 Speaker 3: and they're really in opposition to one another. On the 96 00:04:30,839 --> 00:04:33,520 Speaker 3: one hand, the President is looking to reshape the global 97 00:04:33,560 --> 00:04:36,800 Speaker 3: trading system, which requires breaking a lot of glass. 98 00:04:36,520 --> 00:04:38,200 Speaker 4: And not giving his bottom line. 99 00:04:38,720 --> 00:04:41,240 Speaker 3: On the other hand, he's trying to attract investment from 100 00:04:41,320 --> 00:04:43,320 Speaker 3: businesses around the world, and. 101 00:04:43,279 --> 00:04:46,760 Speaker 4: Those two goals really require different strategies. 102 00:04:46,800 --> 00:04:49,359 Speaker 3: So the administration is trying to land the plane on 103 00:04:49,560 --> 00:04:53,760 Speaker 3: both I think in terms of execution, and the administration 104 00:04:53,839 --> 00:04:56,080 Speaker 3: has an uphill battle. They're trying to do something that's 105 00:04:56,120 --> 00:04:59,600 Speaker 3: never been done before. They're also trying to message this 106 00:04:59,680 --> 00:05:02,320 Speaker 3: to the American people, and I think that whatever President 107 00:05:02,320 --> 00:05:04,480 Speaker 3: Trump says at four pm today will be one of 108 00:05:04,520 --> 00:05:08,520 Speaker 3: the most consequential speeches of his presidency because he's effectively 109 00:05:08,560 --> 00:05:11,200 Speaker 3: going to ask the American people for a long leash 110 00:05:11,360 --> 00:05:13,800 Speaker 3: to allow him to negotiate some of these deals and 111 00:05:13,839 --> 00:05:16,480 Speaker 3: fix some of these systemic issues. So we'll have to 112 00:05:16,520 --> 00:05:17,640 Speaker 3: see how this plays out. 113 00:05:17,880 --> 00:05:19,880 Speaker 5: The Press Secretary said that some of these tarifs will 114 00:05:19,880 --> 00:05:23,800 Speaker 5: be effective immediately. So do you expect tariffs using AEPA 115 00:05:24,000 --> 00:05:26,320 Speaker 5: or Section three three eight to come out today and 116 00:05:26,360 --> 00:05:27,760 Speaker 5: begin tomorrow? 117 00:05:28,920 --> 00:05:29,160 Speaker 9: Yeah. 118 00:05:29,400 --> 00:05:31,760 Speaker 3: I think there are three types of legal authorities the 119 00:05:31,800 --> 00:05:36,040 Speaker 3: president can use to impose tariffs effectively immediately. So AIPA 120 00:05:36,160 --> 00:05:38,400 Speaker 3: is one. Section three three eight of the Trade Act 121 00:05:38,440 --> 00:05:41,119 Speaker 3: of nineteen thirty is another. And then there's also Section 122 00:05:41,200 --> 00:05:43,760 Speaker 3: one twenty two of the Trade Act of nineteen seventy four, 123 00:05:43,800 --> 00:05:46,560 Speaker 3: which is about balance of payments. So he'll certainly have 124 00:05:46,640 --> 00:05:50,080 Speaker 3: to rely on one of those. I don't know which 125 00:05:50,080 --> 00:05:52,680 Speaker 3: one the President is going to use. I tend to 126 00:05:52,720 --> 00:05:55,200 Speaker 3: think it might be IEPA, but any one of those 127 00:05:55,200 --> 00:05:58,159 Speaker 3: authorities would give him the ability to impose tariffs right away. 128 00:05:58,640 --> 00:05:58,880 Speaker 6: Now. 129 00:05:58,920 --> 00:06:01,159 Speaker 3: I will be looking to see what the executive order 130 00:06:01,240 --> 00:06:04,760 Speaker 3: actually says and whether by immediately that means exactly at 131 00:06:04,800 --> 00:06:08,280 Speaker 3: twelve oh one on April third, or whether there are 132 00:06:08,360 --> 00:06:10,960 Speaker 3: a couple of days to give importers some grace or 133 00:06:10,960 --> 00:06:13,760 Speaker 3: even a ship on the water exception, which is what 134 00:06:13,800 --> 00:06:15,040 Speaker 3: we saw on the fentanyl terraffs. 135 00:06:15,080 --> 00:06:17,200 Speaker 2: I just placed the announcement comes after the close now 136 00:06:17,400 --> 00:06:19,359 Speaker 2: and not the original three pm. The Secretary best and 137 00:06:19,360 --> 00:06:22,040 Speaker 2: guardedans towards Kelly. I appreciate your time as always the 138 00:06:22,160 --> 00:06:34,480 Speaker 2: former senior Trump trade advice at Kelly, I'm shure Binky 139 00:06:34,560 --> 00:06:38,040 Speaker 2: Shadow at Deutsche Bank, writing a credible relents on trade 140 00:06:38,040 --> 00:06:41,839 Speaker 2: policy is necessary for upside risk to materialized. The clock 141 00:06:42,400 --> 00:06:45,160 Speaker 2: is ticking. Binky joined this now for more binking of monitor. 142 00:06:45,520 --> 00:06:48,440 Speaker 2: Good morning's at seven k year end your head. 143 00:06:48,480 --> 00:06:49,280 Speaker 6: It's a long ways. 144 00:06:49,440 --> 00:06:53,280 Speaker 2: I agree, I great, just love to But if you're 145 00:06:53,279 --> 00:06:54,400 Speaker 2: still at seven, play. 146 00:06:54,279 --> 00:06:58,520 Speaker 6: The record that you know I am not bullish near term. 147 00:06:58,680 --> 00:07:04,320 Speaker 10: We expect basically this year end that's nine months out, 148 00:07:04,440 --> 00:07:07,000 Speaker 10: it's three quarters out. If you think about you know 149 00:07:07,160 --> 00:07:09,960 Speaker 10: what happens if we have sort of a mild recession, 150 00:07:10,080 --> 00:07:12,880 Speaker 10: let's say second and the third quarter. You know, the 151 00:07:13,040 --> 00:07:16,440 Speaker 10: tried and tested equities playbook would tell you that equity's 152 00:07:16,440 --> 00:07:18,640 Speaker 10: bottom in the middle of the recession. So that would 153 00:07:18,680 --> 00:07:22,200 Speaker 10: be June first, recoup all of their losses. 154 00:07:22,280 --> 00:07:24,360 Speaker 6: And that means at the point you're kidding me, but. 155 00:07:26,520 --> 00:07:29,360 Speaker 2: You think this year we could have a recession and 156 00:07:29,520 --> 00:07:30,720 Speaker 2: still end the year at seven K. 157 00:07:31,080 --> 00:07:32,559 Speaker 6: I do believe. 158 00:07:32,640 --> 00:07:35,440 Speaker 10: So if it's a mild recession, that's actually what typical 159 00:07:35,520 --> 00:07:38,760 Speaker 10: playbook would tell you. So where I would say, you know, 160 00:07:39,000 --> 00:07:43,360 Speaker 10: the pushback in your tone is really, I mean, we're 161 00:07:43,440 --> 00:07:45,720 Speaker 10: just going to happen two quarter recession. We're going to 162 00:07:45,760 --> 00:07:46,560 Speaker 10: have a recession. 163 00:07:49,080 --> 00:07:52,240 Speaker 1: Somebody who comes out has a seven thousand price target 164 00:07:52,240 --> 00:07:55,440 Speaker 1: at a time when everyone's downgrading it below fifty five hundred, 165 00:07:55,720 --> 00:07:57,480 Speaker 1: and you say, well, I'm not bullish. 166 00:07:57,600 --> 00:07:59,160 Speaker 9: You know, well, everybody else will look at it. 167 00:07:59,120 --> 00:08:01,559 Speaker 6: And say you're pretty bull So we already had fifty 168 00:08:01,600 --> 00:08:04,080 Speaker 6: six hundred. So we're going to stay here for nine months. 169 00:08:05,320 --> 00:08:07,160 Speaker 6: The equity market is not good at staying in the 170 00:08:07,240 --> 00:08:07,960 Speaker 6: same place, though. 171 00:08:08,280 --> 00:08:11,240 Speaker 10: I would point out that in Trade War one point oh, 172 00:08:11,720 --> 00:08:15,080 Speaker 10: the equity market went nowhere and neither up nor down 173 00:08:15,800 --> 00:08:21,320 Speaker 10: huge moves, but nowhere for eighteen months actually, so we 174 00:08:21,440 --> 00:08:25,000 Speaker 10: are very well aware of that period, and it does 175 00:08:25,120 --> 00:08:26,560 Speaker 10: play into how we think about things. 176 00:08:26,760 --> 00:08:29,120 Speaker 1: Is this predicated on the idea that some of the 177 00:08:29,240 --> 00:08:32,720 Speaker 1: soft data is not going to be predictive of hard data, 178 00:08:33,000 --> 00:08:35,760 Speaker 1: and that potentially you get some resolution in the near term, 179 00:08:36,160 --> 00:08:39,760 Speaker 1: some clarity on policy, and potentially a federal reserve that 180 00:08:39,920 --> 00:08:40,360 Speaker 1: helps out. 181 00:08:41,040 --> 00:08:42,000 Speaker 6: I would say not quite. 182 00:08:42,520 --> 00:08:48,040 Speaker 10: What I would say is, actually there's two distinct sources 183 00:08:48,240 --> 00:08:52,920 Speaker 10: of basically soft data. I would say, the low consumer 184 00:08:53,040 --> 00:08:57,440 Speaker 10: confidence is not necessarily very predictive for what consumers spending 185 00:08:57,600 --> 00:08:59,000 Speaker 10: and the business cycle is going to do. 186 00:08:59,760 --> 00:09:01,640 Speaker 6: But consumer confidence is. 187 00:09:02,000 --> 00:09:08,400 Speaker 10: Extremely important for presidential job approval ratings. And after an 188 00:09:08,440 --> 00:09:11,959 Speaker 10: initial honeymoon period, you know, job approval ratings tend to 189 00:09:12,040 --> 00:09:14,800 Speaker 10: go down to consumer confidence. And you know, the way 190 00:09:14,880 --> 00:09:18,760 Speaker 10: I would just note or remind is consumer confidence is 191 00:09:18,800 --> 00:09:22,520 Speaker 10: exactly where it was when President Biden left, and so 192 00:09:22,880 --> 00:09:25,480 Speaker 10: there's a lot of room for us to go down, 193 00:09:25,640 --> 00:09:29,880 Speaker 10: and we would go down on bad growth news, bad inflation. 194 00:09:29,640 --> 00:09:31,520 Speaker 6: News, political developments. 195 00:09:32,120 --> 00:09:34,840 Speaker 10: Now, I would say the other part of the soft data, 196 00:09:34,880 --> 00:09:39,079 Speaker 10: which is CEO confidence, is extremely important driver off the 197 00:09:39,280 --> 00:09:44,160 Speaker 10: actual hard corporate data and indicative off it. Now we 198 00:09:44,440 --> 00:09:47,199 Speaker 10: you know, CEO confidence is Tier two data, so we 199 00:09:47,240 --> 00:09:49,400 Speaker 10: don't have very regular reporting and the like. But there 200 00:09:49,440 --> 00:09:51,960 Speaker 10: are some measures that are basically fallen off a cliff 201 00:09:51,960 --> 00:09:54,240 Speaker 10: from me, and we are now below twenty twenty two 202 00:09:54,360 --> 00:09:59,000 Speaker 10: levels on the CEO magazine. We are European Financial Crisis 203 00:09:59,080 --> 00:10:04,640 Speaker 10: twenty twelve levels. Whether that, you know, translates to a 204 00:10:04,840 --> 00:10:08,280 Speaker 10: good and comprehensive measure of CEO confidence remains to be seen. 205 00:10:08,360 --> 00:10:11,400 Speaker 10: The measures all generally move, you know, together, so there's 206 00:10:11,440 --> 00:10:14,480 Speaker 10: every reason to believe it. Maybe not the extent and degree, 207 00:10:14,640 --> 00:10:17,000 Speaker 10: but you know, I think the biggest risk here is 208 00:10:17,160 --> 00:10:20,440 Speaker 10: corporates go right back into the bunker, and once they 209 00:10:20,520 --> 00:10:22,240 Speaker 10: go back into the bunker, they don't come. 210 00:10:22,160 --> 00:10:22,960 Speaker 6: Out very quickly. 211 00:10:23,160 --> 00:10:25,920 Speaker 5: So what policies in Washington do you need to see 212 00:10:26,000 --> 00:10:27,240 Speaker 5: to get to your year end target? 213 00:10:29,760 --> 00:10:33,280 Speaker 10: You know that that basically the tariffs are you know, 214 00:10:33,559 --> 00:10:38,160 Speaker 10: in negotiation, a relent, just as happened in Trade War one. 215 00:10:38,240 --> 00:10:40,200 Speaker 5: Point out any they gets wrapped up in nine months. 216 00:10:42,360 --> 00:10:45,160 Speaker 10: I think you know, if there is a relent or 217 00:10:45,400 --> 00:10:49,520 Speaker 10: rationality if you want to call it, that, you know 218 00:10:49,600 --> 00:10:50,120 Speaker 10: we could get. 219 00:10:50,040 --> 00:10:50,880 Speaker 6: There pretty quickly. 220 00:10:51,240 --> 00:10:53,280 Speaker 7: So so Binga, I want to take it away from 221 00:10:53,360 --> 00:10:55,520 Speaker 7: your seven thousand target and. 222 00:10:55,720 --> 00:10:58,920 Speaker 6: Also Forcember thirty first at four pm. Yes, yes, yes. 223 00:11:00,160 --> 00:11:03,120 Speaker 7: Over the last quarter, the S and P has underperformed 224 00:11:03,800 --> 00:11:06,760 Speaker 7: zero stocks as hundred by seventeen percentage. 225 00:11:06,240 --> 00:11:08,199 Speaker 6: Ones, which is remarkable. 226 00:11:08,920 --> 00:11:11,719 Speaker 7: Some people think this is just the beginning that we 227 00:11:11,800 --> 00:11:13,920 Speaker 7: are going to have a normalization of valuations over the 228 00:11:13,920 --> 00:11:16,520 Speaker 7: next few quarters. Some of it think it's overdone. 229 00:11:16,960 --> 00:11:17,679 Speaker 6: Where are you on this? 230 00:11:19,240 --> 00:11:22,480 Speaker 10: We think it's got a long ways to go basically, 231 00:11:23,280 --> 00:11:26,880 Speaker 10: and really the issue is where the Europe can grow. 232 00:11:27,160 --> 00:11:29,959 Speaker 10: We have again the cross currents that we've been talking about. 233 00:11:30,080 --> 00:11:32,719 Speaker 10: We have the tariffs, you know, as the negative. But 234 00:11:32,960 --> 00:11:34,400 Speaker 10: you know, if I look at ur at our, I 235 00:11:34,480 --> 00:11:36,760 Speaker 10: mean it's sitting right at one O eight, which is 236 00:11:36,840 --> 00:11:38,400 Speaker 10: a very reasonable place to sit. 237 00:11:38,559 --> 00:11:39,800 Speaker 7: So if you. 238 00:11:39,920 --> 00:11:43,040 Speaker 10: Believe growth starts to pick up, and I would say 239 00:11:43,120 --> 00:11:46,160 Speaker 10: the ingredients for growth to pick up in Europe were 240 00:11:46,280 --> 00:11:50,319 Speaker 10: already basically there before all of the German developments. 241 00:11:50,360 --> 00:11:52,200 Speaker 6: So the German developments, you know. 242 00:11:52,880 --> 00:11:55,840 Speaker 10: Are another positive and another reason to believe that growth 243 00:11:55,960 --> 00:11:58,400 Speaker 10: will come. And if growth comes, we will get the 244 00:11:58,440 --> 00:11:59,040 Speaker 10: earnings and. 245 00:11:59,160 --> 00:12:01,360 Speaker 6: That's all the basic Isn't that a problem for you? 246 00:12:01,480 --> 00:12:04,199 Speaker 7: SMP seven thousand? Isn't that a problem that some of 247 00:12:04,240 --> 00:12:08,240 Speaker 7: the oxygen now gets sucked out by Europe flows are 248 00:12:08,320 --> 00:12:10,840 Speaker 7: no longer persistently to the US, The US no longer 249 00:12:10,920 --> 00:12:14,800 Speaker 7: sucks up global capital and you lose a critical technical 250 00:12:15,240 --> 00:12:19,360 Speaker 7: that has supported your your abolishness about the SP Isn't 251 00:12:19,360 --> 00:12:19,960 Speaker 7: that an issue for. 252 00:12:20,000 --> 00:12:22,560 Speaker 6: You at the margin? Yes? 253 00:12:22,720 --> 00:12:25,440 Speaker 10: But I mean you know right now, what I would 254 00:12:25,440 --> 00:12:27,480 Speaker 10: do is I would be overweight Europe, which is what 255 00:12:27,640 --> 00:12:29,839 Speaker 10: we are, and I would also overweight the US. I 256 00:12:29,880 --> 00:12:33,280 Speaker 10: mean remember that we're already down, you know, around eight percent, 257 00:12:34,480 --> 00:12:37,200 Speaker 10: So it is looking better. And if you look at 258 00:12:37,280 --> 00:12:40,360 Speaker 10: relative performance tends to form in a channel. We have 259 00:12:40,520 --> 00:12:44,360 Speaker 10: just moved from the US relative to stock six hundred. 260 00:12:44,840 --> 00:12:47,079 Speaker 10: We were at the tippy top. We are now exactly 261 00:12:47,160 --> 00:12:48,719 Speaker 10: the middle. That's why I say, you know, we're just 262 00:12:48,720 --> 00:12:49,040 Speaker 10: about it. 263 00:12:49,080 --> 00:12:51,160 Speaker 6: What are you underway there? So you're overweighting everything? What 264 00:12:51,200 --> 00:12:52,199 Speaker 6: are you just looking at it? 265 00:12:52,480 --> 00:12:54,199 Speaker 10: That was about the S and P relative to the 266 00:12:54,240 --> 00:12:57,559 Speaker 10: stock six hundred in local currencies, we are right in 267 00:12:57,600 --> 00:13:00,360 Speaker 10: the middle of the channel. So there is more room 268 00:13:00,440 --> 00:13:03,440 Speaker 10: for the US to underperform without really changing the trend. 269 00:13:04,800 --> 00:13:08,280 Speaker 10: And so what has happened so far the seventeen point 270 00:13:08,360 --> 00:13:11,280 Speaker 10: that that's half of in the middle of the channel, 271 00:13:11,400 --> 00:13:14,680 Speaker 10: so it can continue without basically upsetting the channel. 272 00:13:14,960 --> 00:13:18,319 Speaker 6: But for the channel to continue or for the channel. 273 00:13:18,080 --> 00:13:21,040 Speaker 10: To break, you know, it's really about whether European earnings 274 00:13:21,040 --> 00:13:21,600 Speaker 10: start to grow. 275 00:13:22,040 --> 00:13:23,600 Speaker 2: For as long as I've known you, for a long 276 00:13:23,600 --> 00:13:25,520 Speaker 2: long time, you've been bullish and right, and I've been 277 00:13:25,520 --> 00:13:27,880 Speaker 2: skeptical and wrong. But this is the most bearish seven 278 00:13:27,960 --> 00:13:29,160 Speaker 2: K conversation. 279 00:13:30,280 --> 00:13:32,760 Speaker 6: In my life. I'm glad you didn't ask me what 280 00:13:32,920 --> 00:13:36,959 Speaker 6: my twenty twenty six target is so I don't have one. 281 00:13:37,040 --> 00:13:40,920 Speaker 2: So wors is the seven K in the United States? 282 00:13:42,280 --> 00:13:44,760 Speaker 10: Look, the economy is still in good shape. We are 283 00:13:44,880 --> 00:13:47,559 Speaker 10: closer to the edge. The risks have grown, There's no 284 00:13:47,760 --> 00:13:52,319 Speaker 10: question about it, and there's no obvious large, big imbalances 285 00:13:52,480 --> 00:13:53,960 Speaker 10: outside the US government, I. 286 00:13:53,920 --> 00:13:58,240 Speaker 6: Would say, and so it's all very possible. 287 00:13:58,480 --> 00:14:00,959 Speaker 10: But yes, we are getting close to the edge and 288 00:14:01,040 --> 00:14:02,960 Speaker 10: the risks have gone up a lot. 289 00:14:03,200 --> 00:14:04,600 Speaker 1: So what would make you t embarish? 290 00:14:07,679 --> 00:14:08,960 Speaker 6: No relent on trade? 291 00:14:10,880 --> 00:14:13,439 Speaker 10: You know, trade policy continues the way that it is, 292 00:14:14,600 --> 00:14:17,960 Speaker 10: and you know, just general lack of clarity and policy. 293 00:14:18,040 --> 00:14:19,760 Speaker 6: So what I'm saying is if. 294 00:14:19,720 --> 00:14:22,000 Speaker 10: Policy stepped out of the way, the equity. 295 00:14:21,720 --> 00:14:24,680 Speaker 6: Market and the economy would be just fine. It is 296 00:14:24,800 --> 00:14:26,920 Speaker 6: policy that is the big negative right now. 297 00:14:27,120 --> 00:14:27,440 Speaker 3: Is there a. 298 00:14:27,440 --> 00:14:30,120 Speaker 1: Statute of limitations where there needs to be some clarity 299 00:14:30,520 --> 00:14:33,560 Speaker 1: before which the damage becomes more entrenched and you have 300 00:14:33,680 --> 00:14:34,720 Speaker 1: to start to model it out. 301 00:14:34,920 --> 00:14:36,720 Speaker 6: That's exactly right, Yeah, is it? 302 00:14:36,800 --> 00:14:38,280 Speaker 1: What is that statute of limitations? 303 00:14:38,800 --> 00:14:41,960 Speaker 10: That statute of limitations is once you know, we get 304 00:14:42,040 --> 00:14:46,200 Speaker 10: to a point in this slowing that potentially nonlinearities start 305 00:14:46,280 --> 00:14:48,880 Speaker 10: to kick in. I mean, if you look at late 306 00:14:48,960 --> 00:14:51,640 Speaker 10: market in the US, it's a pretty delicate balance. I mean, 307 00:14:51,680 --> 00:14:54,640 Speaker 10: it's been very, very steady, so I'm not sure delicate 308 00:14:54,760 --> 00:14:57,600 Speaker 10: is the right word, but it is delicate behaviorally. 309 00:14:58,160 --> 00:15:01,240 Speaker 6: It's just been stuck there for quite a while. 310 00:15:01,680 --> 00:15:04,920 Speaker 10: In terms of hiring rates and firing rates both are 311 00:15:04,920 --> 00:15:07,880 Speaker 10: at very very level, so it is kind of stuck. 312 00:15:08,120 --> 00:15:09,120 Speaker 6: Thank you, you're a good sport. 313 00:15:09,160 --> 00:15:10,920 Speaker 2: It's going to hear from minute as always as the 314 00:15:11,000 --> 00:15:12,720 Speaker 2: catch and over this they get you out of there 315 00:15:12,800 --> 00:15:25,120 Speaker 2: at Deutsche Bank. Seth Carpenter of Morgan Stanley, writing, our 316 00:15:25,200 --> 00:15:27,920 Speaker 2: base case remains that the focus of US tarras will 317 00:15:27,920 --> 00:15:30,760 Speaker 2: be on China, but if trade tensions escalate beyond our 318 00:15:30,840 --> 00:15:34,680 Speaker 2: base case, the dragon corporate confidence on Capex and the 319 00:15:34,760 --> 00:15:36,880 Speaker 2: business cycle will intensify. 320 00:15:37,280 --> 00:15:37,520 Speaker 6: Seth. 321 00:15:37,600 --> 00:15:39,360 Speaker 2: John just now for more, Seth, welcome to the program. 322 00:15:39,440 --> 00:15:41,680 Speaker 2: It's been too long, my friend. Let's talk about later 323 00:15:41,960 --> 00:15:44,160 Speaker 2: a four pm Eastern time. And I think, more importantly 324 00:15:44,200 --> 00:15:46,240 Speaker 2: for a lot of people in this market, how is 325 00:15:46,280 --> 00:15:48,720 Speaker 2: the Federal Reserve going to navigate this moment? 326 00:15:49,960 --> 00:15:52,800 Speaker 8: It's great, great set of questions, Jonathan, and this, I 327 00:15:52,800 --> 00:15:55,480 Speaker 8: think the set of questions that just about everyone in 328 00:15:55,600 --> 00:15:58,440 Speaker 8: Marcus is asking. First the uncertainty here is huge. We've 329 00:15:58,480 --> 00:16:01,440 Speaker 8: heard some more commentary of the way else where. They're 330 00:16:01,480 --> 00:16:04,920 Speaker 8: clearly still resetting what they're going to do with tariffs, 331 00:16:04,920 --> 00:16:07,680 Speaker 8: and so I think even inside the administration there's some uncertainty. 332 00:16:07,720 --> 00:16:11,160 Speaker 8: Yet the FED is left in this truly difficult circumstance 333 00:16:11,240 --> 00:16:15,520 Speaker 8: where tariffs very clearly seem to push up price levels, 334 00:16:15,600 --> 00:16:19,120 Speaker 8: which should boost inflation, as reported in the CPI all 335 00:16:19,160 --> 00:16:22,240 Speaker 8: the regular data. My base case, as is the FEDS, 336 00:16:22,280 --> 00:16:24,800 Speaker 8: is that that inflationary boost is going to be temporary 337 00:16:25,000 --> 00:16:27,720 Speaker 8: and should fade over time. But should I don't think 338 00:16:27,760 --> 00:16:29,640 Speaker 8: it's going to be good enough for the Federal Reserve. 339 00:16:29,680 --> 00:16:32,720 Speaker 8: I think will be very hard for them to say, Wow, 340 00:16:32,800 --> 00:16:35,520 Speaker 8: this inflation will go away. I know because of my 341 00:16:35,720 --> 00:16:38,080 Speaker 8: models that growth is going to take a big hit 342 00:16:38,560 --> 00:16:41,400 Speaker 8: in two quarters or maybe into next year. So let 343 00:16:41,480 --> 00:16:44,160 Speaker 8: me cut interest rates now despite inflation heading back up 344 00:16:44,280 --> 00:16:46,320 Speaker 8: towards three percent. I just don't see them doing that, 345 00:16:46,480 --> 00:16:49,040 Speaker 8: and so I think they're going to have to wait 346 00:16:49,240 --> 00:16:51,920 Speaker 8: once we see inflation from tariffs start to kick in. 347 00:16:52,040 --> 00:16:55,200 Speaker 8: They're going to wait on the sidelines with policy in 348 00:16:55,280 --> 00:16:58,800 Speaker 8: their minds in restrictive territory and see how the tariffs 349 00:16:58,880 --> 00:17:01,000 Speaker 8: play out through the ECCONO. They're going to believe they'll 350 00:17:01,000 --> 00:17:04,040 Speaker 8: be temporary on inflation. They're going to want that confirmed 351 00:17:04,080 --> 00:17:06,240 Speaker 8: in the data. They're going to believe that it will 352 00:17:06,280 --> 00:17:09,000 Speaker 8: cause the economy to slow down. But until they start 353 00:17:09,040 --> 00:17:10,920 Speaker 8: to see it in the hard data, and make no 354 00:17:11,040 --> 00:17:13,159 Speaker 8: mistake about it, the market has got the right answer 355 00:17:13,240 --> 00:17:15,760 Speaker 8: here about a slowdown, But I think for the wrong reasons. 356 00:17:15,800 --> 00:17:18,800 Speaker 8: There's not a ton of hard data yet that reveal 357 00:17:18,880 --> 00:17:20,920 Speaker 8: the slowdown. I think all of that is still in 358 00:17:20,960 --> 00:17:21,359 Speaker 8: the offering. 359 00:17:21,560 --> 00:17:23,360 Speaker 1: So it sounds like you don't really see a FED 360 00:17:23,480 --> 00:17:27,040 Speaker 1: put in the offing to try to really give a 361 00:17:27,119 --> 00:17:30,560 Speaker 1: boost to both economic growth and confidence in markets, which 362 00:17:30,640 --> 00:17:33,840 Speaker 1: raises the question about a policy put on the other side, 363 00:17:34,240 --> 00:17:36,440 Speaker 1: what is currently being priced in. We were just talking 364 00:17:36,480 --> 00:17:39,040 Speaker 1: with Mohammadalarian who is here, and he said that he 365 00:17:39,160 --> 00:17:41,159 Speaker 1: sees it as a fifty to fifty percent chance of 366 00:17:41,200 --> 00:17:45,240 Speaker 1: a Reagan Thatcher reording of an international trade versus Jimmy 367 00:17:45,320 --> 00:17:48,919 Speaker 1: Carter on steroids. Market's currently pricing in about eighty twenty. 368 00:17:49,280 --> 00:17:49,920 Speaker 6: What do you see? 369 00:17:51,240 --> 00:17:53,000 Speaker 8: I mean, I think it's I think it's very hard. 370 00:17:53,560 --> 00:17:56,680 Speaker 8: When I talk to clients investors around the world, there 371 00:17:56,720 --> 00:17:59,359 Speaker 8: are as many views there as there are investors that 372 00:17:59,480 --> 00:18:01,000 Speaker 8: you talk to, and so I think you can see 373 00:18:01,000 --> 00:18:05,520 Speaker 8: the same acid pricing reflecting multiple different narratives. I think 374 00:18:05,560 --> 00:18:07,600 Speaker 8: people just don't know, and so I don't think you 375 00:18:07,680 --> 00:18:10,040 Speaker 8: can take anything for granted from massive pricing right now. 376 00:18:10,119 --> 00:18:12,159 Speaker 8: I think it remains to be seen. I think the 377 00:18:12,320 --> 00:18:16,280 Speaker 8: escalation scenario where the US imposes some tariffs and then 378 00:18:16,560 --> 00:18:21,520 Speaker 8: other governments imposer retaliatory tariffs and then we escalate from there, 379 00:18:21,640 --> 00:18:25,360 Speaker 8: that really is a potential massive shift. And I don't think, 380 00:18:25,640 --> 00:18:28,000 Speaker 8: as some people have said, it's just a question of 381 00:18:28,119 --> 00:18:31,359 Speaker 8: near term pain versus longer term gain. I think if 382 00:18:31,359 --> 00:18:34,840 Speaker 8: you get that escalation scenario, then you're just talking about 383 00:18:35,040 --> 00:18:38,639 Speaker 8: fundamentally less productive economies around the world. It's not a 384 00:18:38,760 --> 00:18:40,919 Speaker 8: zero sum game. It could actually be a net loss 385 00:18:41,160 --> 00:18:42,240 Speaker 8: for the whole global order. 386 00:18:42,720 --> 00:18:44,000 Speaker 6: So let me put you on the spot. 387 00:18:44,040 --> 00:18:47,560 Speaker 7: If I may on Sunday, one of your competitors came 388 00:18:47,640 --> 00:18:51,440 Speaker 7: out and they'll had three elements to their new forecast 389 00:18:51,680 --> 00:18:54,720 Speaker 7: one pc inflation from three to three and a half 390 00:18:54,800 --> 00:18:59,480 Speaker 7: percent for the year two fourth quarter on fourth quarter growth. 391 00:18:59,440 --> 00:19:00,480 Speaker 6: Down to one percent. 392 00:19:01,960 --> 00:19:02,120 Speaker 1: Three. 393 00:19:03,320 --> 00:19:07,640 Speaker 7: The FED cuts not twice, but three times this year. 394 00:19:08,040 --> 00:19:08,720 Speaker 6: What do you agree with? 395 00:19:08,880 --> 00:19:10,640 Speaker 7: What do you disagree with on those three elements? 396 00:19:11,800 --> 00:19:13,679 Speaker 8: Yeah, so I think the main thing I would disagree 397 00:19:13,720 --> 00:19:15,919 Speaker 8: with a bit is the timing. So we've got one 398 00:19:16,000 --> 00:19:19,040 Speaker 8: and a half percent as a baseline growth rate, but boy, 399 00:19:19,320 --> 00:19:22,480 Speaker 8: lots of room for downside there. And that's a pretty 400 00:19:22,560 --> 00:19:26,480 Speaker 8: conservative assumption on things like where tariffs go and how 401 00:19:26,600 --> 00:19:29,520 Speaker 8: much this immigration restriction, which we should have a whole 402 00:19:29,560 --> 00:19:32,240 Speaker 8: conversation about that. I think it is the most underappreciated 403 00:19:32,280 --> 00:19:35,920 Speaker 8: policy from a macro perspective. But so one and a 404 00:19:35,960 --> 00:19:38,720 Speaker 8: half percent, one percent, I think both of those are 405 00:19:38,920 --> 00:19:42,000 Speaker 8: very very plausible direction of travels just down for growth 406 00:19:42,560 --> 00:19:43,960 Speaker 8: inflation higher from here. 407 00:19:44,080 --> 00:19:44,840 Speaker 6: I think that's right. 408 00:19:45,400 --> 00:19:48,320 Speaker 8: Our point forecast is a bit below three percent, but 409 00:19:48,760 --> 00:19:51,359 Speaker 8: I can't rule out the higher number you cited, And 410 00:19:51,480 --> 00:19:54,119 Speaker 8: for all the same reasons, tariffs could be stronger than 411 00:19:54,160 --> 00:19:56,960 Speaker 8: we think, we could get more immigration restriction. I think 412 00:19:57,040 --> 00:19:59,840 Speaker 8: the key difference for US is the FED is in 413 00:20:00,200 --> 00:20:04,879 Speaker 8: very difficult situation. Data for US economic activity lag. The 414 00:20:05,000 --> 00:20:07,360 Speaker 8: FED is going to have to pay attention to both 415 00:20:07,400 --> 00:20:11,399 Speaker 8: inflation and growth, and before they start to cut in 416 00:20:11,600 --> 00:20:14,200 Speaker 8: response to the slow in growth, they're going to have 417 00:20:14,320 --> 00:20:18,080 Speaker 8: to accumulate enough information that says very clearly, growth is 418 00:20:18,119 --> 00:20:21,920 Speaker 8: a much bigger problem than inflation. That is very hard 419 00:20:21,960 --> 00:20:25,160 Speaker 8: to do with inflation bottoming out and starting to rise 420 00:20:25,280 --> 00:20:27,720 Speaker 8: back up, especially if it gets past three percent, I 421 00:20:27,800 --> 00:20:31,240 Speaker 8: think you really need much more accumulated softness before J. 422 00:20:31,400 --> 00:20:33,600 Speaker 8: Powell and company are going to be ready to look 423 00:20:33,720 --> 00:20:36,160 Speaker 8: through three percent or higher inflation, says. 424 00:20:36,200 --> 00:20:38,240 Speaker 1: Do you see the market then as being wrong pricing 425 00:20:38,320 --> 00:20:40,720 Speaker 1: in three cuts by the end of this year, increasing 426 00:20:40,800 --> 00:20:43,000 Speaker 1: that chance as a chance of some sort of weakening 427 00:20:43,359 --> 00:20:44,200 Speaker 1: does seem to rise? 428 00:20:45,840 --> 00:20:46,680 Speaker 4: I do think so. 429 00:20:46,800 --> 00:20:48,399 Speaker 8: I mean the market has to price things on a 430 00:20:48,440 --> 00:20:51,520 Speaker 8: probabilistic basis, and so there are lots of different scenarios 431 00:20:51,600 --> 00:20:54,840 Speaker 8: implied in that price. I would say, if you're relative 432 00:20:54,880 --> 00:20:56,840 Speaker 8: to a straight reading of where the market is, they 433 00:20:56,880 --> 00:20:59,359 Speaker 8: don't they have too much priced in in terms of 434 00:20:59,400 --> 00:21:02,600 Speaker 8: cuts this year, nowhere near enough priced. 435 00:21:02,359 --> 00:21:03,040 Speaker 6: In for next year. 436 00:21:03,440 --> 00:21:06,200 Speaker 2: Seth Campenter, Seth, appreciate your time. Thanks for making time 437 00:21:06,200 --> 00:21:09,120 Speaker 2: for us this morning, Seth Carpenter. There of Morgan Stanley, 438 00:21:19,440 --> 00:21:22,800 Speaker 2: here's a take from Julia Coronado of macro Policy Perspectives, 439 00:21:22,840 --> 00:21:26,080 Speaker 2: writing a recession has not become the baseline, though investors 440 00:21:26,119 --> 00:21:29,000 Speaker 2: see the combination of Trump policies as a supply shark 441 00:21:29,280 --> 00:21:32,080 Speaker 2: that the FED tools may not be able to address. 442 00:21:32,359 --> 00:21:35,040 Speaker 2: Julia joined us now for more, Julia, you're super dowed 443 00:21:35,080 --> 00:21:37,159 Speaker 2: into the FOMC. So let's get straight into it. 444 00:21:37,359 --> 00:21:38,200 Speaker 6: Just from a cost. 445 00:21:38,080 --> 00:21:41,560 Speaker 2: Perspective, By definition, the tarists are paid by the importer. 446 00:21:41,680 --> 00:21:43,640 Speaker 2: We've got that. How do you think the cost will 447 00:21:43,680 --> 00:21:45,160 Speaker 2: be shared through the economy. 448 00:21:46,680 --> 00:21:47,560 Speaker 9: Well, it's going to. 449 00:21:47,600 --> 00:21:52,520 Speaker 11: Be split between profit margin pressure and consumer's loss of 450 00:21:52,600 --> 00:21:53,480 Speaker 11: purchasing power. 451 00:21:53,640 --> 00:21:56,560 Speaker 9: And exactly how that breaks down sort of depends. 452 00:21:57,320 --> 00:22:00,760 Speaker 11: We're not in the pandemic, so consumers don't have they're 453 00:22:00,800 --> 00:22:02,080 Speaker 11: not flush with cash. 454 00:22:02,480 --> 00:22:05,360 Speaker 9: They're not just going to accept any price increase. 455 00:22:05,440 --> 00:22:07,639 Speaker 11: And we've heard that in some of the comments to 456 00:22:07,760 --> 00:22:11,960 Speaker 11: the surveys that have come in that you know, businesses 457 00:22:11,960 --> 00:22:12,720 Speaker 11: are struggling with. 458 00:22:12,800 --> 00:22:13,760 Speaker 9: How to pass that on. 459 00:22:14,840 --> 00:22:18,040 Speaker 11: How much will consumers bear and how much must they absorb? 460 00:22:18,160 --> 00:22:21,640 Speaker 9: But it's going to be a hit in either way. 461 00:22:21,840 --> 00:22:23,560 Speaker 11: You know, it's going to be a hit to profit margins, 462 00:22:23,600 --> 00:22:25,919 Speaker 11: it's going to be a hit to consumer purchasing power, 463 00:22:26,640 --> 00:22:28,520 Speaker 11: and it will come with a burst of inflation. 464 00:22:28,640 --> 00:22:30,399 Speaker 9: And that's the problem for the FED. 465 00:22:31,359 --> 00:22:34,080 Speaker 11: They're already above their target, never got back down where 466 00:22:34,080 --> 00:22:36,280 Speaker 11: they wanted to be, and it looks like it's going 467 00:22:36,359 --> 00:22:38,080 Speaker 11: to be a while before. 468 00:22:38,000 --> 00:22:39,359 Speaker 9: We get there. Julia. 469 00:22:39,440 --> 00:22:41,800 Speaker 1: One argument is that this Fed to reserve is very 470 00:22:41,880 --> 00:22:45,959 Speaker 1: aware of the scarring that takes place what unemployment rises 471 00:22:46,000 --> 00:22:48,520 Speaker 1: to a certain level, and they want to cater to 472 00:22:48,640 --> 00:22:52,240 Speaker 1: the economy first, even if inflation does run. 473 00:22:52,160 --> 00:22:52,840 Speaker 9: A bit higher. 474 00:22:53,359 --> 00:22:56,160 Speaker 1: Do you think that this market right now is misguided 475 00:22:56,240 --> 00:22:58,560 Speaker 1: in their understanding that the Fed could cut rates by 476 00:22:58,640 --> 00:23:02,440 Speaker 1: three times and looking through some of those one time 477 00:23:02,720 --> 00:23:03,840 Speaker 1: inflationary pops. 478 00:23:05,480 --> 00:23:09,719 Speaker 11: I think the tension right now in the market pricing, 479 00:23:09,760 --> 00:23:13,240 Speaker 11: as far as I can see, is it's perfectly reasonable 480 00:23:13,400 --> 00:23:17,520 Speaker 11: to think that the Fed might lean towards the unemployment mandate. 481 00:23:17,280 --> 00:23:18,359 Speaker 9: And cut three times. 482 00:23:18,720 --> 00:23:21,440 Speaker 11: But that means the economy has to be really bad. 483 00:23:22,240 --> 00:23:24,480 Speaker 11: It means that the unemployment rates not just up a 484 00:23:24,600 --> 00:23:28,960 Speaker 11: tick or two. It means it's risen and is rising beyond. 485 00:23:28,720 --> 00:23:29,720 Speaker 9: Four and a half percent. 486 00:23:29,840 --> 00:23:33,879 Speaker 11: We're sort of heading into a recession and they need 487 00:23:34,000 --> 00:23:37,800 Speaker 11: to start ensuring the economy. That is the scenario in 488 00:23:37,840 --> 00:23:41,160 Speaker 11: which the FED cuts three times, it's a perfectly plausible scenario. 489 00:23:41,280 --> 00:23:43,560 Speaker 9: We're sort of leaning in that direction ourselves. 490 00:23:44,520 --> 00:23:47,199 Speaker 11: We could see a rising chance that we could see 491 00:23:47,440 --> 00:23:50,640 Speaker 11: a recession in Q three or Q four of this year. 492 00:23:51,440 --> 00:23:53,879 Speaker 9: And it's not just about the terriffs. It's about the 493 00:23:54,320 --> 00:23:55,879 Speaker 9: combination of policies. 494 00:23:56,040 --> 00:23:59,120 Speaker 11: One thing that we don't discuss enough is the disruption 495 00:23:59,280 --> 00:24:03,800 Speaker 11: from dose cuts and contracts, and disruption to sectors that 496 00:24:03,840 --> 00:24:07,760 Speaker 11: are usually very stable, like healthcare, like state and local 497 00:24:07,800 --> 00:24:10,760 Speaker 11: governments that may start feeling the pinch and they've been 498 00:24:10,880 --> 00:24:13,960 Speaker 11: driving job gains, So we could see a turn for 499 00:24:14,040 --> 00:24:16,080 Speaker 11: the worst and that could lead the FED to cut. 500 00:24:16,480 --> 00:24:19,119 Speaker 11: But that doesn't seem to be the sort of sanguine 501 00:24:19,320 --> 00:24:22,159 Speaker 11: middle road that the market is pricing in terms of equities. 502 00:24:22,760 --> 00:24:25,080 Speaker 7: So I'm trying to understand, Julia, how hot are you 503 00:24:25,240 --> 00:24:29,520 Speaker 7: leaning into Because the dominant view right now, to the 504 00:24:29,560 --> 00:24:32,840 Speaker 7: extent there is a dominant view, is that the soft 505 00:24:32,960 --> 00:24:35,159 Speaker 7: patch is in the next few months. By the time 506 00:24:35,200 --> 00:24:36,840 Speaker 7: you get to the end of the year, you have 507 00:24:36,960 --> 00:24:39,840 Speaker 7: the regulation kicking in, you have favorable things kicking in. 508 00:24:40,400 --> 00:24:43,240 Speaker 7: Whereas you said, the risk of recession is highest in 509 00:24:43,320 --> 00:24:46,399 Speaker 7: the third and fourth quarter, if I heard you correctly, So. 510 00:24:47,560 --> 00:24:50,200 Speaker 11: Yeah, I have a very different profile from this idea. 511 00:24:50,240 --> 00:24:53,120 Speaker 11: We go through a soft patch, what drives growth up. 512 00:24:53,119 --> 00:24:54,080 Speaker 9: In the second half. 513 00:24:54,720 --> 00:24:58,240 Speaker 11: Tax cuts, that's going to be really that's a high 514 00:24:58,359 --> 00:25:01,040 Speaker 11: barge because of the extent of the TCJA. 515 00:25:01,440 --> 00:25:03,360 Speaker 9: You can play all the budget tricks you want. 516 00:25:03,800 --> 00:25:06,920 Speaker 11: The reality of the macro impulse is that you're just 517 00:25:07,040 --> 00:25:10,360 Speaker 11: not going to get that much fiscal impulse very likely, 518 00:25:10,520 --> 00:25:13,160 Speaker 11: and in fact, what we're seeing on the dose front 519 00:25:13,680 --> 00:25:15,719 Speaker 11: is that you're going to get a lot of disruption 520 00:25:15,920 --> 00:25:20,159 Speaker 11: in fiscal policy. Whether or not those contracts are ultimately paid, 521 00:25:20,600 --> 00:25:24,119 Speaker 11: Cutting them off and injecting uncertainty across a number of 522 00:25:24,240 --> 00:25:28,760 Speaker 11: sectors is likely to dampen their enthusiasm or willingness to 523 00:25:29,160 --> 00:25:33,920 Speaker 11: higher employees. Deregulation we constantly hear this. I can see 524 00:25:33,960 --> 00:25:37,119 Speaker 11: that in the finance sector. I can see that potentially 525 00:25:37,280 --> 00:25:40,480 Speaker 11: more m and ah, you know, less. 526 00:25:40,440 --> 00:25:44,720 Speaker 9: Bank regulation or at least a lighter touch. But your 527 00:25:45,040 --> 00:25:46,399 Speaker 9: where else am I going to see it? 528 00:25:46,640 --> 00:25:50,560 Speaker 11: You know, energy, you know already we had massive production, 529 00:25:50,760 --> 00:25:53,920 Speaker 11: low prices. In fact, prices are too low to get 530 00:25:54,040 --> 00:25:55,280 Speaker 11: much more production. 531 00:25:56,480 --> 00:25:57,000 Speaker 9: Where else? 532 00:25:57,600 --> 00:26:00,479 Speaker 11: Tell me the channel that deregulation is going to boost 533 00:26:00,560 --> 00:26:02,480 Speaker 11: the economy in the second half of the year, What 534 00:26:02,720 --> 00:26:04,680 Speaker 11: sector benefits from this? 535 00:26:05,400 --> 00:26:08,440 Speaker 5: Juliet When it comes to this, holistic approach the Trump 536 00:26:08,440 --> 00:26:12,159 Speaker 5: administration tariff's deregulation, tax cuts. What you're saying there is 537 00:26:12,240 --> 00:26:15,120 Speaker 5: that deregulation and the tax cuts, which to your point 538 00:26:15,160 --> 00:26:18,320 Speaker 5: really are just tax extension of current policy, aren't enough 539 00:26:18,560 --> 00:26:22,159 Speaker 5: to offset what the investors view as bad policy or 540 00:26:22,920 --> 00:26:25,200 Speaker 5: less optimistic policy when it comes to the markets of 541 00:26:25,320 --> 00:26:27,240 Speaker 5: the tariffs exactly. 542 00:26:27,480 --> 00:26:30,359 Speaker 11: And then remember we're not just talking about tariffs. It's 543 00:26:30,680 --> 00:26:35,320 Speaker 11: uncertainty around the tariffs. President Trump likes to hold that 544 00:26:35,520 --> 00:26:39,960 Speaker 11: uncertainty over over other countries, over. 545 00:26:40,400 --> 00:26:43,680 Speaker 9: Essentially the economy. And so it's not going to just 546 00:26:43,760 --> 00:26:44,760 Speaker 9: go away today. 547 00:26:44,840 --> 00:26:47,280 Speaker 11: That today is just another sort of step along a 548 00:26:47,400 --> 00:26:49,960 Speaker 11: road of an ongoing trade war of. 549 00:26:50,080 --> 00:26:51,400 Speaker 9: Tariffs and retaliation. 550 00:26:52,119 --> 00:26:56,760 Speaker 11: Then let's layer on the doze disruption to federal contracts. 551 00:26:57,160 --> 00:27:01,560 Speaker 11: Then let's layer on the very restrictive imagration policy that 552 00:27:01,800 --> 00:27:06,840 Speaker 11: is so draconian that it is leading a lot of workers, 553 00:27:06,920 --> 00:27:09,719 Speaker 11: or at least some workers anecdotally, not to show up 554 00:27:09,760 --> 00:27:12,960 Speaker 11: to work, not to engage in economic activity, for fear 555 00:27:14,040 --> 00:27:18,240 Speaker 11: of being snatched off the street and deported. And that 556 00:27:18,440 --> 00:27:21,960 Speaker 11: has been All of these things have been real tailwinds 557 00:27:22,000 --> 00:27:23,240 Speaker 11: for the macro economy. 558 00:27:23,560 --> 00:27:26,600 Speaker 9: The immigration piece is not insignificant. 559 00:27:26,960 --> 00:27:31,399 Speaker 11: To go from an abundant environment of labor supply and 560 00:27:31,560 --> 00:27:36,000 Speaker 11: growing demand to one where it's shrinking is a big 561 00:27:36,160 --> 00:27:38,960 Speaker 11: shift in the environment, and we haven't yet seen that 562 00:27:39,160 --> 00:27:41,840 Speaker 11: flow into the hard data, but I think the soft 563 00:27:41,920 --> 00:27:43,600 Speaker 11: data is starting to pick that up. 564 00:27:43,960 --> 00:27:46,600 Speaker 9: I noticed the comments to the Dallas. 565 00:27:46,359 --> 00:27:50,359 Speaker 11: Fed service sector survey yesterday. We're very interesting along these lines. 566 00:27:50,440 --> 00:27:53,800 Speaker 11: They talk about the hit from immigration, they talk about 567 00:27:54,119 --> 00:27:56,600 Speaker 11: what it's going to do in terms of constraining the 568 00:27:56,720 --> 00:28:01,320 Speaker 11: construction sector. So you know, that's as we feel, that's 569 00:28:01,520 --> 00:28:04,800 Speaker 11: very direct. So you know, I think these things are 570 00:28:04,880 --> 00:28:07,160 Speaker 11: going to come forward and show up in the hard data. 571 00:28:07,440 --> 00:28:10,800 Speaker 11: And we're just focused on tariffs, but there's a whole 572 00:28:11,560 --> 00:28:14,640 Speaker 11: range of policies that are not growth friendly, so lots. 573 00:28:14,480 --> 00:28:14,880 Speaker 6: To get through. 574 00:28:14,960 --> 00:28:18,040 Speaker 2: Julia, appreciate your perspective. Thanks for joining us. Judia Currentada 575 00:28:18,080 --> 00:28:22,720 Speaker 2: there of macro policy perspectives. This is the Bloomberg Surveillance podcast, 576 00:28:22,920 --> 00:28:26,800 Speaker 2: bringing you the best in markets, economics, and geopolitics. You 577 00:28:26,840 --> 00:28:29,600 Speaker 2: can watch the show live on Bloomberg TV weekday mornings 578 00:28:29,640 --> 00:28:32,560 Speaker 2: from six am to nine am Eastern. Subscribe to the 579 00:28:32,600 --> 00:28:36,080 Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and 580 00:28:36,160 --> 00:28:39,240 Speaker 2: as always on the Bloomberg terminal and the Bloomberg Business app.