Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
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Speaker 2: or anywhere else you listen, and as always on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Barbara Duran of
Speaker 2: BDA Capital writing, any legitimate threat to the independence of
Speaker 2: the FED is to be taken seriously and negatively, as
Speaker 2: it has the potential to undermine both the dollar and
Speaker 2: US assets as safe havens for investment. Barbara Johnt is
Speaker 2: now for more. Barbara and Mornch, Good morning. Let's talk
Speaker 2: about that first line in that quote. Any legitimate threat
Speaker 2: is to say legitimate threats.
Speaker 3: Yeah, that's the question.
Speaker 4: I mean in the past, you would think, no, it's
Speaker 4: not legitimate because it's so obvious the negative ramifications of this.
Speaker 4: But given the unpredictability we've seen in this president anything's possible.
Speaker 4: And if the Supreme Court, we know this as you
Speaker 4: mentioned earlier, the cases before them, if they ruled that
Speaker 4: the president can replace people in these other independent agencies,
Speaker 4: then I think you might consider it. But if Besson
Speaker 4: is in there, and Besson does seem to be gaining
Speaker 4: an influence with the president, hopefully it's not legitimate.
Speaker 2: We started this year with the rebalancing towards assets out
Speaker 2: sweat European equities ready to sounded to perform. Dollar weakness
Speaker 2: kicked in. This seems to have taken on a new
Speaker 2: phase over the last month or so. What do you
Speaker 2: make of the new leg of this? What's behind it?
Speaker 2: Of the past few weeks?
Speaker 4: Well, I think with the tariff uncertainty, I mean, we
Speaker 4: had the pause. You saw what happened with the market.
Speaker 4: But I think there is a real question about the
Speaker 4: credibility and legitimacy of this as a safe havement. As
Speaker 4: we've seen and everybody's observed, we've had very unusual behavior.
Speaker 4: You know, as terifts go up, we really shouldn't have
Speaker 4: the dollar getting stronger as a flight to safety. It's
Speaker 4: not happening, and in fact, the dollar is down five
Speaker 4: percent against the euro and the pound, and also six
Speaker 4: percents again at the end since early April, that's a lot.
Speaker 4: I mean, as you said earlier, it's just it's been
Speaker 4: parody just relatively recently, a few months ago. So it's
Speaker 4: a real question and it's hard to see that changing
Speaker 4: because even though we have this ninety day.
Speaker 3: Pause, it is just temporary.
Speaker 4: And so we also are waiting to see what they
Speaker 4: decide on semis, on pharma, on lumber and copper and
Speaker 4: all sorts of things. So there's really there's no way
Speaker 4: yet to gauge the impact of these policies. Businesses are
Speaker 4: still on hold, consumers are and every survey that's coming
Speaker 4: in is showing, you know, sentiment is continues to decline,
Speaker 4: so you know, we'll see what happens, but it's it's
Speaker 4: not good.
Speaker 1: Well, this speaks to the macroprolysis that Jim Zelter of
Speaker 1: Apoloighen was mentioning earlier, talked about how do you gauge
Speaker 1: your longer term acid allocation at a time or so
Speaker 1: much has yet to be determined, Have we seen enough
Speaker 1: to say definitively that you need to diversify away from
Speaker 1: dollars de nominated assets versus traditional portfolio of say five
Speaker 1: years ago.
Speaker 4: Maybe, you know, because the problem here is the question
Speaker 4: is always how much is the market discounting? All right,
Speaker 4: the nastik is down fifteen percent plus a year to date,
Speaker 4: SMP down ten percent. It's probably discounting a lot, but
Speaker 4: we don't know the worst case. It seems that the
Speaker 4: worst case is probably over in terms of the tariffs,
Speaker 4: but there.
Speaker 3: Is no way to judge.
Speaker 4: So, you know, gold continues to make new highs. I
Speaker 4: think it will continue because that the move toward gold
Speaker 4: started before this, and that was really twenty two when
Speaker 4: we froze the assets in Russia and treasure is suddenly like, oh,
Speaker 4: maybe treasuries aren't the safe haven. And I think this continues.
Speaker 4: It So problem with diversifying away, say to Europe all
Speaker 4: the economies, if our worst case tariffs do come in,
Speaker 4: they're going to be hurt as well, so their growth
Speaker 4: is going to slow. So I think that for now
Speaker 4: you just have to sort of diversify a bit, you know.
Speaker 4: And I think a lot of investors are trying to
Speaker 4: reorient their stock portfolios to more dividend, more high quality,
Speaker 4: you know, and including gold.
Speaker 1: At a time when so many people seem to be
Speaker 1: a whip side by sentiment, what's the guiding light?
Speaker 3: Data is messy, The soft data and.
Speaker 1: The hard data aren't cohering, and we're hearing about the
Speaker 1: lag time between the two.
Speaker 3: Earnings are kind of pick.
Speaker 1: Your own adventure, throw a dart and figure.
Speaker 5: Out what your projection is.
Speaker 1: Where is this sense of your north star?
Speaker 3: You know, there isn't, you know?
Speaker 4: I think because right now, all the data that's been
Speaker 4: coming in, whether it's the CPIPPI looks good. Retail still good.
Speaker 4: Balance sheets for both consumers and managements are good. But
Speaker 4: that's looking backwards, and what you're starting to see earning
Speaker 4: season started in earnest as we know a couple of
Speaker 4: weeks ago with the banks, and the banks you know,
Speaker 4: again looking forward, they see no problems as yet and
Speaker 4: are not really increased in the reserves. But a lot
Speaker 4: of company manager are starting to add, well, we can't
Speaker 4: really give great guidance. There's this macro uncertainty read tariffs,
Speaker 4: so it is really hard. I mean, for instance, in
Speaker 4: our portfolios, we're not selling because in the in the
Speaker 4: space of a tweet, the stock market could be up
Speaker 4: a thousand points, and that's the real problem. Here there
Speaker 4: is no predictability, but you have to say, Okay, I
Speaker 4: think the worst is over, so we're holding.
Speaker 3: If you have cash.
Speaker 4: You know, there are opportunities at individual stocks coming up.
Speaker 4: You can selectively take nibbles.
Speaker 3: But I would not I would not be buying in
Speaker 3: a wholesale way. There's just no way.
Speaker 6: What would make you want to buy.
Speaker 4: If we had some certainty in tariffs, which is hard
Speaker 4: to see right now we've got ninety days, and if
Speaker 4: we had more of.
Speaker 3: A process, I mean, as we saw there.
Speaker 4: There's a real question about the methodology when he brought
Speaker 4: out his famous chart there, and I think there's been
Speaker 4: a lot of questions about that. You know, if for
Speaker 4: some reason in the next few months we saw more stability,
Speaker 4: we had the tariffs that were settled, and we're sure
Speaker 4: that they were settled, and it was a way to
Speaker 4: measure the impact, then you.
Speaker 3: Know, and again depending what that is.
Speaker 4: You know, if they're too high, even at this ten percent,
Speaker 4: how inflationary are they? You know, the Fed has said
Speaker 4: they can't act because they don't know, you know, how
Speaker 4: much is going to impact inflation, how much will grow slow?
Speaker 4: And you're seeing around the street every house is taking
Speaker 4: down their estimates on GDP growth helping their inflation, but
Speaker 4: we really don't know how big it will be.
Speaker 7: Terry Haynes joined us earlier from Washington, and he basically
Speaker 7: said the market's way too focus on tariffs. Jay Powell's
Speaker 7: not going anywhere, and that you have to start focusing
Speaker 7: on tax cuts. This extension of TCGA and maybe another sweetener.
Speaker 6: Is that enough to be excited about your end.
Speaker 4: Not for me, you know, you know, I think they
Speaker 4: were right to focus on the tariffs, and what they're
Speaker 4: the administration is trying to get is to focus on
Speaker 4: coming tax cuts.
Speaker 3: But really, how deep can the cuts be?
Speaker 4: I mean, we're talking really an extension of the cuts,
Speaker 4: and there'll be some of there's a give and take
Speaker 4: going on right now, but I don't see them being draconian,
Speaker 4: and how can they be. I mean, for that exploding
Speaker 4: the deficit even more so in deregulation. I mean, certainly
Speaker 4: the capital one, the approval of capital one taking over discovery.
Speaker 4: That's also will give some investors hope that okay, a
Speaker 4: deregulation is starting, but that will help on the margin.
Speaker 4: But I think the tariffs are so important because that
Speaker 4: infects the entire world.
Speaker 2: You touched on something that I've heard quite a few
Speaker 2: times after the last week, people who are super badish
Speaker 2: but aren't selling because they're worried about one positive headline
Speaker 2: cross in the Bloomberg at least to some massive upside
Speaker 2: move on the S and P. And I wonder, actually,
Speaker 2: what's going to make people start selling again, because in
Speaker 2: the meantime the data seems to be distorted by what
Speaker 2: we're seeing in a pull forward of purchases by consumers
Speaker 2: companies alike, that maybe that data is flattered for the
Speaker 2: time being. What would it take to start selling again
Speaker 2: in the sancuity market.
Speaker 4: Well, that is a good question because I think, you know,
Speaker 4: what we've seen to date and certain venture on retail
Speaker 4: behavior is buying on weakness, which has not not been
Speaker 4: a good thing. And so I think that once we
Speaker 4: get some established you know, presence here or even anytime
Speaker 4: we have a sudden tweet they sends the market one thousand,
Speaker 4: you've got to be lightening up. So and I think
Speaker 4: that's you know, look, last week, you didn't have time
Speaker 4: or in two weeks ago what had happened. Mark was
Speaker 4: teve thousand and gave back half of that the next day.
Speaker 4: So the rapidity of these moves, it's very hard. Unless
Speaker 4: you're a trader or your algorithmic trader, it's very hard
Speaker 4: to take action. So you know, I think you know
Speaker 4: for us, it's just you are in good stocks, you're
Speaker 4: in good fundamentals, high quality. You just have to wait
Speaker 4: out the storm and storm.
Speaker 2: It is futures right now down about one percent on
Speaker 2: the SMP. Barmbara, good to see you as always, thanks
Speaker 2: to drop and bite. Barmba A on the of BDA
Speaker 2: to extend the conversation, Terry Haynes of Panchee Policy joined
Speaker 2: us now for more. Terry, welcome to the program. A
Speaker 2: lot of bark here. How strong is the potential bite?
Speaker 8: I think not that strong, John, Thanks, Uh, you know.
Speaker 8: I My summary of this really comes down to about
Speaker 8: three things. One is that Trump is trying to pass
Speaker 8: the buck to Pal for whatever market problems exist. Markets
Speaker 8: aren't going to bite on that, of course, they're very
Speaker 8: fixed on Trump. Secondly, you've got a situation where as
Speaker 8: you've been reporting, the Wall Street community is already reacting
Speaker 8: this time to the possibility of PALS removal in a
Speaker 8: way that they haven't before. So that's a real con
Speaker 8: And finally, as Lisa mentioned earlier, you had the folks
Speaker 8: in Congress on the Sunday shows all basically providing a
Speaker 8: little bit of subtle pushback. So there's I think there's
Speaker 8: at least three reasons of why the bark is worse
Speaker 8: than the bite.
Speaker 9: Terry.
Speaker 7: I love to get your thoughts though on what Kevin
Speaker 7: Hassett said, the NEC director, and he said that they're
Speaker 7: studying that option.
Speaker 6: He basically left the door open.
Speaker 9: Well, I think he should, right.
Speaker 8: He's a lot of things, but fundamentally, he's a staffer,
Speaker 8: and if he publicly descends from whatever the President's doing,
Speaker 8: he's going to be out of there pretty quickly. So
Speaker 8: you know, I look at that as a matter of
Speaker 8: staff loyalty and not much else. You know, they've been
Speaker 8: studying this since twenty eighteen or twenty nineteen, by the way,
Speaker 8: so I welcome their continued study.
Speaker 5: I want to get your thoughts. What I also asked
Speaker 5: Marvin Lowe.
Speaker 7: The fact that we're having this discussion out loud, the
Speaker 7: fact that the President didn't make clear what he said
Speaker 7: last week, which talking about his termination.
Speaker 6: Is that enough to do.
Speaker 9: Damage to damage to Trump or to Powell, to Trump.
Speaker 6: To the position as well as to financial market.
Speaker 8: I think it doesn't help financial markets. I certainly don't
Speaker 8: think it helps the president. I mean, you know, you
Speaker 8: can parse the statement that you all have been running
Speaker 8: in the bumpers and you know, if I want him
Speaker 8: out of there, he'll be out of there.
Speaker 9: Well, you know, he's not out of there.
Speaker 8: And you don't like his policies, so you know, so
Speaker 8: he's staying, so you must like his policies. So there's
Speaker 8: that kind of circularity. And number one and number two,
Speaker 8: you know, the last thing that the Trump needs right
Speaker 8: now is is Wall Street fleeing on him when he's
Speaker 8: in the middle of when he's in the middle of
Speaker 8: the terrified firstly, and secondly when tax cuts, which are
Speaker 8: still very very likely at eighty percent having come online.
Speaker 1: Yet it feels like President Trump is playing good cop,
Speaker 1: bad cop with markets right now.
Speaker 9: Bad cop, I.
Speaker 1: Don't know about your own Powell, good cop, Let's make
Speaker 1: a deal. All of a sudden, all of these deals
Speaker 1: potentially are on the table with Japan, with EU. And
Speaker 1: that's the upside that people are looking for. What if
Speaker 1: this actually leads to some sort of resolution. How much
Speaker 1: to expect that to really take the brunt of oxygen.
Speaker 8: This week, well, I think this week the White House
Speaker 8: would be smart to continue to bring out the prospect
Speaker 8: of deals being done. And I think they were reasonably
Speaker 8: effective at that the last couple of weeks.
Speaker 9: And that's all of the good.
Speaker 8: The better it is for what's best for the White
Speaker 8: House and what's best for the markets at this point
Speaker 8: are really the same thing, which are to see progress
Speaker 8: being made on the tariff deals, and to clarify what
Speaker 8: I always think of as kind of the best and
Speaker 8: descendant role here, which is that these things are supposed
Speaker 8: to be path dependent, and if we do deals, tariff
Speaker 8: rates to excuse me, tariff barriers and ex tariff barriers
Speaker 8: come down for the United States and for others benefiting markets.
Speaker 9: That's all good.
Speaker 8: By the time you get to next week, what you're
Speaker 8: going to say is more progress being made on tax cuts,
Speaker 8: the idea of a third quarter, fourth quarter deal, and
Speaker 8: you know, hopefully that helps them get through this patch.
Speaker 3: Terry.
Speaker 1: Should and will are two very different things, and it
Speaker 1: seems like you believe that markets do have some sort
Speaker 1: of I don't want to say veto power, but certainly
Speaker 1: wait in the president's mind what gives you that concrete sense,
Speaker 1: Given the fact that there have been a number of
Speaker 1: occasions where President Trump has come out and pushed back
Speaker 1: against caring whatsoever about the move in the markets, I.
Speaker 8: Think it's really this, you know, I was one of
Speaker 8: the first, maybe the first, to say that I think
Speaker 8: Trump cared about markets on tariffs with respect to to
Speaker 8: imposing them.
Speaker 9: Tariffs, in my.
Speaker 8: View, have always been part of a much broader economic
Speaker 8: plan that includes tax cuts and some other things. They've
Speaker 8: been I think, very clear about that. But at the
Speaker 8: same time, it is not in the President's political interest
Speaker 8: at all to have markets go seriously wobbly on him
Speaker 8: at a time where he's trying to impose a lot
Speaker 8: of those things. So I think I think that market
Speaker 8: pressure actually helps define the situation a little bit better
Speaker 8: politically as well as economically.
Speaker 7: Terry, you keep mentioning tax cuts, the market is pricing
Speaker 7: an extension of TCGA.
Speaker 5: What cuts are you.
Speaker 6: Talking about now?
Speaker 8: I'm talking about the extension of the twenty seventeen cuts,
Speaker 8: And then you're going to see a bunch of a
Speaker 8: bunch of tweaks to that, not just the taxes on
Speaker 8: tips thing that President keeps talking about and other things.
Speaker 8: But I think you're also going to see a restructuring
Speaker 8: to really favor increased US manufacturing and including reshoring, among
Speaker 8: other things.
Speaker 2: Terry, I appreciate your input as always. Thanks for catching
Speaker 2: up with this this morning. Terry Hanes there Panchaia policy,
Speaker 2: Johnna's Commas Ministry writing, if such a situation occurs, China
Speaker 2: will never accept it and will resolutely take reciprocal countermeasures.
Speaker 2: Lada middle of the China basebook joins us now for
Speaker 2: more Leada and welcome to the program. So let's talk
Speaker 2: about China. The President keeps saying China wants to come
Speaker 2: to the table and make a deal. Are you seeing
Speaker 2: any sign that China is willing to come to the table.
Speaker 10: Not yet, But I don't think coming to the table
Speaker 10: is that big a lift for either side. You know,
Speaker 10: if you if you read the headlines, it makes it
Speaker 10: look like the United States is spiraling in one direction,
Speaker 10: China's spiraling in the other direction. There's just nothing that
Speaker 10: could bridge the gap. But the real gap right now
Speaker 10: is these enormously high teriffs. But there's there's just not
Speaker 10: that much difference between one hundred and forty five percent
Speaker 10: tariffs one hundred and forty five thousand percent terraffs because
Speaker 10: you just don't have Chinese goods that are competitive at
Speaker 10: anywhere near that level. So there is a you know,
Speaker 10: whether it's one forty five down to some other level,
Speaker 10: to one twenty five, one oh five eighty five, there's
Speaker 10: these are arbitrary levels. There's nothing economically significant about staying
Speaker 10: at these levels, which means the President could take these
Speaker 10: levels down, not be giving up anything of economic substance,
Speaker 10: but bring the Chinese back to the table. Are they
Speaker 10: prepared to do that? Maybe not yet, but they have
Speaker 10: that card in their pocket. And I think that if
Speaker 10: if that was something that the White House dangled, then
Speaker 10: I think that the Chinese would be recepted to it.
Speaker 2: And Lena one that it goes once the negotiations began,
Speaker 2: what would you anticipate the negotiations would be over.
Speaker 10: Well, that is the big question, and that's actually the
Speaker 10: big question with every trade deal, you know, the you.
Speaker 9: Know, the talk.
Speaker 10: Coming out a lot of these these uh these negotiation
Speaker 10: rooms is what in the world does the United States want?
Speaker 10: Does it simply want to narrow the trade deve sit
Speaker 10: does it want some sort of other uh you know, uh,
Speaker 10: you know.
Speaker 9: Victories in other lanes. Nobody really knows.
Speaker 10: I would say that the US China trade negotiations could
Speaker 10: go in two different directions. You could have a you know,
Speaker 10: a TikTok, a feednel cooperation, and you know, maybe some
Speaker 10: concessions about Panama Canal look, you know, uh, properties, along
Speaker 10: with some more buying, which is basically phase one plus.
Speaker 9: That's something that Chinese.
Speaker 10: Are probably very interested in coming to the table with
Speaker 10: if they can get a receptive audience to the US side.
Speaker 10: If it's more than that, if there are more uss
Speaker 10: this becomes a lot more difficult certainly the United States
Speaker 10: and not gon to be able to tell China to
Speaker 10: restructure and have that happen. So basically, the administration has
Speaker 10: to come out with a list of demands and then
Speaker 10: the Chinese can see whether they're serious or not. Until
Speaker 10: that happens, you know, they're talking past each.
Speaker 1: Other leland who has the more leverage at this point,
Speaker 1: Given the fact that some people believe that the US
Speaker 1: would be disproportionately hurt by some of the export bands
Speaker 1: or the export restrictions put on by China.
Speaker 10: Well it's tricky because if this were a bilateral spat,
Speaker 10: the US would have considerably more leverage because of the
Speaker 10: size of the of the trade deficit. That doesn't mean
Speaker 10: that China hasn't worked for years in order to create
Speaker 10: supply chain choke points to create other vulnerabilities, you know,
Speaker 10: in US supply chains. That's absolutely true, But I think
Speaker 10: the United States would have more in a one on
Speaker 10: one matchup. The problem is this is going on in
Speaker 10: the backdrop of huge dislocations around the globe in trade.
Speaker 10: As tariffs are being weighed. Are they going to stay lower,
Speaker 10: are they going to be much much higher? Nobody really knows.
Speaker 10: So with the uncertainty, it's create another complica shi for
Speaker 10: the administration in saying we're solid here, We're going to
Speaker 10: force this on you. It just muddies the picture in
Speaker 10: a way that would not be true if this were
Speaker 10: a one on one battle.
Speaker 1: Adding on to the muddied pictures, some people are speculating
Speaker 1: that in the United States, as the government looks to
Speaker 1: a trench spending and start to really just get its
Speaker 1: balance seat in order, China's expanding and you're going to
Speaker 1: see the growth on the back end of that, and
Speaker 1: you're already starting to see consumer activity picking back up,
Speaker 1: I know that Leland, you track this really well in
Speaker 1: terms of anecdotal and non government sources, in terms of
Speaker 1: the economic activity. How much is the truth matching the narrative.
Speaker 10: Well, you'll be shocked to hear the truth right now
Speaker 10: is not matching the narrative. Obviously, Beijing has a reason
Speaker 10: to look like they have fortified their economy for whatever
Speaker 10: is to come. And I think to some degree they
Speaker 10: have preped prepped the system for being able to do
Speaker 10: bigger fiscal etc.
Speaker 9: If they need to do it down the line.
Speaker 10: But you look at our data and you see consumption
Speaker 10: conse sometion is very weak. You know, Q one wasn't
Speaker 10: a terrible quarter, but March was weak. Consumption was weak.
Speaker 9: Why why were some of the things not worse off?
Speaker 10: Because you had a sort of rebound in property and
Speaker 10: you had a rebound in parts of industry. The consumption,
Speaker 10: the consumption side of things do not look good. So
Speaker 10: nothing they're doing on that side is showing a real effect.
Speaker 10: So I don't think that they're not falling off a cliff.
Speaker 9: They're not. They're not in doomsday yet, but they're certainly not.
Speaker 10: The consumer is not coming to the rescue right now
Speaker 10: and probably in China never will leland.
Speaker 7: When can we expect a call between President Trump and
Speaker 7: Shuji Pain.
Speaker 9: When the ten years sends the right signal?
Speaker 10: I mean, look to their credit, the administration came into
Speaker 10: this saying we're going to do what we want to
Speaker 10: do on tariffs, and we're not going to be dissuaded
Speaker 10: by short term market movements. That's the equities market, and
Speaker 10: that's true, but the bond market has a much more
Speaker 10: restraining effect on everyone, and that includes the White House.
Speaker 10: And so I think what you're going to see is
Speaker 10: the bond market talking. If it continues to show displeasure,
Speaker 10: there's going to be increasing pressure on administration to do something,
Speaker 10: not necessarily peel back in a massive way on this
Speaker 10: or that, but show that they.
Speaker 9: Have a game plan.
Speaker 10: And the game plan is not to abandon the US
Speaker 10: dollar as a reserve currency. So they have to move
Speaker 10: towards solidifying something that has hard themes that markets can trust,
Speaker 10: and to the extent that they need to give concessions
Speaker 10: with rates at ten percent everywhere around the globe except China.
Speaker 9: That's one place that they may end up moving.
Speaker 7: It feels like when you hear from the president or
Speaker 7: the Press secretary.
Speaker 5: They're saying, we're waiting for she to call.
Speaker 7: We're going to be very gracious when the Chinese reach out.
Speaker 6: Are you saying that if we see a.
Speaker 7: Higher ten year yield, it's going to be the United
Speaker 7: States trying to get on the phone with Hijinpaning, not
Speaker 7: the other way around.
Speaker 10: I think there's a lot more trying to get on
Speaker 10: the phone between the two of them than people are
Speaker 10: talking about. The narrative is always going to be not us,
Speaker 10: it was them, and that's going to be the story
Speaker 10: in China.
Speaker 9: That's going to be the story of the United States.
Speaker 10: But all they really need to do is put something
Speaker 10: on the table that looks like that there are be
Speaker 10: tariff concessions on the US side, and that there's a
Speaker 10: willingness to talk on the Chinese side. I'm not saying
Speaker 10: that they're they're there yet, but this is because the
Speaker 10: rates are arbitrary. As we discussed before, there's nothing that's
Speaker 10: that that you know, it pushes the White House to
Speaker 10: keep the rates at one hundred and forty five or
Speaker 10: one five or one oh five or eighty five or
Speaker 10: any particular amount that means that there is wiggle room,
Speaker 10: and I think if you have market pressures, particularly from
Speaker 10: the bond market, then you're going to have the two
Speaker 10: sides magically find reasons to come together.
Speaker 2: Hey, Leidan, got ahea from you? Leida meta that of
Speaker 2: China and Iceberg. Cameron Dilson in New West twelth Sanga
Speaker 2: lack of fend independence is a quote bad scenario for
Speaker 2: the US economy and what we call a zoo statement
Speaker 2: by the supposed statement on the show and a best
Speaker 2: state now on the lunk end camera joins just now
Speaker 2: for me for more, Cameron, good to see you, Good
Speaker 2: to see you zoo statement. I've never heard that before
Speaker 2: in my life.
Speaker 9: Where did that come from?
Speaker 11: So the idea is that you get both a ball
Speaker 11: and a bear steepener. It's very much a welcome to
Speaker 11: the jungle kind of moment because we think it is
Speaker 11: a bad scenario for the US economy as you have
Speaker 11: a bowl sleeper on the front end, shortened yields fall
Speaker 11: that hurts cash interest income on money market accounts. Think
Speaker 11: about those record money market balances that had been generating big,
Speaker 11: huge cash interest for individuals. Then on the long end
Speaker 11: of the curve, if you get a bear steepener the
Speaker 11: long end moving higher. You don't get the benefit to
Speaker 11: the mortgage market, you don't get a benefit to corporate finance.
Speaker 11: So the end result is that you get pinched on
Speaker 11: both sides, with lower yields at the front end and
Speaker 11: higher yields at the back end.
Speaker 2: Do you think this nervousness around FED independence is a
Speaker 2: reason to step away from the long end.
Speaker 11: It certainly seems that that's how the market is trading now.
Speaker 11: I would note that the tenure treasury yield is effectively
Speaker 11: exactly where it was pre Liberation Day. So for all
Speaker 11: of this volatility where we had yields move much lower
Speaker 11: than move much higher, we're right back where we started.
Speaker 11: So if we really do see a de anchoring of
Speaker 11: the long end of the yield curve, that would be notable.
Speaker 11: But at this point it's just all involve volatility and
Speaker 11: a lot of sideways chop.
Speaker 1: Given all of the volatility, where are the comforting matras
Speaker 1: like don't fight the FED or watch the data and
Speaker 1: data dependency? What's your north star? As we were talking
Speaker 1: about earlier in the show.
Speaker 5: Look, it's really difficult.
Speaker 11: If this were a movie, we would say how to
Speaker 11: lose exceptionalism in less than ten trading days, meaning that
Speaker 11: you have called into question these economic world orders that
Speaker 11: have been so powerful for US companies and being able
Speaker 11: to benefit from falling interest rates, from the ability to
Speaker 11: benefit from rising margins over time, and so the end
Speaker 11: result is that we're all asking huge, major tectonic shift questions.
Speaker 3: Well, okay, so then.
Speaker 5: What do you do with that?
Speaker 1: I mean, this is sort of the big question, right
Speaker 1: can you follow that or do you start saying you
Speaker 1: can't change the world in ten days. There are going
Speaker 1: to be some checks and balances and things that will
Speaker 1: take time, and so you can't throw it away.
Speaker 5: I think that diversification is your friend, and.
Speaker 11: If you look at the ability to be able to
Speaker 11: have a diverseified global equity portfolio, I think it's even
Speaker 11: more powerful today than it was over the last fifteen years.
Speaker 11: You've been in a fifteen year relative bear market for
Speaker 11: non US stocks, and so you're finally starting to ask
Speaker 11: the question of is are these non US companies having
Speaker 11: a better place and role in a portfolio? Simply because
Speaker 11: we're seeing these dynamics of potentially potentially money moving out
Speaker 11: of the US into the rest of the world.
Speaker 7: What does this mean for the US economy real large,
Speaker 7: the zoo steepener.
Speaker 11: We do think it weighs on growth, and we think
Speaker 11: that growth estimates are still too high.
Speaker 5: You're sitting at a level of.
Speaker 11: GDP estimates for twenty twenty five at one point seven percent.
Speaker 11: That's down from two point three percent. That's down from
Speaker 11: twenty twenty four and twenty twenty three numbers, but it
Speaker 11: certainly is not to the point where you're pricing in
Speaker 11: some kind of recession. So we think that also translates
Speaker 11: to corporate earnings that are likely too high as well.
Speaker 11: You have nine percent growth this year, thirteen percent growth
Speaker 11: next year, so trading at nineteen and a half times,
Speaker 11: this market hasn't fully calibrated to a lower growth world.
Speaker 7: Do you think that's because the market is still waiting
Speaker 7: on deals to come out of the.
Speaker 5: White House one hundred percent.
Speaker 11: There's still a lot of optimism that this could just
Speaker 11: be a short term bargaining tactic. But if you actually
Speaker 11: see these tariffs get applied, we think that growth estimates
Speaker 11: again are just far too high.
Speaker 2: We hear so much of this. I saw it from
Speaker 2: Jonathan Krinsky of BTICH for the weekend. We still get
Speaker 2: the sense that many assume a tweet about tariffs can
Speaker 2: eraise all the damage that has been done. When do
Speaker 2: you think we get in the wake cup cool? Because
Speaker 2: at the moment the date is being flattened by a
Speaker 2: pull forward a purchases. We saw that and retail sales
Speaker 2: in the last week. When is the way cup cool
Speaker 2: come deeper into summer?
Speaker 11: Yeah, we think it actually will take longer. So we
Speaker 11: do think that hard data is going to soften. Hard
Speaker 11: data is certainly being flattering by a lot of pull forward.
Speaker 5: Look at the Dallas Activity.
Speaker 11: Index, it's having some of its best time since November.
Speaker 11: You've also seen big upticks in things like autos as
Speaker 11: well as imports. None of that will last. We think
Speaker 11: that that will eventually slow. But the challenge you have
Speaker 11: is that it's going to take time, and that means
Speaker 11: that the FED is going to take time because the
Speaker 11: FED has been very explicit they're waiting for hard data
Speaker 11: to slow in a more meaningful way to take action,
Speaker 11: which just means that they will be late to the
Speaker 11: game this time around.
Speaker 1: What does the wake up call look like in equity markets?
Speaker 11: We do think that you're in an environment where you
Speaker 11: can see short term rallies because positioning has gotten so light.
Speaker 11: It's incredibly important to note Deutsche Bank consolidated positioning is
Speaker 11: in the second percentile, so it doesn't get much worse
Speaker 11: than that. That allows you to lift in the short run,
Speaker 11: but you are in a down trend. You have a
Speaker 11: death cross that happened last week. You have momentum that
Speaker 11: has faded, which means that you can have these rallies,
Speaker 11: but they likely roll over and that will then result
Speaker 11: in people starting to finally move out of equities and
Speaker 11: potentially reduce equity positions, which adds to further volatility, so.
Speaker 1: Lower and potentially a lot lower. This really goes to
Speaker 1: the ultimate question, and it's kind of where we started,
Speaker 1: which is how much at that point if you do
Speaker 1: see true economic weakening, do bonds attract that cash back.
Speaker 11: I think eventually they do, but you have to see
Speaker 11: yields move higher to draw people back into this market
Speaker 11: before people see them as a safe haven trade, which
Speaker 11: just means that bonds don't play the same kind of
Speaker 11: volatility dampening role in portfolios that they used to. We
Speaker 11: think once you start seeing hard data weekend, that's when
Speaker 11: people will step into bonds. But it's one of those
Speaker 11: moments where it has to get worse before it gets better.
Speaker 6: What's playing that role now?
Speaker 3: Is it just gold for everyone?
Speaker 5: Yeah, it certainly seems that way.
Speaker 11: The one thing we'd note about gold is that it
Speaker 11: is technically overbought and you have seen very aggressive inflows
Speaker 11: into gold, which suggests that you could see a breather,
Speaker 11: but the uptrend is very very powerful.
Speaker 2: Race is the question, what does diversification make in twenty
Speaker 2: twenty five versus years gone by? We hear the day
Speaker 2: would all the time diversify, diversify into wa and away
Speaker 2: from What What does that mean now?
Speaker 5: Yeah, so it means that you have to get really creative.
Speaker 11: At the end of last year, we've said that we
Speaker 11: thought equities would be higher volatility and lower return. So
Speaker 11: we launched an uncorrelated strategy with looked at everything from
Speaker 11: water rates to lit gaition finance to infrastructure, things that
Speaker 11: don't derive their return streams from traditional equity markets or
Speaker 11: what the FED is doing. But again, its creativity. It
Speaker 11: is not something that is typically in your sixty forty portfolio.
Speaker 2: Karon, I appreciate your time. Cameron Dawson of New h
Speaker 2: WELF with a so called zoo Stiegner. This is the
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