1 00:00:00,080 --> 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 --> 00:00:36,519 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. I'm want to 10 00:00:36,520 --> 00:00:39,400 Speaker 2: bringing Stephanie Roth of Wolf Research into the conversation. Stephanie 11 00:00:39,400 --> 00:00:41,840 Speaker 2: in morning, Good morning, your reaction to this one please? 12 00:00:42,640 --> 00:00:44,640 Speaker 3: It was a strong one, Gren. 13 00:00:44,720 --> 00:00:47,280 Speaker 4: We had some you know, down revisions to the prior month, 14 00:00:47,320 --> 00:00:50,199 Speaker 4: but the net trend is pretty strong. The challenge is 15 00:00:50,240 --> 00:00:53,320 Speaker 4: looking forward. There's a pretty big cliff from an economic 16 00:00:53,360 --> 00:00:56,400 Speaker 4: perspective in heading into the next couple of months, and 17 00:00:56,480 --> 00:01:00,240 Speaker 4: if we don't get a significant downward shift in the 18 00:01:00,280 --> 00:01:03,120 Speaker 4: tariff rate from China, then things like the strength and 19 00:01:03,160 --> 00:01:06,160 Speaker 4: transportation and warehousing is going to very much shut off. 20 00:01:06,520 --> 00:01:08,440 Speaker 5: If I were a pessimist, not that I am. But 21 00:01:08,520 --> 00:01:10,560 Speaker 5: if I were a pessimist, if I wanted to look 22 00:01:10,560 --> 00:01:12,679 Speaker 5: at the negative side of this, I would say it 23 00:01:12,720 --> 00:01:14,560 Speaker 5: gives a FED no excuse to even come close to 24 00:01:14,560 --> 00:01:17,160 Speaker 5: cutting rates, and that potentially they have no reason to 25 00:01:17,160 --> 00:01:19,680 Speaker 5: signal that they are concerned about a true weakening in 26 00:01:19,720 --> 00:01:22,240 Speaker 5: the economy that is politically fraught as well as not 27 00:01:22,319 --> 00:01:25,640 Speaker 5: represented in the data. How much does that increase the 28 00:01:25,680 --> 00:01:27,720 Speaker 5: backside of the year and the potential weakness that you 29 00:01:27,720 --> 00:01:30,560 Speaker 5: could see down the line if the FED is disinclined 30 00:01:30,760 --> 00:01:32,960 Speaker 5: to really make any movement, I think that's right. 31 00:01:33,080 --> 00:01:34,600 Speaker 4: There's no reason for the FED to be cutting or 32 00:01:34,640 --> 00:01:36,800 Speaker 4: signaling that they're going to be cutting anytime soon. At 33 00:01:36,800 --> 00:01:38,720 Speaker 4: this point, the economy is fine. They have to be 34 00:01:38,760 --> 00:01:42,000 Speaker 4: reacting to the unemployment rate, which is kind of steady 35 00:01:42,040 --> 00:01:44,560 Speaker 4: as the four to two, and they're concerned about the 36 00:01:44,640 --> 00:01:46,520 Speaker 4: inflation backdrop, but for now they just have to sit 37 00:01:46,560 --> 00:01:48,320 Speaker 4: and wait. They have to wait until they see an 38 00:01:48,360 --> 00:01:51,440 Speaker 4: actual rise in the unemployment rate before they can make 39 00:01:51,480 --> 00:01:54,040 Speaker 4: notable changes. And at this point the economy is okay 40 00:01:54,080 --> 00:01:56,240 Speaker 4: and consumption has been okay up until this point, so 41 00:01:56,360 --> 00:01:57,640 Speaker 4: it's just wait and see for the FED. 42 00:01:57,760 --> 00:01:59,520 Speaker 5: On the flip side, to Muhammed's point, and this is 43 00:01:59,520 --> 00:02:01,640 Speaker 5: the reason why this is such a mentally twisting kind 44 00:02:01,640 --> 00:02:04,560 Speaker 5: of moment. You could say, well, the economy has a 45 00:02:04,560 --> 00:02:07,080 Speaker 5: lot of momentum. We're coming into this very strong. We 46 00:02:07,160 --> 00:02:08,840 Speaker 5: might get something of a hip, but it might be 47 00:02:08,880 --> 00:02:11,880 Speaker 5: a disinflationary shock of anything, which might help out the FED, 48 00:02:12,160 --> 00:02:14,079 Speaker 5: and then we end up back in the soft landing 49 00:02:14,120 --> 00:02:17,040 Speaker 5: type of narrative. How much does this give you confidence 50 00:02:17,200 --> 00:02:20,120 Speaker 5: that we still have that potential even amid all of 51 00:02:20,160 --> 00:02:20,880 Speaker 5: the uncertainty. 52 00:02:21,240 --> 00:02:23,480 Speaker 4: So base case at this point is the economy Ken 53 00:02:23,880 --> 00:02:28,400 Speaker 4: Averter session, although barely if policymakers actually start to change 54 00:02:28,400 --> 00:02:29,720 Speaker 4: their tune a little bit, which we are starting to 55 00:02:29,720 --> 00:02:31,800 Speaker 4: see out of Washington to Stoma extent and the headlines 56 00:02:31,800 --> 00:02:35,079 Speaker 4: around potentially some of the conversations with China certainly helps. 57 00:02:35,560 --> 00:02:37,640 Speaker 4: So base cases that they'll change their tune a little bit. 58 00:02:37,639 --> 00:02:39,880 Speaker 4: If we end up with ten percent across the board 59 00:02:39,960 --> 00:02:44,840 Speaker 4: tariffs and tariffs on China fifty percent maybe forty percent, 60 00:02:45,120 --> 00:02:47,000 Speaker 4: then the economy can be okay. This year you just 61 00:02:47,000 --> 00:02:50,040 Speaker 4: have a one percent or so shock on the economy, 62 00:02:50,080 --> 00:02:53,399 Speaker 4: But having this solid momentum heading into this certainly does help. 63 00:02:53,600 --> 00:02:55,680 Speaker 1: How much do you how much time do they have 64 00:02:55,800 --> 00:02:58,280 Speaker 1: to change their tune, as you say, to avoid the 65 00:02:58,280 --> 00:03:00,760 Speaker 1: most difficult damage. 66 00:03:01,200 --> 00:03:03,200 Speaker 3: We have a couple of weeks, weeks, not months. 67 00:03:03,240 --> 00:03:04,679 Speaker 4: We have weeks, not months. I was just talking to 68 00:03:05,160 --> 00:03:07,600 Speaker 4: the guests from the Port of la just just just 69 00:03:07,600 --> 00:03:09,760 Speaker 4: before this, and they were discussing the you know, the 70 00:03:09,919 --> 00:03:13,080 Speaker 4: amount of time, especially smaller retailers have. They don't have 71 00:03:13,120 --> 00:03:14,000 Speaker 4: these big warehouses. 72 00:03:14,040 --> 00:03:14,920 Speaker 3: They have a couple of weeks. 73 00:03:15,080 --> 00:03:17,000 Speaker 4: Take a bike shop, for example, they have just a 74 00:03:17,000 --> 00:03:19,120 Speaker 4: couple of weeks worth of inventory and they wait for 75 00:03:19,160 --> 00:03:20,919 Speaker 4: the next shipment, and if the shipments aren't coming in, 76 00:03:21,040 --> 00:03:22,480 Speaker 4: it's going to become a problem. They're going to have 77 00:03:22,520 --> 00:03:24,360 Speaker 4: to just shut down because they'll have one or two 78 00:03:24,400 --> 00:03:25,200 Speaker 4: bikes left for sale. 79 00:03:25,360 --> 00:03:27,080 Speaker 2: These are the empty shams that people worry about if 80 00:03:27,080 --> 00:03:29,040 Speaker 2: you are just joining us. Seven minutes ago, we just 81 00:03:29,040 --> 00:03:31,440 Speaker 2: got the payrolls report. It came in at one seventy seven. 82 00:03:31,800 --> 00:03:34,840 Speaker 2: The media estimate our survey was one thirty eight. The 83 00:03:34,920 --> 00:03:37,440 Speaker 2: unemployment rate expected to hold at four point two percent, 84 00:03:37,480 --> 00:03:39,839 Speaker 2: and it did four point two percent. They're the two 85 00:03:39,840 --> 00:03:43,000 Speaker 2: headline numbers we often think about, my McKey, you look 86 00:03:43,040 --> 00:03:45,200 Speaker 2: beyond the headlines. Some up for us if you just 87 00:03:45,280 --> 00:03:47,360 Speaker 2: missed it, what did you miss? Well? 88 00:03:47,440 --> 00:03:50,440 Speaker 6: Right now, what I'm seeing is some impacts. It looks 89 00:03:50,520 --> 00:03:54,080 Speaker 6: like in the tariff areas or two be tearifft areas. 90 00:03:54,480 --> 00:03:58,480 Speaker 6: Computers lost four construction lost four thousand jobs, se my 91 00:03:58,600 --> 00:03:59,720 Speaker 6: conductors lost. 92 00:03:59,480 --> 00:04:00,520 Speaker 3: Eleven one hundred. 93 00:04:01,360 --> 00:04:04,680 Speaker 6: Primary metal jobs were down by one hundred, apparel jobs 94 00:04:04,720 --> 00:04:09,080 Speaker 6: down by three hundred, and government workers down by nine thousand. 95 00:04:09,200 --> 00:04:11,560 Speaker 6: Leave out the postal service, but they got some dodge 96 00:04:11,600 --> 00:04:13,680 Speaker 6: cuts too, and you have eight and a half thousand, 97 00:04:13,800 --> 00:04:17,880 Speaker 6: so you are seeing some impacts from the administration's moves 98 00:04:17,920 --> 00:04:21,240 Speaker 6: already in terms of the unemployment rate, the unemployment rate 99 00:04:21,320 --> 00:04:25,440 Speaker 6: actually rises by a few basis points. The three digits 100 00:04:25,520 --> 00:04:27,720 Speaker 6: is four point one eighty seven from four point one 101 00:04:27,880 --> 00:04:31,840 Speaker 6: five to two. So we came very close to getting 102 00:04:31,920 --> 00:04:34,680 Speaker 6: a four point three handle, but it didn't move. And 103 00:04:34,760 --> 00:04:37,919 Speaker 6: as you're talking about, unless the fancies the unemployment rate moving, 104 00:04:38,279 --> 00:04:39,040 Speaker 6: they're not moving. 105 00:04:39,200 --> 00:04:41,440 Speaker 2: The equity bills get and everything they won this morning, Lisa, 106 00:04:41,520 --> 00:04:44,200 Speaker 2: I better jobs put the potential for talks between the 107 00:04:44,279 --> 00:04:47,719 Speaker 2: US and China, and potentially a ninth consecutive to have 108 00:04:47,760 --> 00:04:48,480 Speaker 2: gains on the SMP. 109 00:04:48,839 --> 00:04:50,960 Speaker 5: I guess I'm trying to understand, if you flip this 110 00:04:51,000 --> 00:04:53,120 Speaker 5: of its head and you talk about real strength in 111 00:04:53,160 --> 00:04:55,359 Speaker 5: the economy and you talk about the potential for a deal, 112 00:04:55,680 --> 00:04:59,200 Speaker 5: are we underestimating the inflationary pressure? Are we underestimating just 113 00:04:59,279 --> 00:05:01,920 Speaker 5: how much growth there is that potentially is not being 114 00:05:01,920 --> 00:05:04,719 Speaker 5: accounted for by the Fed or by the rest of 115 00:05:04,720 --> 00:05:05,200 Speaker 5: the universe. 116 00:05:05,200 --> 00:05:05,520 Speaker 2: I don't know. 117 00:05:05,560 --> 00:05:06,159 Speaker 3: I'm just wondering. 118 00:05:06,200 --> 00:05:08,240 Speaker 5: Maybe people were saying there's a difference between the bond 119 00:05:08,320 --> 00:05:10,040 Speaker 5: market and the stock market, and the bond market's so 120 00:05:10,040 --> 00:05:11,880 Speaker 5: smart and it's always right. Maybe the stock market was 121 00:05:11,960 --> 00:05:13,880 Speaker 5: right and all of a sudden you need to repose 122 00:05:13,960 --> 00:05:14,880 Speaker 5: things on the other end. 123 00:05:14,800 --> 00:05:17,560 Speaker 2: Pretzels, is that what we're making this smilet. Let me 124 00:05:17,600 --> 00:05:19,760 Speaker 2: put it this way. Whether this number is weak or strong, 125 00:05:20,120 --> 00:05:22,760 Speaker 2: the risk was always that we extrapolated it out. The 126 00:05:22,800 --> 00:05:24,800 Speaker 2: policy shock that we've had in the last month is 127 00:05:24,839 --> 00:05:27,320 Speaker 2: so large that the distortions you'll see in the data 128 00:05:27,400 --> 00:05:29,200 Speaker 2: not just this month, the month after that, the month 129 00:05:29,240 --> 00:05:31,400 Speaker 2: after that. Just to go back to Gen Soroka again 130 00:05:31,640 --> 00:05:34,080 Speaker 2: at the Port of la he's telling you, he's basically 131 00:05:34,120 --> 00:05:36,400 Speaker 2: telling you what things look like now and how long 132 00:05:36,440 --> 00:05:38,400 Speaker 2: it'll take to get things back to normal. Even if 133 00:05:38,440 --> 00:05:40,360 Speaker 2: you strike a deal tomorrow, which is. 134 00:05:40,279 --> 00:05:41,520 Speaker 5: The reason why if you take a look at the 135 00:05:41,520 --> 00:05:44,000 Speaker 5: two year yield, it's almost completely retraced back to where 136 00:05:44,040 --> 00:05:46,360 Speaker 5: it was before this print. Because people are looking through this, 137 00:05:46,480 --> 00:05:48,760 Speaker 5: they're saying, this is not what we're going to experience 138 00:05:48,839 --> 00:05:49,799 Speaker 5: in the upcoming months. 139 00:05:49,920 --> 00:05:52,840 Speaker 2: Jeff Rosenberg of Black Rock jumps into the conversation. Now, Jeff, 140 00:05:52,880 --> 00:05:55,240 Speaker 2: welcome to the program. We want your thoughts on where 141 00:05:55,279 --> 00:05:57,640 Speaker 2: things are, how we're set up going into the opening 142 00:05:57,680 --> 00:05:58,880 Speaker 2: bow fifty minutes away. 143 00:06:00,120 --> 00:06:03,480 Speaker 7: Yeah, you know, first point here, just agree with Muhammad's 144 00:06:03,480 --> 00:06:07,159 Speaker 7: take that this is about where is the economy coming 145 00:06:07,200 --> 00:06:09,320 Speaker 7: into the shock, and this is a good report, and 146 00:06:09,360 --> 00:06:13,279 Speaker 7: that's important. You've got more resilience when you're coming to 147 00:06:13,400 --> 00:06:15,680 Speaker 7: a shock from a place of strength. You know, you 148 00:06:15,720 --> 00:06:22,239 Speaker 7: look through the report, across payrolls, across earnings, hourly hours worked, 149 00:06:22,400 --> 00:06:23,479 Speaker 7: it's all strong. 150 00:06:23,520 --> 00:06:24,520 Speaker 3: Now, that's that's the first point. 151 00:06:24,520 --> 00:06:27,960 Speaker 7: The second point is, unfortunately, it's really less relevant to 152 00:06:28,080 --> 00:06:31,279 Speaker 7: the go forward because this is kind of you know, yes, 153 00:06:31,320 --> 00:06:34,240 Speaker 7: it's our first hard data, but it's really pre the 154 00:06:34,279 --> 00:06:37,240 Speaker 7: tariff shock. And as we're discussing that tariff shock and 155 00:06:37,279 --> 00:06:39,920 Speaker 7: the size and the scope and the amount of exemptions, 156 00:06:40,400 --> 00:06:44,360 Speaker 7: that's evolving, but none of this data really reflects the 157 00:06:44,400 --> 00:06:46,160 Speaker 7: impact of the shock, and we'll have to see that 158 00:06:46,240 --> 00:06:48,680 Speaker 7: data show up. And that's the third point here, is 159 00:06:48,680 --> 00:06:51,440 Speaker 7: that the FED and they're going to have to wait, 160 00:06:52,279 --> 00:06:54,080 Speaker 7: and they're going to have to wait until they see 161 00:06:54,120 --> 00:06:57,200 Speaker 7: any kind of impact in terms of arise in the 162 00:06:57,279 --> 00:06:59,680 Speaker 7: unemployment rate. And until you see that, you're not going 163 00:06:59,760 --> 00:07:02,919 Speaker 7: to really see any kind of expectations of FED intervention. 164 00:07:03,040 --> 00:07:05,039 Speaker 3: And as the other guest was saying. 165 00:07:05,200 --> 00:07:08,320 Speaker 7: It's very hard for them to be preemptive and to 166 00:07:08,360 --> 00:07:11,480 Speaker 7: go to forecast dependence. This is data dependence, and this 167 00:07:11,520 --> 00:07:13,560 Speaker 7: is lagging data, and so that will be, you know, 168 00:07:13,600 --> 00:07:16,360 Speaker 7: really one of the last things to show up as 169 00:07:16,360 --> 00:07:18,480 Speaker 7: we talk about that in months ahead. 170 00:07:18,880 --> 00:07:20,720 Speaker 8: Traffic And if I may push you a little bit 171 00:07:20,720 --> 00:07:23,360 Speaker 8: on what you just said, So how you're navigating all 172 00:07:23,480 --> 00:07:29,320 Speaker 8: these serious puzzles soft data versus hot data. What about 173 00:07:29,320 --> 00:07:31,160 Speaker 8: the sequencing You hear some people say, yeah, we're going 174 00:07:31,160 --> 00:07:34,320 Speaker 8: to slow down, but don't worry, there's deregulation, there's tax 175 00:07:34,440 --> 00:07:37,600 Speaker 8: cuts coming, We're going to bounce right up. There's so 176 00:07:37,760 --> 00:07:40,280 Speaker 8: many issues right there that people are debating in a 177 00:07:40,400 --> 00:07:44,080 Speaker 8: very genuine manner. When you put it all together when 178 00:07:44,120 --> 00:07:46,560 Speaker 8: you look at the growth aight for the US. The 179 00:07:46,640 --> 00:07:49,760 Speaker 8: IMF last week took it down from two point seven 180 00:07:50,000 --> 00:07:52,600 Speaker 8: to one point eight for this year. A lot of 181 00:07:52,600 --> 00:07:55,800 Speaker 8: people thought they would go further down. They will go 182 00:07:55,840 --> 00:07:58,800 Speaker 8: more towards one percent. Where's blackrok right now in terms 183 00:07:58,840 --> 00:08:01,480 Speaker 8: of how all this nets out in terms of growth 184 00:08:01,520 --> 00:08:02,600 Speaker 8: for the US this year. 185 00:08:04,320 --> 00:08:08,440 Speaker 7: You know, we have a very broad diversified group of investors, 186 00:08:08,200 --> 00:08:11,760 Speaker 7: so Blackrock as a totality has a lot of different 187 00:08:11,760 --> 00:08:13,560 Speaker 7: investors with a lot of different points of view. I'll 188 00:08:13,600 --> 00:08:15,680 Speaker 7: tell you my point of view on this is that 189 00:08:15,720 --> 00:08:16,520 Speaker 7: we've had a shock. 190 00:08:17,000 --> 00:08:18,160 Speaker 3: Is the shock going. 191 00:08:17,920 --> 00:08:21,080 Speaker 7: To be as big as you know the immediate market 192 00:08:21,080 --> 00:08:24,680 Speaker 7: reaction in the post Liberation Day announcements. No, you see 193 00:08:24,720 --> 00:08:28,960 Speaker 7: the walk back from that, But the shock has affected 194 00:08:29,080 --> 00:08:32,160 Speaker 7: outcomes and the uncertainty. 195 00:08:31,520 --> 00:08:32,720 Speaker 3: About how big that will be. 196 00:08:33,160 --> 00:08:38,200 Speaker 7: Yes, we've probably cut off the tail because the administration's response, 197 00:08:38,840 --> 00:08:43,760 Speaker 7: the concern about financial markets and the negative reception, the 198 00:08:43,840 --> 00:08:47,160 Speaker 7: concern from the real economy participants, and the real effects 199 00:08:47,160 --> 00:08:51,600 Speaker 7: that these very very initial tariff policies we're having. 200 00:08:51,679 --> 00:08:52,920 Speaker 3: We're seeing that walked back. 201 00:08:53,240 --> 00:08:56,199 Speaker 7: However, you still have the damage to be seen and 202 00:08:56,200 --> 00:08:59,840 Speaker 7: that means likely some degree of slowdown. And even if 203 00:08:59,840 --> 00:09:03,920 Speaker 7: the tariff rates are much reduced from the initial proposal, 204 00:09:04,120 --> 00:09:07,560 Speaker 7: you're still talking about this kind of uncertainty. You know, 205 00:09:07,600 --> 00:09:11,679 Speaker 7: the FED brought back into the language a transitory effect 206 00:09:11,920 --> 00:09:17,280 Speaker 7: on inflation from the one time tariff increase. The big 207 00:09:17,360 --> 00:09:20,680 Speaker 7: question will be in an environment that is much more 208 00:09:20,800 --> 00:09:23,439 Speaker 7: used to price increases. You know, what are the second 209 00:09:23,520 --> 00:09:27,880 Speaker 7: order effects on inflation and inflation expectations as you see that, 210 00:09:28,040 --> 00:09:30,040 Speaker 7: you know, what should be a one time effect, is 211 00:09:30,040 --> 00:09:32,000 Speaker 7: it really a one time effect? And those will be 212 00:09:32,320 --> 00:09:34,679 Speaker 7: you know, the big focus I think you know in 213 00:09:34,679 --> 00:09:38,920 Speaker 7: our outlook, the vulnerability here is is the markets have 214 00:09:39,000 --> 00:09:42,720 Speaker 7: kind of repriced very quickly any kind of risk premium. 215 00:09:42,800 --> 00:09:44,640 Speaker 3: You see it in the round trip inequities. You see 216 00:09:44,679 --> 00:09:46,400 Speaker 3: it in the round trip and high yield spreads. 217 00:09:46,720 --> 00:09:49,640 Speaker 7: So there's not a lot of margin for safety with 218 00:09:49,760 --> 00:09:51,599 Speaker 7: respect to market pricing. 219 00:09:51,960 --> 00:09:53,160 Speaker 3: So for us, that's meant. 220 00:09:53,080 --> 00:09:55,800 Speaker 7: A little bit more of taking the opportunity is the 221 00:09:55,840 --> 00:09:58,640 Speaker 7: market has kind of moved to very quickly price in 222 00:09:58,960 --> 00:10:02,480 Speaker 7: more optimistic take to take a little more defensive positioning 223 00:10:02,520 --> 00:10:03,240 Speaker 7: in our portfolio. 224 00:10:03,320 --> 00:10:05,719 Speaker 2: Jeff, what does defensive positioning actually look like? What does 225 00:10:05,720 --> 00:10:09,959 Speaker 2: that mean in today's market, Yeah, for us. 226 00:10:09,880 --> 00:10:13,319 Speaker 7: You know, we run a liquid alternative fund that is 227 00:10:13,760 --> 00:10:18,000 Speaker 7: positioned as an alternative diversifier. So when we're thinking about 228 00:10:18,080 --> 00:10:21,160 Speaker 7: like our upside downside, we're going to be much more 229 00:10:21,559 --> 00:10:27,000 Speaker 7: sensitive to downside protection. And so defensiveness means up in quality. 230 00:10:27,040 --> 00:10:30,600 Speaker 7: For example, in our credit space, it means reducing some 231 00:10:30,679 --> 00:10:34,440 Speaker 7: of the more equity sensitive areas within the portfolio that 232 00:10:34,520 --> 00:10:37,760 Speaker 7: have the highest kind of beta, highest market reaction to 233 00:10:37,880 --> 00:10:42,000 Speaker 7: economic sensitivity to the potential that tariffs actually end up 234 00:10:42,120 --> 00:10:46,160 Speaker 7: leading to a much more adverse outcome for the economy. 235 00:10:46,160 --> 00:10:48,679 Speaker 7: And it means on the duration side, on the interest 236 00:10:48,760 --> 00:10:52,280 Speaker 7: rates side, because the flip side of the tariff piece 237 00:10:52,360 --> 00:10:54,720 Speaker 7: for growth is as I was just talking about the 238 00:10:54,800 --> 00:10:57,640 Speaker 7: kind of inflation and inflation uncertainty, and that leads to 239 00:10:57,720 --> 00:11:01,160 Speaker 7: a very different kind of bond market reaction where you 240 00:11:01,200 --> 00:11:03,360 Speaker 7: could have a twist steepening where you know, if the 241 00:11:03,440 --> 00:11:09,200 Speaker 7: FED preferences growth over inflation in a stagflationary shock, you 242 00:11:09,280 --> 00:11:12,600 Speaker 7: may have the back end longer maturity. 243 00:11:12,120 --> 00:11:13,920 Speaker 3: Rates not doing what you expect them to do. 244 00:11:13,960 --> 00:11:17,080 Speaker 7: And so that means kind of shortening our what we 245 00:11:17,120 --> 00:11:20,200 Speaker 7: call key rate duration. Where are we getting our exposures 246 00:11:20,280 --> 00:11:23,920 Speaker 7: for the diversification looking much more to the front end 247 00:11:23,920 --> 00:11:26,800 Speaker 7: of the curve than historically you would have thought, Hey, 248 00:11:26,840 --> 00:11:29,920 Speaker 7: the back end is really the best place. In today's environment, 249 00:11:29,960 --> 00:11:32,880 Speaker 7: I think the back end is much more vulnerable and 250 00:11:32,920 --> 00:11:36,400 Speaker 7: a stagflationary kind of outcome really changes how you think 251 00:11:36,400 --> 00:11:39,160 Speaker 7: about defensive positioning and fixed income portfolio. 252 00:11:39,200 --> 00:11:42,040 Speaker 5: You were talking to priamsra earlier JP Morgan Asset Management. 253 00:11:42,160 --> 00:11:44,600 Speaker 5: She said that thirty year treasuries were the risk asset 254 00:11:44,720 --> 00:11:47,120 Speaker 5: right now and doesn't really want to go there. 255 00:11:47,280 --> 00:11:47,760 Speaker 3: Do you feel the. 256 00:11:47,760 --> 00:11:51,800 Speaker 7: Same, Yeah, it's a similar it's a similar viewpoint. 257 00:11:51,840 --> 00:11:52,000 Speaker 2: Now. 258 00:11:52,000 --> 00:11:53,480 Speaker 3: You got to be careful because there are a lot 259 00:11:53,480 --> 00:11:54,320 Speaker 3: of cross currents. 260 00:11:54,400 --> 00:11:57,120 Speaker 7: There's a lot of potential for policy intervention and some 261 00:11:57,720 --> 00:12:00,040 Speaker 7: other changes, and you have to also be careful that 262 00:12:00,120 --> 00:12:03,560 Speaker 7: market positioning is preas talking about, it's a very popular, 263 00:12:03,640 --> 00:12:07,920 Speaker 7: kind of crowded viewpoint that the back end is vulnerable. 264 00:12:07,960 --> 00:12:10,760 Speaker 7: That being said, I think the base case is and 265 00:12:10,840 --> 00:12:12,560 Speaker 7: we've seen it here. We saw it in the post 266 00:12:12,720 --> 00:12:16,520 Speaker 7: tariff announcement, a big curve steepening that you do have 267 00:12:16,600 --> 00:12:18,880 Speaker 7: the potential here. You know, it used to be in 268 00:12:18,960 --> 00:12:22,520 Speaker 7: the zero interest rate environment post GFC flight to quality 269 00:12:22,640 --> 00:12:24,839 Speaker 7: was a curve flattener you wanted to own the thirty year. 270 00:12:25,640 --> 00:12:28,400 Speaker 7: In an earlier era, long before the GFC, we used 271 00:12:28,440 --> 00:12:31,120 Speaker 7: to think flight to quality was a curve steepener, and 272 00:12:31,160 --> 00:12:33,800 Speaker 7: I think we're back into that kind of environment. It 273 00:12:33,800 --> 00:12:36,440 Speaker 7: makes it a little bit challenging for investors who are 274 00:12:36,800 --> 00:12:39,400 Speaker 7: kind of cash limited because you don't get the same 275 00:12:39,600 --> 00:12:42,720 Speaker 7: kind of return for a dollar investment. It means you 276 00:12:42,760 --> 00:12:45,640 Speaker 7: need a little bit more flexibility in your portfolio toolkit 277 00:12:45,880 --> 00:12:48,959 Speaker 7: to use things like futures and leverage to equate your 278 00:12:49,360 --> 00:12:53,160 Speaker 7: diversification irrespective of where you are on the yield curve, 279 00:12:53,200 --> 00:12:55,680 Speaker 7: And a little bit more flexibility in the toolkit allows 280 00:12:55,720 --> 00:12:57,560 Speaker 7: investors like ourselves to be able to do that. 281 00:12:58,000 --> 00:13:00,839 Speaker 2: Jeff, thanks for jopping buying Jeff rosenbook of black Rock. 282 00:13:00,880 --> 00:13:02,599 Speaker 2: On the Latest in this Market, The Latest on the 283 00:13:02,679 --> 00:13:05,600 Speaker 2: Jobs Market one hundred and seventy seven k An upside 284 00:13:05,640 --> 00:13:08,400 Speaker 2: surprise on the jobs report with an industry breakdown. My 285 00:13:08,520 --> 00:13:10,240 Speaker 2: mckageo on this now with more Mike, what do you 286 00:13:10,280 --> 00:13:11,320 Speaker 2: go well. 287 00:13:11,160 --> 00:13:13,400 Speaker 6: John, Looking at some of the areas where you would 288 00:13:13,440 --> 00:13:15,960 Speaker 6: think the tariffs would have an impact, at least they 289 00:13:16,120 --> 00:13:21,280 Speaker 6: might some point, they haven't yet Today retailers lost one 290 00:13:21,320 --> 00:13:26,000 Speaker 6: point eight thousand jobs. But building materials, this is the 291 00:13:26,040 --> 00:13:28,840 Speaker 6: time of year when people would hire more for building 292 00:13:28,880 --> 00:13:31,160 Speaker 6: materials and garden centers. They were up by two point 293 00:13:31,280 --> 00:13:35,760 Speaker 6: seven by two thousand, seven hundred, and as I mentioned, 294 00:13:35,760 --> 00:13:39,240 Speaker 6: construction workers were up. Healthcare and social workers this is 295 00:13:39,280 --> 00:13:41,640 Speaker 6: the category that would include some of the workers that 296 00:13:41,720 --> 00:13:44,880 Speaker 6: would be laid off in terms of contractors or some 297 00:13:44,920 --> 00:13:47,679 Speaker 6: of the aid programs that the administration is slashed. But 298 00:13:47,720 --> 00:13:52,520 Speaker 6: they were up by seven point six thousand, seven six hundred. 299 00:13:52,880 --> 00:13:56,120 Speaker 6: So we're still seeing people getting hired into areas in 300 00:13:56,160 --> 00:13:58,120 Speaker 6: which you'd think there would be job cuts or that 301 00:13:58,160 --> 00:14:00,679 Speaker 6: they may be coming at some point, but we haven't 302 00:14:00,679 --> 00:14:04,160 Speaker 6: gotten there yet. Only two thousand people listed as job 303 00:14:04,200 --> 00:14:08,040 Speaker 6: losers this past month. So right now it looks like 304 00:14:08,120 --> 00:14:10,959 Speaker 6: the economy is still the labor market at least is 305 00:14:11,000 --> 00:14:11,760 Speaker 6: still pretty strong. 306 00:14:11,880 --> 00:14:14,120 Speaker 2: Mamma Kay, thank you. Breaking down the lap of market 307 00:14:14,160 --> 00:14:16,680 Speaker 2: for us this morning. Breaking down the commentary from the 308 00:14:16,679 --> 00:14:19,360 Speaker 2: White House, Amrie, the President with a few things to say, 309 00:14:19,400 --> 00:14:19,840 Speaker 2: a few. 310 00:14:19,640 --> 00:14:21,560 Speaker 1: Things to say, so about gasoline. He's saying it just 311 00:14:21,600 --> 00:14:24,560 Speaker 1: broke a dollar ninety eight. I'm actually looking at what 312 00:14:24,600 --> 00:14:27,120 Speaker 1: the national average is just above three dollars. He's talking 313 00:14:27,120 --> 00:14:29,920 Speaker 1: about energy down, employment strong, and get to the punchline. 314 00:14:29,960 --> 00:14:32,480 Speaker 1: Of course, he's saying this is a perfect moment for 315 00:14:32,520 --> 00:14:35,680 Speaker 1: the Fed chair j Powell to lower interest rates. The 316 00:14:35,840 --> 00:14:37,280 Speaker 1: job boning, Jonathan. 317 00:14:36,880 --> 00:14:39,440 Speaker 2: Continues, Stephanie is at the perfect time for Japowe to 318 00:14:39,480 --> 00:14:40,360 Speaker 2: lower interest rates. 319 00:14:40,440 --> 00:14:41,760 Speaker 8: It is not the perfect time. 320 00:14:41,920 --> 00:14:45,640 Speaker 4: It's the opposite. The economy is running okay right now. 321 00:14:45,760 --> 00:14:47,520 Speaker 4: They don't want to get ahead of this. They're going 322 00:14:47,600 --> 00:14:49,000 Speaker 4: to have to just wait and see what the impact 323 00:14:49,080 --> 00:14:51,520 Speaker 4: is from an employment perspective, and then an inflation perspective. 324 00:14:51,520 --> 00:14:53,120 Speaker 4: By the way, inflation could be running. 325 00:14:52,920 --> 00:15:04,560 Speaker 3: Up towards four percent at most. 326 00:15:04,600 --> 00:15:07,040 Speaker 2: Joins us now of Raymond James, and welcome to the program. 327 00:15:07,080 --> 00:15:08,520 Speaker 2: I want to get your thoughts on some of the 328 00:15:08,600 --> 00:15:10,920 Speaker 2: fiscal risk down in Washington, DC and how you think 329 00:15:10,920 --> 00:15:11,800 Speaker 2: things are stacking up. 330 00:15:12,680 --> 00:15:15,080 Speaker 9: Yeah, John, So, I think the number one goal of 331 00:15:15,120 --> 00:15:17,320 Speaker 9: this budget today is to get all of us to 332 00:15:17,360 --> 00:15:20,520 Speaker 9: repeat the point that it cuts or proposed to cut 333 00:15:20,680 --> 00:15:23,680 Speaker 9: one hundred and sixty three billion dollars. When I look 334 00:15:23,720 --> 00:15:26,600 Speaker 9: at the Hill and they're working on this reconciliation bill, 335 00:15:26,880 --> 00:15:29,160 Speaker 9: if they do what they want to do, the final 336 00:15:29,240 --> 00:15:31,440 Speaker 9: tab of this bill is going to be somewhere between 337 00:15:31,480 --> 00:15:34,400 Speaker 9: five and seven trillion dollars. Were going to have some 338 00:15:34,480 --> 00:15:36,360 Speaker 9: cuts and that may bring it down to three to 339 00:15:36,480 --> 00:15:39,640 Speaker 9: five trillion dollars, but let's be clear, that's going to 340 00:15:39,640 --> 00:15:42,360 Speaker 9: be the single most expensive bill in the history of 341 00:15:42,400 --> 00:15:44,400 Speaker 9: the United States. And so if I'm the president of 342 00:15:44,400 --> 00:15:47,360 Speaker 9: the United States and I'm asking Republicans to do that, 343 00:15:47,880 --> 00:15:51,760 Speaker 9: I probably want to create a narrative through doze, through 344 00:15:51,800 --> 00:15:56,200 Speaker 9: this budget, through tariffs, through the Treasury Secretary that we're 345 00:15:56,240 --> 00:15:59,120 Speaker 9: trying to cut government spending, that we're trying to get 346 00:15:59,160 --> 00:16:01,840 Speaker 9: a new revenue store, and with the Treasury Secretary telling 347 00:16:01,920 --> 00:16:05,800 Speaker 9: everyone they're concerned about the bond market. So this is 348 00:16:05,840 --> 00:16:10,120 Speaker 9: a political document as much as a budget. Today they'd like. 349 00:16:10,080 --> 00:16:13,120 Speaker 1: To create a narrative, ed, but does that narrative become reality? 350 00:16:14,120 --> 00:16:18,200 Speaker 9: Well, everything in politics, everything in life is compared to 351 00:16:18,360 --> 00:16:21,640 Speaker 9: what and so this is where they're also kind of, 352 00:16:22,040 --> 00:16:24,360 Speaker 9: you know, kind of laying this out amory where they're saying, 353 00:16:24,600 --> 00:16:27,520 Speaker 9: you have a choice as a congressional Republican, which one 354 00:16:27,560 --> 00:16:30,040 Speaker 9: do you want to vote for the largest tax increase 355 00:16:30,040 --> 00:16:32,720 Speaker 9: in the United States history or the largest tax cut 356 00:16:32,920 --> 00:16:35,800 Speaker 9: in the United States history, and if you vote for 357 00:16:36,200 --> 00:16:39,600 Speaker 9: kind of the largest tax cut, you are supporting the president. 358 00:16:39,920 --> 00:16:43,760 Speaker 9: And for Republicans, it's increasingly difficult to be opposed to 359 00:16:43,760 --> 00:16:47,320 Speaker 9: this president. And so yes, they're creating that narrative, and 360 00:16:47,400 --> 00:16:51,480 Speaker 9: they're creating a juxtaposition that most Republicans are going to take. 361 00:16:52,120 --> 00:16:55,200 Speaker 8: And I totally understand the first level of narrative. But 362 00:16:55,240 --> 00:16:57,440 Speaker 8: there's a second level of narrative, and that has to 363 00:16:57,480 --> 00:17:00,000 Speaker 8: do with the composition of the budget and in particular 364 00:17:00,320 --> 00:17:06,280 Speaker 8: the different impact of a significant spending cut and a 365 00:17:06,359 --> 00:17:10,240 Speaker 8: tax cut. They operate differently, and there is a second 366 00:17:10,280 --> 00:17:12,879 Speaker 8: narrative that says, you know what, this budget in the 367 00:17:12,960 --> 00:17:16,199 Speaker 8: short term will tip us closer to a recession. What 368 00:17:16,240 --> 00:17:16,880 Speaker 8: do you make of that? 369 00:17:17,800 --> 00:17:20,600 Speaker 9: Yeah, Mohammed, I think what the narrative I get out 370 00:17:20,600 --> 00:17:23,760 Speaker 9: of that is that this is administration who is very 371 00:17:23,880 --> 00:17:27,560 Speaker 9: clearly focused on cuts on the domestic side of things, 372 00:17:27,800 --> 00:17:31,160 Speaker 9: and yes, there are fiscal impacts of that, but they're 373 00:17:31,200 --> 00:17:33,439 Speaker 9: also trying to send the message that they want to 374 00:17:33,600 --> 00:17:37,680 Speaker 9: increase defense spending. This budget will be the first trillion 375 00:17:37,720 --> 00:17:41,480 Speaker 9: dollar proposal for annual spending on the defense budget. In 376 00:17:41,520 --> 00:17:44,160 Speaker 9: the reconciliation build. They want to add another one hundred 377 00:17:44,160 --> 00:17:47,679 Speaker 9: and fifty billion dollars to front and load that. I 378 00:17:47,680 --> 00:17:50,320 Speaker 9: think what we're seeing is historically in DC there's a 379 00:17:50,320 --> 00:17:53,600 Speaker 9: bit of a balance and discretionary spending between defense in 380 00:17:53,720 --> 00:17:56,560 Speaker 9: non defense, and this is a president who's saying, let's 381 00:17:56,600 --> 00:18:01,200 Speaker 9: skew this more towards defense versus non defense. How that 382 00:18:01,240 --> 00:18:05,320 Speaker 9: impacts the ultimate economy to be determined. But I think 383 00:18:05,359 --> 00:18:08,119 Speaker 9: what Republicans would say is when you add up the 384 00:18:08,359 --> 00:18:12,080 Speaker 9: kind of domestic R and D tax credit, bonus appreciation, 385 00:18:13,280 --> 00:18:15,719 Speaker 9: no tax on tips, no tax on social security, they 386 00:18:15,720 --> 00:18:19,080 Speaker 9: would say that's fiscal stimulus and could offset on the 387 00:18:19,680 --> 00:18:23,200 Speaker 9: kind of private sector what the government might be cutting 388 00:18:23,200 --> 00:18:24,160 Speaker 9: from this budget. 389 00:18:24,040 --> 00:18:26,560 Speaker 2: Appreciate the updates, sir, as always, thanks for jumping on 390 00:18:26,600 --> 00:18:38,920 Speaker 2: at MOS. There of Raymond James. Joining us now is 391 00:18:38,960 --> 00:18:42,160 Speaker 2: Stephen Meyer and the chairman of the Council of Economic Advisors. 392 00:18:42,160 --> 00:18:44,440 Speaker 2: Stephen Welcome back to the program, sir, thanks for making 393 00:18:44,480 --> 00:18:47,000 Speaker 2: some time for us this morning. Let's just take a 394 00:18:47,000 --> 00:18:49,480 Speaker 2: little assessment of where things are right now. So through 395 00:18:49,520 --> 00:18:53,120 Speaker 2: the week, GDP first contraction since twenty twenty two, consumer 396 00:18:53,160 --> 00:18:56,800 Speaker 2: confidence the week is since May twenty twenty, manufacturing shrinking 397 00:18:57,000 --> 00:18:59,000 Speaker 2: on the m report, and then we just have this 398 00:18:59,200 --> 00:19:02,720 Speaker 2: very solid payrolls report. What's your assessment, Stephen of where 399 00:19:02,760 --> 00:19:03,679 Speaker 2: things are at the moment. 400 00:19:04,640 --> 00:19:06,359 Speaker 10: Good morning, Thanks for having me, And let me just 401 00:19:06,359 --> 00:19:08,400 Speaker 10: say that I know that surveillance usually ends at nine, 402 00:19:08,480 --> 00:19:10,320 Speaker 10: So I look forward to you guys benefiting from the 403 00:19:10,320 --> 00:19:13,320 Speaker 10: President's forthcoming no tax in overtime. So thanks for staying 404 00:19:13,320 --> 00:19:17,160 Speaker 10: a few extra minutes. But no, Look, you know, I think, 405 00:19:17,560 --> 00:19:19,840 Speaker 10: you know, I think there's been an ongoing disconnect between 406 00:19:19,880 --> 00:19:21,400 Speaker 10: the hard data and the soft data. And the hard 407 00:19:21,440 --> 00:19:24,160 Speaker 10: data continue to perform very well. One hundred and seventy 408 00:19:24,160 --> 00:19:27,040 Speaker 10: seven thousand jobs last month, a beat of forty thousand jobs. 409 00:19:27,240 --> 00:19:29,400 Speaker 10: That's the President's second jobs they beat in a row. 410 00:19:29,600 --> 00:19:32,200 Speaker 10: And on top of that, you've got eleven thousand construction jobs, 411 00:19:32,840 --> 00:19:35,960 Speaker 10: you know, expanding and expanding construction construction sector in spite 412 00:19:36,000 --> 00:19:38,080 Speaker 10: of the President's cut crack down on the border, disproving 413 00:19:38,080 --> 00:19:40,679 Speaker 10: critics again. And the hard data continued to be okay. 414 00:19:40,720 --> 00:19:43,639 Speaker 10: And I think it's worth emphasizing that these data represent 415 00:19:43,720 --> 00:19:46,320 Speaker 10: the period after the president's historic actions with tariffs in 416 00:19:46,320 --> 00:19:46,960 Speaker 10: April second. 417 00:19:47,280 --> 00:19:48,720 Speaker 2: So Steve and we need to get into that because 418 00:19:48,760 --> 00:19:50,680 Speaker 2: there are some people that we've spoken to that worry 419 00:19:50,720 --> 00:19:53,480 Speaker 2: about the next report. They think that this could show 420 00:19:53,560 --> 00:19:55,399 Speaker 2: up in the May report, and I've heard the words 421 00:19:55,680 --> 00:19:59,840 Speaker 2: downside risks repeatedly. Are you confident that some of that's avoidable? 422 00:20:01,359 --> 00:20:04,680 Speaker 10: So you know, look, you know, given given the historic 423 00:20:04,760 --> 00:20:06,720 Speaker 10: scope and speed with which the President acted to put 424 00:20:06,760 --> 00:20:09,560 Speaker 10: American workers in firms first for the first time in decades, 425 00:20:09,800 --> 00:20:11,760 Speaker 10: you know, it shouldn't be surprising if there's if there's 426 00:20:11,760 --> 00:20:14,280 Speaker 10: some company volatility, and that extends to financial markets that 427 00:20:14,280 --> 00:20:17,120 Speaker 10: we've seen, and it could extend to economic data also, 428 00:20:17,320 --> 00:20:20,359 Speaker 10: as companies sort of substitute activity from one month to another. 429 00:20:21,200 --> 00:20:23,399 Speaker 10: But you know that that remains to be seen. But 430 00:20:23,520 --> 00:20:25,600 Speaker 10: so far in the hard data, we're not seeing any 431 00:20:25,640 --> 00:20:27,199 Speaker 10: real evidence of that to be the case. And as 432 00:20:27,240 --> 00:20:29,200 Speaker 10: you pointed out, you know there are various soft data 433 00:20:29,240 --> 00:20:31,920 Speaker 10: sentiment indices that look not as good, but those tend 434 00:20:31,920 --> 00:20:34,399 Speaker 10: to be influenced by financial markets, and there's been enormous 435 00:20:34,440 --> 00:20:36,280 Speaker 10: volatility there lately, as you guys are aware, and they 436 00:20:36,280 --> 00:20:38,639 Speaker 10: tend to be influenced a lot by a lot by politics. 437 00:20:38,840 --> 00:20:42,040 Speaker 10: But historically the correlation between those in activity has been 438 00:20:42,040 --> 00:20:44,840 Speaker 10: weaker in the last few years than it would have 439 00:20:44,840 --> 00:20:46,120 Speaker 10: been say, ten years ago. 440 00:20:46,040 --> 00:20:48,040 Speaker 2: We are seeing it show up in some hard data, 441 00:20:48,240 --> 00:20:50,480 Speaker 2: and that's trade volumes. We just caught up with the 442 00:20:50,600 --> 00:20:54,080 Speaker 2: Port of LA director Jane Soroka, Stephen, I wonder if 443 00:20:54,119 --> 00:20:55,840 Speaker 2: you've been in touch with them and how you see 444 00:20:55,880 --> 00:20:58,760 Speaker 2: this plank out. They're telling us now the trade volumes 445 00:20:58,760 --> 00:21:01,080 Speaker 2: are about to fall, that what they're about to see 446 00:21:01,119 --> 00:21:03,800 Speaker 2: through their port could drop by something like a third 447 00:21:04,160 --> 00:21:06,520 Speaker 2: thirty percent, and then from there this could ripple through 448 00:21:06,520 --> 00:21:09,760 Speaker 2: the US economy. What's the sequencing of things from your standpoint? 449 00:21:10,960 --> 00:21:13,040 Speaker 10: Thanks, So, as I mentioned a moment ago, there can 450 00:21:13,080 --> 00:21:15,200 Speaker 10: be some volatility in the economic data, and I think 451 00:21:15,200 --> 00:21:18,560 Speaker 10: it's worth emphasizing that. You know, there are some firms 452 00:21:18,560 --> 00:21:21,360 Speaker 10: that want to see the outcome of trade negotiations which 453 00:21:21,400 --> 00:21:23,359 Speaker 10: will be coming soon, and they want to see the 454 00:21:23,400 --> 00:21:26,240 Speaker 10: tax bill pass, which again will be coming soon, and 455 00:21:26,520 --> 00:21:28,760 Speaker 10: as a result, they may substitute activity from one month 456 00:21:28,800 --> 00:21:31,439 Speaker 10: to another, from one quarter to another, but it all 457 00:21:31,440 --> 00:21:33,520 Speaker 10: gets averaged out over time. These are not the types 458 00:21:33,560 --> 00:21:36,719 Speaker 10: of activities for which activity would get canceled permanently. And 459 00:21:36,760 --> 00:21:40,119 Speaker 10: as you mentioned at the start, the GDP report contained 460 00:21:40,280 --> 00:21:43,760 Speaker 10: a five point drag from import activity, so We're just 461 00:21:43,800 --> 00:21:46,800 Speaker 10: coming off of a quarter with an enormous amount of 462 00:21:46,800 --> 00:21:49,560 Speaker 10: imports that by the way, there was a data anomaly 463 00:21:49,600 --> 00:21:52,120 Speaker 10: in the GDP data that I'm sure you know most 464 00:21:52,119 --> 00:21:54,359 Speaker 10: of your audience is aware of by now. But after 465 00:21:54,480 --> 00:21:57,920 Speaker 10: such a huge import drag on the economy in the 466 00:21:57,920 --> 00:21:59,760 Speaker 10: first quarter, it wouldn't be surprising if there were a 467 00:21:59,760 --> 00:22:02,240 Speaker 10: little but less important subsequently. I mean, but this stuff 468 00:22:02,240 --> 00:22:04,600 Speaker 10: all averages out over time, and that's why it's important 469 00:22:04,600 --> 00:22:08,240 Speaker 10: to look at measures of underlying GDP growth, underlying economic activity, 470 00:22:08,320 --> 00:22:09,240 Speaker 10: and those were quite strong. 471 00:22:09,359 --> 00:22:11,080 Speaker 2: As you know, the market is very focused on trade 472 00:22:11,119 --> 00:22:13,600 Speaker 2: talks right now, and that's why we've seen equities recover 473 00:22:13,640 --> 00:22:15,680 Speaker 2: to the extent they have over the past week. 474 00:22:15,880 --> 00:22:15,960 Speaker 8: DA. 475 00:22:16,000 --> 00:22:18,199 Speaker 2: When the US says China wants to talk, China's going 476 00:22:18,280 --> 00:22:20,080 Speaker 2: around saying the US wants to talk. I don't think 477 00:22:20,080 --> 00:22:22,080 Speaker 2: the market really cares about that. The market just wants 478 00:22:22,080 --> 00:22:24,719 Speaker 2: to see talks. What's the timeline for actual talks. 479 00:22:26,080 --> 00:22:28,879 Speaker 10: So the President has repeatedly said in recent weeks, and 480 00:22:28,880 --> 00:22:30,520 Speaker 10: he's been very clear that he thinks that we will 481 00:22:30,520 --> 00:22:32,920 Speaker 10: do a deal with China. I think the President is right, 482 00:22:33,000 --> 00:22:35,080 Speaker 10: and as I keep pointing out, the President has one 483 00:22:35,080 --> 00:22:37,000 Speaker 10: of the best track records on making deals in the 484 00:22:37,160 --> 00:22:39,160 Speaker 10: entire history of the country. He is able to pull 485 00:22:39,200 --> 00:22:41,040 Speaker 10: deals that have ave had that nobody thinks if possible. 486 00:22:41,160 --> 00:22:42,840 Speaker 10: He pulled the Phase one deal with China Ada have 487 00:22:42,880 --> 00:22:45,000 Speaker 10: had in twenty eighteen twenty nineteen, in spite of all 488 00:22:45,040 --> 00:22:47,040 Speaker 10: the in spite of all the doubters. Many people didn't 489 00:22:47,040 --> 00:22:48,760 Speaker 10: think that was possible, but he achieved it. And so 490 00:22:48,800 --> 00:22:50,199 Speaker 10: I think the President is right that we will have 491 00:22:50,240 --> 00:22:52,800 Speaker 10: a deal with China. I can tell you. I can 492 00:22:52,840 --> 00:22:55,719 Speaker 10: tell you that I have good reason for that optimism. 493 00:22:55,920 --> 00:22:58,240 Speaker 10: I think that it's in the interest of both economies 494 00:22:58,440 --> 00:23:02,080 Speaker 10: to lower the temperature, to create breathing space, to continue talking, 495 00:23:02,080 --> 00:23:03,439 Speaker 10: to figure out how we can get to a new 496 00:23:03,440 --> 00:23:06,200 Speaker 10: stable equilibrium on trade. And I think that a little 497 00:23:06,200 --> 00:23:08,720 Speaker 10: bit of de escalation will be quite helpful. So I 498 00:23:08,760 --> 00:23:11,080 Speaker 10: would be surprised if tariff rates are where they are now, 499 00:23:11,600 --> 00:23:13,520 Speaker 10: you know, within you know, within within a few weeks 500 00:23:13,520 --> 00:23:14,560 Speaker 10: from now, a few weeks. 501 00:23:14,560 --> 00:23:16,520 Speaker 1: So you're saying within a few weeks the one hundred and 502 00:23:16,560 --> 00:23:19,080 Speaker 1: forty five percent tariff rate on China is bound to 503 00:23:19,080 --> 00:23:20,960 Speaker 1: come down and to where Stephen. 504 00:23:21,520 --> 00:23:24,240 Speaker 10: Well, I can't get ahead of negotiations. I can't make commitments. 505 00:23:24,280 --> 00:23:26,480 Speaker 10: I'm not part of the trade negotiating team. I'm not 506 00:23:26,560 --> 00:23:28,639 Speaker 10: a trade negotiator. But what I can tell you is 507 00:23:28,680 --> 00:23:31,280 Speaker 10: the President has been very clear that he thinks that 508 00:23:31,320 --> 00:23:32,800 Speaker 10: there will be a deal with China, and I think 509 00:23:32,800 --> 00:23:34,879 Speaker 10: the President is right, and I think that both I 510 00:23:34,880 --> 00:23:37,600 Speaker 10: think it's in the interest of both sides to come 511 00:23:37,640 --> 00:23:40,800 Speaker 10: to a de escalation that lowers the temperature and creates 512 00:23:40,800 --> 00:23:41,359 Speaker 10: breathing space. 513 00:23:41,720 --> 00:23:44,640 Speaker 1: Well, China this morning put out a statement the Commerce Ministry, 514 00:23:44,640 --> 00:23:47,879 Speaker 1: so this is official saying China is currently evaluating this. 515 00:23:48,400 --> 00:23:50,040 Speaker 1: Do you have a sense when the President is going 516 00:23:50,080 --> 00:23:51,560 Speaker 1: to get on the phone with Shijipang. 517 00:23:53,119 --> 00:23:55,560 Speaker 10: I don't. I don't, And again you know, I'm not 518 00:23:55,600 --> 00:23:58,800 Speaker 10: a trade negotiator. I'm an economic advisor. That's the scope 519 00:23:58,840 --> 00:24:02,159 Speaker 10: of my role, giving you as my expectations. You know, 520 00:24:02,359 --> 00:24:04,840 Speaker 10: I can't get ahead of the negotiations. I can't commit anyone. 521 00:24:04,960 --> 00:24:06,240 Speaker 2: Steve, and I wonder if you could give us some 522 00:24:06,240 --> 00:24:08,960 Speaker 2: insight though, just to the approach, the approach with tanking 523 00:24:08,960 --> 00:24:11,679 Speaker 2: at the moment. The Choicey Secretary mentioned just yesterday that 524 00:24:11,800 --> 00:24:14,600 Speaker 2: maybe we could revisit the purchase agreements that we struck 525 00:24:14,640 --> 00:24:17,680 Speaker 2: with China back in twenty twenty. Is that something we'd 526 00:24:17,680 --> 00:24:20,880 Speaker 2: look to do with other nations as well? 527 00:24:21,480 --> 00:24:22,879 Speaker 10: You know, Look, I mean I think that there's a 528 00:24:22,920 --> 00:24:25,280 Speaker 10: wide variety of terms that can be included in the 529 00:24:25,280 --> 00:24:29,040 Speaker 10: different negotiations, And each country is different, each trading partner 530 00:24:29,080 --> 00:24:31,960 Speaker 10: is different, and I suspect that each trading agreement that 531 00:24:32,000 --> 00:24:34,200 Speaker 10: is reached will end up being different too. But things 532 00:24:34,200 --> 00:24:36,960 Speaker 10: like that should definitely be on the table. And I 533 00:24:36,960 --> 00:24:39,520 Speaker 10: think it's up to other countries to show America that 534 00:24:39,560 --> 00:24:41,560 Speaker 10: they mean to make trade more fair, they mean to 535 00:24:41,560 --> 00:24:45,159 Speaker 10: make trade more reciprocal, and they mean to create better 536 00:24:45,240 --> 00:24:47,479 Speaker 10: markets for US exports. The way that we accept their 537 00:24:47,520 --> 00:24:50,800 Speaker 10: exports into our markets, and purchases like the type you're describing, 538 00:24:50,960 --> 00:24:52,800 Speaker 10: you know, could work towards that ends well. 539 00:24:52,800 --> 00:24:55,720 Speaker 1: The Europeans are looking at increasing the purchases of US 540 00:24:55,800 --> 00:24:58,680 Speaker 1: goods to fifty billion euros to address what they say 541 00:24:58,760 --> 00:25:01,159 Speaker 1: is the problem in the trade really relationship. Is that 542 00:25:01,440 --> 00:25:04,800 Speaker 1: enough to get a deal done between Washington and Brussels? 543 00:25:06,000 --> 00:25:08,880 Speaker 10: Again, I can't you know, I'm not a trade negotiator, 544 00:25:09,000 --> 00:25:12,720 Speaker 10: I'm not making deals with people. I'm just an economic advisor, 545 00:25:13,080 --> 00:25:15,680 Speaker 10: And you know, I can't say you know, I can't 546 00:25:15,680 --> 00:25:18,080 Speaker 10: prejudge the outcomes of those deals. However, what I will 547 00:25:18,080 --> 00:25:20,600 Speaker 10: say is that talking is better than not talking, and 548 00:25:21,119 --> 00:25:23,520 Speaker 10: I do believe in the ability of the President to 549 00:25:23,560 --> 00:25:25,879 Speaker 10: create deals that nobody expects. And once you start on 550 00:25:25,880 --> 00:25:28,280 Speaker 10: that process, I think that there will be fertile ground 551 00:25:28,359 --> 00:25:31,280 Speaker 10: for countries to see eye to eye to make trade fairer, 552 00:25:31,520 --> 00:25:36,000 Speaker 10: more symmetric, more durable, more resilient, and create a more 553 00:25:36,040 --> 00:25:38,080 Speaker 10: long lasting, stable global trading system. 554 00:25:38,160 --> 00:25:40,359 Speaker 2: Well, the Japanese aren't talking, and I think this is 555 00:25:40,400 --> 00:25:43,240 Speaker 2: something that you can offer some insight on, an assessment 556 00:25:43,240 --> 00:25:45,960 Speaker 2: on what this could mean for financial markets of the economy, 557 00:25:45,960 --> 00:25:47,680 Speaker 2: and we'd love to know the kind of advice you'd give. 558 00:25:48,119 --> 00:25:49,960 Speaker 2: In the oval to the President of the United States, 559 00:25:50,000 --> 00:25:53,119 Speaker 2: the Japanese finance minister was asked if Japan's holding of 560 00:25:53,119 --> 00:25:56,320 Speaker 2: treasuries could be a negotiation tool, and the response was this, 561 00:25:56,400 --> 00:25:59,320 Speaker 2: here's the quote. It does exist as a card. Whether 562 00:25:59,400 --> 00:26:03,240 Speaker 2: or not we use that cord is a different decision. Stephen, 563 00:26:03,280 --> 00:26:04,199 Speaker 2: what's your reaction to that. 564 00:26:05,640 --> 00:26:08,280 Speaker 10: My reaction is that I'm not the Treasury secretary, and 565 00:26:08,280 --> 00:26:10,440 Speaker 10: you should ask my neighbor. A couple of blocks down, do. 566 00:26:10,400 --> 00:26:12,000 Speaker 2: You have an assessment on what that would mean for 567 00:26:12,040 --> 00:26:13,359 Speaker 2: markets in the economy, though. 568 00:26:14,560 --> 00:26:16,600 Speaker 10: I don't, but you know, for markets in the economy, 569 00:26:16,640 --> 00:26:18,800 Speaker 10: I think that, you know, capital flows will ultimately in 570 00:26:18,840 --> 00:26:21,639 Speaker 10: the long run follow economic growth and economic opportunity. And 571 00:26:21,680 --> 00:26:25,119 Speaker 10: that's why the President is focused on creating the most dynamic, strongest, 572 00:26:25,119 --> 00:26:27,879 Speaker 10: healthiest economy in US history. And we're talking a lot 573 00:26:27,880 --> 00:26:30,280 Speaker 10: about trade, but there's two other elements to the package also, 574 00:26:30,680 --> 00:26:33,840 Speaker 10: and those are tax really for Americans, no tax on tips, 575 00:26:33,840 --> 00:26:36,240 Speaker 10: no tax and overtime, no tax on social Security. And 576 00:26:36,480 --> 00:26:40,160 Speaker 10: incentives for corporate investment, lower corporate rates on domestic manufacturing, 577 00:26:40,840 --> 00:26:44,240 Speaker 10: you know, expensing things like that. And also deregulation, getting 578 00:26:44,280 --> 00:26:46,480 Speaker 10: regulations out of the way so that American firms can 579 00:26:46,600 --> 00:26:49,440 Speaker 10: produce in America without layers and layers of red tape 580 00:26:49,440 --> 00:26:52,000 Speaker 10: that make financing difficults, that delay projects and just make 581 00:26:52,040 --> 00:26:54,640 Speaker 10: it unattractive to invest in the United States. And as 582 00:26:54,680 --> 00:26:57,240 Speaker 10: we succeed in creating the economy we want by passing 583 00:26:57,240 --> 00:26:59,959 Speaker 10: the tax bill, the big beautiful tax bill, by proceeding 584 00:27:00,160 --> 00:27:02,280 Speaker 10: with a deregulatory effort and getting government out of the 585 00:27:02,280 --> 00:27:04,960 Speaker 10: way and putting American workers on fair ground via trade 586 00:27:04,960 --> 00:27:08,280 Speaker 10: renegotiation and tariffs, then we're going to create the economy 587 00:27:08,280 --> 00:27:11,040 Speaker 10: that will attract capital flows. So all of this stuff, 588 00:27:11,080 --> 00:27:12,919 Speaker 10: in the short run, you know, it's a little bit noise, 589 00:27:13,280 --> 00:27:15,919 Speaker 10: but in the long run, capital will follow economic opportunity, 590 00:27:16,000 --> 00:27:19,200 Speaker 10: and this administration is focused single mindedly on creating economic 591 00:27:19,200 --> 00:27:20,879 Speaker 10: opportunity for American firms and workers. 592 00:27:20,920 --> 00:27:23,080 Speaker 1: So, Steve, let's quickly talk about the big beautiful bill. 593 00:27:23,119 --> 00:27:25,840 Speaker 1: What kind of revenue do you expect from the tariffs 594 00:27:25,840 --> 00:27:28,399 Speaker 1: to offset the tax cuts the President wants to get 595 00:27:28,440 --> 00:27:29,240 Speaker 1: across the line. 596 00:27:30,880 --> 00:27:33,480 Speaker 10: So when you talk about things like offsets, you know 597 00:27:33,560 --> 00:27:36,119 Speaker 10: that's ultimately you know, usually people talk about that as 598 00:27:36,160 --> 00:27:39,639 Speaker 10: part of the reconciliation process, which is basically, you know, 599 00:27:39,640 --> 00:27:43,200 Speaker 10: as as your audience knows a legal artifact of how 600 00:27:43,800 --> 00:27:46,800 Speaker 10: of how the sausage gets made in Washington and how bills, 601 00:27:47,240 --> 00:27:49,879 Speaker 10: you know, and how bills come together and get signed 602 00:27:49,880 --> 00:27:52,680 Speaker 10: into law, the tariff revenue is sort of a different bucket. 603 00:27:53,520 --> 00:27:55,560 Speaker 10: And you know, I'm not at a liberty to share 604 00:27:55,600 --> 00:27:58,359 Speaker 10: our internal number, but what I would say is I 605 00:27:58,400 --> 00:28:00,639 Speaker 10: would be surprised if we had tariff revenue, you know, 606 00:28:00,720 --> 00:28:02,800 Speaker 10: that was less than hundreds of billions of dollars a year, 607 00:28:03,000 --> 00:28:06,160 Speaker 10: and that's very substantial, you know. So when you think 608 00:28:06,160 --> 00:28:07,879 Speaker 10: about when you think about the revenue that you can 609 00:28:07,920 --> 00:28:12,520 Speaker 10: erase from tariffs ultimately paid for by foreigners, use that 610 00:28:12,640 --> 00:28:15,640 Speaker 10: revenue to help finance preservation of the President's historic twenty 611 00:28:15,680 --> 00:28:18,760 Speaker 10: seventeen tax cuts. Use that revenue to help finance additional 612 00:28:18,800 --> 00:28:21,040 Speaker 10: tax relief for American firms and workers. I think that's 613 00:28:21,040 --> 00:28:22,560 Speaker 10: a winning combination, Steve. 614 00:28:22,640 --> 00:28:24,919 Speaker 1: Right now, the market is basically just only pricing in 615 00:28:24,960 --> 00:28:27,399 Speaker 1: the fact that there's going to be an extension of 616 00:28:27,520 --> 00:28:30,560 Speaker 1: current policy. How confident are you that you get some 617 00:28:30,600 --> 00:28:32,919 Speaker 1: of those sweeteners like you just mentioned no tax on 618 00:28:33,000 --> 00:28:37,159 Speaker 1: tips actually done in this package, given how slim the 619 00:28:37,200 --> 00:28:40,000 Speaker 1: Republican majority is in the Senate and the House. 620 00:28:41,240 --> 00:28:43,840 Speaker 10: Oh, I'm very confident that we will get this package 621 00:28:43,840 --> 00:28:46,120 Speaker 10: over the line. I'm extremely confident we'll get this package 622 00:28:46,160 --> 00:28:50,200 Speaker 10: over line. The entire Republican Party is unified and committed 623 00:28:50,400 --> 00:28:53,960 Speaker 10: to using tax incentives to create a vibrant, robust, healthy, 624 00:28:54,000 --> 00:28:57,040 Speaker 10: and dynamic economy. And that was what created the first 625 00:28:57,080 --> 00:28:59,320 Speaker 10: Trump economic boom, and it's what will help create the 626 00:28:59,320 --> 00:29:00,720 Speaker 10: second Trumpet i'mic boom as. 627 00:29:00,640 --> 00:29:01,520 Speaker 3: Well, Steven. 628 00:29:01,600 --> 00:29:03,360 Speaker 2: Just a final word on the Federal Reserve, which we may. 629 00:29:03,600 --> 00:29:05,880 Speaker 2: The President's been outspoken, as you know, he said we 630 00:29:05,920 --> 00:29:08,720 Speaker 2: should reduce interest rates. The Treasury Secretary Scott Besson made 631 00:29:08,720 --> 00:29:10,560 Speaker 2: the argument that look at whether front end of the 632 00:29:10,600 --> 00:29:12,440 Speaker 2: yield curve is right now, the two year tried in 633 00:29:12,480 --> 00:29:15,160 Speaker 2: below Fed funds, that's evidence that this market things were 634 00:29:15,200 --> 00:29:17,000 Speaker 2: too tight and the Fed should cut rates. I just 635 00:29:17,000 --> 00:29:19,479 Speaker 2: wander from your perspective, how you weigh in. Do you 636 00:29:19,520 --> 00:29:22,000 Speaker 2: think this complicates the optics for the Federal Reserve? Does 637 00:29:22,000 --> 00:29:24,200 Speaker 2: it make it harder for them to ease over the 638 00:29:24,240 --> 00:29:25,120 Speaker 2: next several months? 639 00:29:26,400 --> 00:29:26,720 Speaker 3: Sure? 640 00:29:26,840 --> 00:29:29,120 Speaker 10: So you know, I think everyone's entitled to an opinion 641 00:29:29,360 --> 00:29:32,320 Speaker 10: on interest rates and where they should be. And the 642 00:29:32,360 --> 00:29:35,360 Speaker 10: President actually has a pretty good track record of his opinions. 643 00:29:35,400 --> 00:29:38,160 Speaker 10: He was right in twenty eighteen twenty nineteen that inflation 644 00:29:38,320 --> 00:29:40,240 Speaker 10: wasn't an issue and that interest rates were too high, 645 00:29:40,240 --> 00:29:42,000 Speaker 10: and eventually consensus came around. 646 00:29:41,800 --> 00:29:42,280 Speaker 3: To his view. 647 00:29:42,520 --> 00:29:44,560 Speaker 10: And again he was right in twenty twenty one that 648 00:29:44,680 --> 00:29:46,840 Speaker 10: interest rates are too low and inflation was coming back 649 00:29:46,880 --> 00:29:49,840 Speaker 10: big time, and again consensus came around to his view. 650 00:29:50,000 --> 00:29:52,120 Speaker 10: So everyone's entitled to an opinion on these matters. I 651 00:29:52,120 --> 00:29:54,040 Speaker 10: think the president has a great track record on them 652 00:29:54,160 --> 00:29:56,760 Speaker 10: as the Secretary of Besson, who's a fabulous track record 653 00:29:56,800 --> 00:29:59,080 Speaker 10: as an investor on these subjects. And everyone's entitled to 654 00:29:59,120 --> 00:30:02,080 Speaker 10: their view, you know. As to whether it interferes with 655 00:30:02,240 --> 00:30:04,400 Speaker 10: the things you're talking about, I don't think so. I 656 00:30:04,400 --> 00:30:06,840 Speaker 10: think the track record of the Federal Reserve speaks for itself. 657 00:30:06,920 --> 00:30:08,880 Speaker 2: Stephen. Can I just say I really wanted to catch 658 00:30:08,960 --> 00:30:11,960 Speaker 2: up with you. I did this for free, no overtime, Okay, 659 00:30:12,000 --> 00:30:13,960 Speaker 2: but I'll take the tax break. I will take the 660 00:30:13,960 --> 00:30:16,640 Speaker 2: tax break, Stephen. Thank you, sir, Stephen, My tax break 661 00:30:16,760 --> 00:30:19,080 Speaker 2: is coming. Thank you, sir. The Chairman of the Council 662 00:30:19,360 --> 00:30:24,000 Speaker 2: of Economic Advisors. This is the Bloomberg Surveillance Podcast, bringing 663 00:30:24,040 --> 00:30:27,680 Speaker 2: you the best in markets, economics, angiot politics. You can 664 00:30:27,680 --> 00:30:30,480 Speaker 2: watch the show live on Bloomberg TV weekday mornings from 665 00:30:30,480 --> 00:30:33,760 Speaker 2: six am to nine am Eastern. Subscribe to the podcast 666 00:30:33,800 --> 00:30:37,360 Speaker 2: on Apple, Spotify or anywhere else you listen, and as always, 667 00:30:37,360 --> 00:30:39,920 Speaker 2: on the Bloomberg terminal and the Bloomberg Business app.