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Speaker 2: I have known Peter Navarro for decades. He's a pinata
Speaker 2: for so many in America. I want to reaffirm who
Speaker 2: doctor Navarro is. In nineteen ninety four, a bombshell of
Speaker 2: a book came out of University of California, Irvine. It
Speaker 2: was called The Coming China Wars, and Peter Navarro Agree
Speaker 2: or Disagree invented a franchise and conversation point on America
Speaker 2: in China.
Speaker 3: A guy up in New.
Speaker 2: York, Donald Trumps citizen looked at mister Navarro and said, hey,
Speaker 2: I can agree with that. And of course, Peter Navarro
Speaker 2: advises our second term president of the United States, a
Speaker 2: senior counselor to the President. Doctor Navarro, thank you so
Speaker 2: much for joining Bloomberg today. I want to get right
Speaker 2: to it.
Speaker 4: Peter.
Speaker 2: When you were at Irvine, you lectured on McKinley's capitulation
Speaker 2: on tariffs, McKinley was the arch Trump like protectionist of
Speaker 2: the nineteenth century, and he did the Buffalo pivot where
Speaker 2: he said, We've got to get more open. Are we
Speaker 2: in the process now of a modern Buffalo pivot?
Speaker 3: Tom?
Speaker 5: First of all, I just want to let the Bloomberg
Speaker 5: audience know how much I admire you. For years I've
Speaker 5: I just love what you do.
Speaker 3: So let me get that out of the way.
Speaker 5: McKinley, Henry Clay, Abraham Lincoln, Alexander Hamilton, these are like
Speaker 5: the four people on the Mount Rushmore of American tariffs.
Speaker 5: And we are not in any pivot away from that.
Speaker 5: We are fully embracing a structural shift engineered by Donald
Speaker 5: Trump in the entire international global trading system in a
Speaker 5: way which will make that system better and more prosperous.
Speaker 3: The problem we've had, Tom, is under the rules, the
Speaker 3: very rules of.
Speaker 5: The World Trade Organization, specifically the most Favored Nation rule,
Speaker 5: every other nation in the world has had a license
Speaker 5: to cheat us through higher tariffs, higher non tariff bearers,
Speaker 5: and the costs, particularly after NAFTA and China joined the
Speaker 5: World Trade Organization in two thousand and one, has been
Speaker 5: in the one hundred thousands of factories and the millions
Speaker 5: of jobs.
Speaker 3: And we are reversing that.
Speaker 5: And you can see fifty thousand on the now, which
Speaker 5: I predicted in April.
Speaker 2: Trump, either you or Kevin Hasset, I'm gonna give credit
Speaker 2: for that. Peter Navarre, We're going to go with you
Speaker 2: on the sequence here. You mentioned the follow on from NAFTA.
Speaker 2: I spoke to our Josh Wingrove this morning and he
Speaker 2: made really clear what we need to know is a
Speaker 2: president actually thinking about moving away from our trade agreements
Speaker 2: with Mexico in Canada. Have you heard the president say
Speaker 2: I want out of NAFTA and everything that followed it.
Speaker 5: Tom, I'm one of three people, Stephen Miller Dan Scavino
Speaker 5: being the other two who was with the president from
Speaker 5: the twenty sixteen campaign through all four years of the
Speaker 5: first term. And the reason why that happened, among other things,
Speaker 5: is I never get ahead of the president. I can
Speaker 5: tell you this that USMCA has some significant flaws in
Speaker 5: it and it's going to be reevaluated in July. The
Speaker 5: Great Jamison Greer or US Trade representative will be taking
Speaker 5: the lean on that. But nothing ever happens in the
Speaker 5: White House without the Commander in chief, particularly on trade.
Speaker 5: So as the boss says, uh, let's see what happens.
Speaker 3: But we're in a situation.
Speaker 5: One of one of the things you know, I'm the
Speaker 5: senior Counselor of Trade and Manufacturing, and one of one
Speaker 5: of the things that's really troubling right now, it should
Speaker 5: be troubling to the variant people, is that Mexico UH
Speaker 5: and and to UH extent, Canada are basically being used
Speaker 5: by staging areas for countries like China, UH, some of
Speaker 5: the European countries, in the Asian countries, Japean, Korea, they
Speaker 5: come into China, into Mexico and they leverage NAFTA, UH
Speaker 5: and now U S m c A to get into
Speaker 5: our markets in a way which essentially is terriff avoidance
Speaker 5: at best and tariff of evasion at worst.
Speaker 3: I could have to deal with.
Speaker 4: That, Tom accrastination and worldwide.
Speaker 2: Peter Navarro with us, with the Trump administration, our Paul
Speaker 2: Sweeney with doctor Navarro.
Speaker 6: Mister Navarro, I guess last night we saw in the
Speaker 6: House of Representatives they voted and some of President's tariff
Speaker 6: agenda against Canada. Did they overstep their bounds? What is
Speaker 6: the response of the administration.
Speaker 5: Well, I think it's highly ironic, Paul, that the Democrat
Speaker 5: Party is opposing tariffs on behalf of working class Americans
Speaker 5: when it was the Democrat Party, which is supposed to
Speaker 5: be the party of the working class. They simply because
Speaker 5: they hate Donald Trump, now they're anti tariff. I think
Speaker 5: the bigger story is the shame on the three Republicans
Speaker 5: who defected. Although Thomas Massey I don't consider him of
Speaker 5: being nice anymore.
Speaker 3: I'm being nice. What I'm just selling like it is,
Speaker 3: it's like Nancy.
Speaker 5: Hang on, let me give a compliment to the Democrats, Sez,
Speaker 5: the Democrats hold ranks and we don't, and we got
Speaker 5: to stop not holding ranks, sir.
Speaker 4: Because Okay, it's.
Speaker 5: Very harmful to the party and to this country when
Speaker 5: we have that kind of thing going on.
Speaker 2: Okay, Peter Well said, but let's give two examples right now.
Speaker 2: Tom Barrett, who's the congressman from Lancing, Michigan, he's got
Speaker 2: two GM factories up here, his Republican working class constituents
Speaker 2: who President Trump stole from the Democrats. Tom Barrett is
Speaker 2: going to fight for his life in that congressional district
Speaker 2: of Lancing, Michigan. What do you need to do to
Speaker 2: get Tom Barrett re elected?
Speaker 5: Well, okay, so that's a bigger conversation. I can tell
Speaker 5: you this, The stakes have never been higher in a
Speaker 5: mid term congressional election. If we lose the House in
Speaker 5: twenty twenty sixteen, we will see a repeat of the
Speaker 5: impeachment circus craziness that we saw beginning in twenty eighteen.
Speaker 5: It really was tremendously harmful. The Democrats they hate Trump
Speaker 5: more than they love this country, as Corey Lewandowski once said,
Speaker 5: and our strategy now, look, they're coming at us on
Speaker 5: affordability number one.
Speaker 3: We are turning that around as we speak.
Speaker 5: We're taking a micro approach to the macro problem inflation.
Speaker 5: We're taking it cow by cow, fish by fish, gallon
Speaker 5: by gallon. And nothing is more important to the President
Speaker 5: than strong growth in a deflationary environment. Following the four
Speaker 5: pillars of trump Nomics, tax cuts, we got strategic enter
Speaker 5: g dominance, we got deregulation, and of course fair trade.
Speaker 5: So we're gonna first of all, address the affordability crisis
Speaker 5: head on. We're making great progress on that. The border
Speaker 5: issue remains troublesome. I've got a peace out in a
Speaker 5: rival network thing today that does the body count when
Speaker 5: you let millions of illegal aliens in.
Speaker 3: To this country.
Speaker 5: I mean, we lost two Americans in Minneapolis because of
Speaker 5: what was.
Speaker 3: Going on there.
Speaker 5: But my calculations, tens of thousands of Americans are going
Speaker 5: to be either murdered, burgled, raped, or assaulted by the
Speaker 5: illegal aliens unless we deport them.
Speaker 6: So that's going to be and that bounds your You know,
Speaker 6: one of the things. We saw very strong jobs report yesterday,
Speaker 6: but a lot of economs will say, this is an
Speaker 6: economy that is kind of slow hiring or no hiring,
Speaker 6: but slow or no cuts in jobs. It's just kind
Speaker 6: of hanging out there. If you want this economy to grow,
Speaker 6: many economers would argue, you'd need a larger workforce. Does
Speaker 6: that suggest the Trump administration maybe rethink their immigration policy?
Speaker 5: Hey, hey, god, we had one hundred and seventy thousand
Speaker 5: private sector jobs created last month.
Speaker 3: One hundred and seventy thousand.
Speaker 5: And by the way, Paul, the best answer to your
Speaker 5: question is increase the labor force participation. Oh, it went
Speaker 5: up yesterday in the report.
Speaker 3: Even as the unemployment rate went down.
Speaker 5: How many times do you see that we're looking at
Speaker 5: five percent GDP growth, and we're looking at earnings which
Speaker 5: you're off the charts and back in April April seventh,
Speaker 5: to be exact, when the futures for the Dow word
Speaker 5: thirty eight thousand, my friend, thirty eight thousand Onipical Titanic.
Speaker 3: I said fifty thousand.
Speaker 4: On the data tied out to Hasset. That's all.
Speaker 5: Look, Peter Navarre with Kevin wrote a book like years ago.
Speaker 5: He never said fifty thousand on the Dow this year.
Speaker 2: I've just to be clear, Peter Navarro with us here
Speaker 2: nationwide and of course some miservine California as well. Peter,
Speaker 2: you mentioned the midterm elections. Here's the reality for the
Speaker 2: president right now. You go out I eight across Illinois,
Speaker 2: you run into the Big River and there's Davenport, Iowa.
Speaker 2: The Republican in the first congressional district won that district
Speaker 2: by six votes last time around. They didn't cross the
Speaker 2: aisle yesterday to vote with the Democrats. But they've had
Speaker 2: it with the Navarro Trump trade. What do you need
Speaker 2: to amend to get Republicans re elected in November?
Speaker 3: I just so disagree with that.
Speaker 5: We Iowa loves Donald Trump and by the way, farmers
Speaker 5: love Donald Trump.
Speaker 3: Farmers above all.
Speaker 5: Understand the necessity for tariffs. And every time there's been
Speaker 5: retaliation by China or the Europeans or by the Canadians, guess.
Speaker 3: Who's had the farmers back.
Speaker 5: I've personally been involved with the great Brook rawlings over
Speaker 5: at the Department of Agriculture and making sure that farmers
Speaker 5: are made whole and can't be used as bargaining chips
Speaker 5: and pawns in a bigger game. So, I you know,
Speaker 5: Iowa is Trump country, and I just it's like you're
Speaker 5: making assertions that I just I mean, if you start
Speaker 5: with an assertion that's wrong, then everything that else that
Speaker 5: follows is not.
Speaker 3: Peter, what we're talking about.
Speaker 2: This is too important, and Paul wants to talk about
Speaker 2: the legal background as well. Peter Navarro a two to
Speaker 2: three percent terraf regime for whatever reasons, and you were
Speaker 2: providing leadership on this. We had Liberation Day in the
Speaker 2: Rose Garden and we went up, up and away, and
Speaker 2: Toby n Angle at the Ft has brilliantly shown that
Speaker 2: we've pulled back our blended terrifyrate right now I'm guessing
Speaker 2: to ten to eleven percent, where is Peter Navarro's optimum
Speaker 2: blended terrifyrate if it's not the two to three percent
Speaker 2: that President Biden and others had before you.
Speaker 5: Great question, and the way I like to think about it.
Speaker 3: Is the trade deficit.
Speaker 5: The trade deficit, when it's chronic like it has been,
Speaker 5: and large like it has been, is toxic to the
Speaker 5: future of this country. First of all, a big trade
Speaker 5: deficit that's chronic, that's opposed to occasional, is a proxy
Speaker 5: for all the factories and jobs and supply chains that
Speaker 5: go offshore that happens. That not only hurts us economically,
Speaker 5: it's hurts us from a national security point of view,
Speaker 5: as the pandemic underscored.
Speaker 3: So there is that.
Speaker 5: Secondly, when you run a chronic trade deficit, you're basically
Speaker 5: shipping your wealth offshore. We've done that by the last calculation,
Speaker 5: I made something like fifteen trillion.
Speaker 3: Dollars of our property.
Speaker 5: Bottom line time is when the trade deficit gets to zero,
Speaker 5: then you've got to run with that thing. Well but
Speaker 5: by the way, by the way, the goal here is
Speaker 5: simply fair trade. And what we're doing, what the President
Speaker 5: is doing with Jamison Greer, Scott Bessen, Howard Lugnik are
Speaker 5: doing is working with our allies and countries around the
Speaker 5: world to get them to lower their tariffs and trade bearers.
Speaker 5: Who in bloomberg Land could disagree with that as.
Speaker 3: Okay, So Peter disagree with the results.
Speaker 2: Tom, I gotta get this in because Sweeney's like all
Speaker 2: Supreme Court right now. Peter and NEvAr, you didn't answer
Speaker 2: my question. We came up, we had Liberation Day, we
Speaker 2: did No, you did not that.
Speaker 5: Your question was what will satisfy Peter Navar? And I said,
Speaker 5: when the trail.
Speaker 2: What is the what is the optimum blended terrifrate? James
Speaker 2: Diamond wants to know that. Brian moynan wants to know that.
Speaker 2: Solomon over at Golden Sax wants to know that. And
Speaker 2: the people in the first Congressional District of Iowa, where
Speaker 2: are we heading? Is these exemptions come in? Do you
Speaker 2: see a seven percent optimal terrifright? Four percent? Do we
Speaker 2: capitulate and go right back to two to three percent?
Speaker 5: So here's a Kevin Spacey aside here, Jamie Diamond, lower
Speaker 5: your fringing.
Speaker 3: Credit card interest rates.
Speaker 5: You are a criminal the way you charge the American
Speaker 5: people at twenty two twenty five and thirty percent, and
Speaker 5: the President wants you to lower that. So until Jamie,
Speaker 5: until you do that, please refrain.
Speaker 3: From commenting on other public policies.
Speaker 5: Okay, got that off my church. Now answer with respect
Speaker 5: to your question.
Speaker 4: Please.
Speaker 3: The way we think about it, Tom, and this is important, is.
Speaker 5: That every country that we trade with is like figure prints, right,
Speaker 5: they're unique, which is to say they cheat us in
Speaker 5: their own way. It's like some countries like India have
Speaker 5: had the highest tariffs, some countries like Japan have had
Speaker 5: the highest non tariff barriers, some countries like China have
Speaker 5: all of that stuff going on. So when you ask
Speaker 5: me what the appropriate tariff would be, it's it's bespoke.
Speaker 3: It's like what President Trump does.
Speaker 5: He goes country by country by country and he sets
Speaker 5: the tariffs according to how badly they're cheating us. So
Speaker 5: there's no blended tariff concept here.
Speaker 3: It's like a country specifically.
Speaker 4: Thank you for that. Let's get Paul Sweeney in here, hitter.
Speaker 6: Just real quickly. There's some of President Trump's tariff policies
Speaker 6: in front of the Supreme Court. To the extent the
Speaker 6: Supreme Court rules against the administration, what will be its response.
Speaker 5: Well, first of all, let's let's talk about the law
Speaker 5: and the use of i EPAH. If the Supreme Court
Speaker 5: wants to rule in favor of President Trump, the law
Speaker 5: is clearly on the Supreme Court side, and you have.
Speaker 3: Is a teriff attacks, No, it's a.
Speaker 5: Tariff on foreigners, and is a tariff a form of
Speaker 5: restriction on imports. Of course, it is just like quotas
Speaker 5: and other things and embargoes. So those are the two
Speaker 5: points of law which this case is about. And if
Speaker 5: the Supreme Court wants to rule in President's favor.
Speaker 3: Clearly laws on their side.
Speaker 5: With respect to Plan B, of course, we have a
Speaker 5: Plan B, but this is not the place.
Speaker 3: For me to talk about it.
Speaker 5: If the decision comes out next Friday, which would be
Speaker 5: the next time the Supreme Court is going to be
Speaker 5: releasing decisions, then the President will speak first on what's
Speaker 5: going to happen, and then folks like me will come
Speaker 5: in behind him and explain the details.
Speaker 4: Peter, thank you so much for joining us.
Speaker 2: Thank you for commenting on the realities for the first
Speaker 2: Congressional District of Iowa.
Speaker 4: I believe it's the eighth.
Speaker 2: Congressional District of Michigan, as well, and on the world
Speaker 2: of trade Peter Navarro, Senior Counselor to the President for
Speaker 2: Trade and Manufacturing for the President of the United States.
Speaker 4: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to The Bloombergs Valen's podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: You're going to get a good amount of time here
Speaker 2: with Brian Belski to reframe this bull market.
Speaker 4: I'm looking at this Brian, and I'm.
Speaker 2: Looking company to company and Paul and I remember times
Speaker 2: where there was exuberance without profit. I'm absolutely overwhelmed at
Speaker 2: the set of companies that have extraordinary profit. We've never
Speaker 2: seen the margins of some of these companies.
Speaker 7: We've never seen the margins of some of these companies, Tom,
Speaker 7: But I think more importantly, we haven't seen the consistency
Speaker 7: and earnings that I think people are missing. I think
Speaker 7: at the end of the day, this fourth year, the
Speaker 7: bullmarket that started in October of twenty twenty two, part
Speaker 7: of our big secular bullmarket call that we've had in
Speaker 7: place since two thousand and nine twenty ten, we're transitioning.
Speaker 7: We're transitioning to more of an earnings driven market, and
Speaker 7: traditionally and historically an earnings driven market still positive, but
Speaker 7: not as positive as a multiple driven market, momentum driven market,
Speaker 7: which we've clearly been in since early twenty twenty three.
Speaker 7: So I think investors are having a hard time understanding that.
Speaker 7: But I think the biggest thing, too, is that the
Speaker 7: broadening out is real and it's showing up in the
Speaker 7: fundamental numbers where you're seeing smaller areas in the market,
Speaker 7: not just the s top five hundred, but smaller cap
Speaker 7: companies are actually showing great earnings and better earnings than
Speaker 7: the large cap But more importantly, something that you and
Speaker 7: I and Paul's been involved in a conversation too, is
Speaker 7: we talk about price or free cash flow and cash
Speaker 7: on these companies continue to grow, and that's something to
Speaker 7: us that is very, very very positive in terms of
Speaker 7: how we talk about our small MidCap portfolio that we
Speaker 7: offer clients.
Speaker 6: Brian, one of the things we have seen over the
Speaker 6: least three months, let's call it is a little bit
Speaker 6: of a rotation out of some of the growth parts
Speaker 6: of the market into some more cyclical sectors of the market,
Speaker 6: maybe even small in mid cap. Is that a short
Speaker 6: term trade? Is that a longer term rotation? How do
Speaker 6: you think about that?
Speaker 7: I think it's a longer term rotation. You know, the
Speaker 7: market had these fits and starts into small cap through
Speaker 7: the years, as the last couple of years in particular
Speaker 7: when the ten year treasury went down, and then everybody
Speaker 7: just kind of assimilated to you buy small caps because
Speaker 7: the rates are downe and you buy small caps from
Speaker 7: a fundamental perspective because they have better growth or attractive valuations. Again,
Speaker 7: going back to the operating performance with respect to return
Speaker 7: on equity, return on invested cap, all these things, they're
Speaker 7: looking really, really great. And I think I think that
Speaker 7: ten years from now we're going to be kicking ourselves
Speaker 7: that we didn't own more small cap companies.
Speaker 2: Brian Belski with this with him list. We're waiting on
Speaker 2: Peter Navara. We'll go to him at age fifteen. Here
Speaker 2: the trade representative for the President of the United States,
Speaker 2: Paul Sweety with Brian Belski here in New York City.
Speaker 6: Earning seemed pretty solid. Brian or sixty seventy percent away
Speaker 6: through the S and P five hundred reporting double digit
Speaker 6: earnings growth. I mean, corporate America continues to come through. Here,
Speaker 6: are these good quality earnings are enough to support this market?
Speaker 4: Nice?
Speaker 7: We think they are, and I think earnings are actually
Speaker 7: going to continue to grow because we're going to continue
Speaker 7: to see them from other areas, including financials, parts of industrials,
Speaker 7: consumer discretionary, and communication services. Is not just all about tech.
Speaker 7: We haven't even mentioned it yet. So how amazing is
Speaker 7: that that we haven't talked about tech. But at the
Speaker 7: end of the day, we think the broadening out and
Speaker 7: we're seeing a broader distribution of earnings, which is very,
Speaker 7: very positive. Number of years ago we talked about how
Speaker 7: we need to see more of a normalization of the market. Yep,
Speaker 7: And I think that one of the last times I
Speaker 7: was here live and Soon we talked about the ninety
Speaker 7: five ninety six market when I was at Dane and
Speaker 7: you're at Rauscher, Tom, and we talked about how that
Speaker 7: market was probably the last time we've seen more normalized trading.
Speaker 4: I look at this, folks, I want to go to Kimilis.
Speaker 4: So what the story is? Belski He didn't like.
Speaker 2: His mantre Canadian ticket and see it Cimill's investment strategies
Speaker 2: and the website really pretty cool. And you have something
Speaker 2: that I'm huge on away from the mathematics of any
Speaker 2: finance will intentional concentration. Yeah, discuss intentional concentration when Apple's
Speaker 2: up sixteen percent twelve months trailing and Microsoft is flat
Speaker 2: twelve months trailing.
Speaker 4: It's a great question.
Speaker 7: That's why our tagline is investing with conviction and humility.
Speaker 7: You know, in my old institutional days that I that
Speaker 7: I ended late October when I left my prior employer
Speaker 7: and started off my own shop. When you go into
Speaker 7: an institutional account and you talk to a fancy portfolio
Speaker 7: manager one of the big banks, they own two hundred
Speaker 7: stocks yep. And to me, that's not conviction. And so
Speaker 7: we typically and historically have run portfolios now since two
Speaker 7: thousand and five, real live money that we like to
Speaker 7: run fifty stock portfolios are back testing in terms of
Speaker 7: all of the fancy portfolio analysis tools that we have
Speaker 7: and still have shown that that fifty numbers is pretty
Speaker 7: good number. So we have an opportunity to have this
Speaker 7: thing called tracking here To answer Tom's question, so you
Speaker 7: can be you can place your quote unquote bets. I
Speaker 7: don't like that phrase, but it's probably the best way
Speaker 7: to say it. So do I want to own eight
Speaker 7: percent Apple and four percent Microsoft? Or do I want
Speaker 7: to flip around? We want to continue to own both
Speaker 7: those names, but from the conviction side of things, we
Speaker 7: can own order less or more through time, but add
Speaker 7: and delete the actual position. So that's how we run money.
Speaker 7: That's how we've been able to outperform for so many years,
Speaker 7: and we're very blessed fortunate having a great team and
Speaker 7: a great process and discipline.
Speaker 6: It's okay, so let's I mean eight minutes into this,
Speaker 6: let's talk technology here. Yeah, software is a surface. Boy.
Speaker 6: They took a hit on the chin there over the
Speaker 6: last several weeks.
Speaker 3: AI.
Speaker 6: You could make the call. I don't know what AI
Speaker 6: is going to be. Therefore, I'm not sure what the
Speaker 6: risk is to anything I own, particularly technology.
Speaker 7: Well, it seems to me, Paul, like the markets has
Speaker 7: a checklist. Okay, Now, first we're gonna pick on the
Speaker 7: big semi conductors. Then we're going to the meg seven,
Speaker 7: Then we're going to go to the chips, and then
Speaker 7: we're gonna go to financials. Then we're going to what's next.
Speaker 7: Is it gonna be healthcare? Is it going to be
Speaker 7: in dust? Are going to be energy? So I think
Speaker 7: the Marcus done a good job kind of doing that.
Speaker 7: We don't know, but you know, we've always said control
Speaker 7: what you could control. So at the end of the day,
Speaker 7: you don't have to own all the Makes seven. You
Speaker 7: can own some of them. We don't own all the
Speaker 7: Makes seven. And the portfolio is that we run the
Speaker 7: five US centric portfolios and in three North American portfolios,
Speaker 7: we run up in Canada. But at the end of
Speaker 7: the day, we think AI is here to stay. We
Speaker 7: think it's going to be more of a diversified thing.
Speaker 7: And oh, by the way, too, I think I think
Speaker 7: we've made binary decisions on open AI.
Speaker 4: And I think for last year it was all in.
Speaker 4: Remember last year when everybody sold Google. We doubled our
Speaker 4: position in Google and everybody sold the sample in April
Speaker 4: when mister Cook was good, exactly exactly, it.
Speaker 2: Is going to be terrible. I got twenty seconds. We
Speaker 2: have twenty four hour treating like bitcoin inequities.
Speaker 7: I don't think so, because I want to sleep a
Speaker 7: little bit. I think let's let's afford people a little arrest. No,
Speaker 7: I don't think twenty four hours.
Speaker 4: Thank you so much for Jake John Jamilus this morning.
Speaker 2: Can't say enough about the density of his notes and
Speaker 2: the work here on participating in.
Speaker 4: The stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch US Live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
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Speaker 6: Monica Desnzo joins us here Global. She's head of the
Speaker 6: global Investment Strategy for the JP Morgan Private Bank. Monica,
Speaker 6: what are you and your team? What do you think
Speaker 6: about some of that sell off we've seen in some
Speaker 6: of these blue chips software names. A lot of people
Speaker 6: are saying, boy, this might be the opportunity of a
Speaker 6: lifetime to kind of get into these names. But the
Speaker 6: concerns are real.
Speaker 8: The concerns are very real. I think as everyone's trying
Speaker 8: to understand the next phase of this AI cycle, we're
Speaker 8: trying to figure out who are the winners, who are
Speaker 8: the losers, And clearly the market is telling you software
Speaker 8: as a whole has risk to it. I think we're
Speaker 8: all grappling with what's the right multi well, what is
Speaker 8: the growth trajectory? What do these businesses look like in
Speaker 8: five or ten years. It's a really hard thing to do.
Speaker 8: And so you're just seeing a broad cell off which
Speaker 8: is tempting to add and we're looking, we're trying to
Speaker 8: sift through names. I will tell you I've seen traction.
Speaker 8: I've seen some clients who want to take a long
Speaker 8: term view start to add on this tip to some
Speaker 8: of the higher holy names. And they're doing it in
Speaker 8: a really interesting way that they're not making a trade
Speaker 8: for the next week or month, because I think these
Speaker 8: headwinds will persist. They're saying one or two years out,
Speaker 8: these are still names I want to own. They're buying
Speaker 8: long calls things like that.
Speaker 2: Right now, Gene Monster, Dan Eyes, if you're listening, this
Speaker 2: is the most important conversation of the day.
Speaker 4: First of all, Monica, can you do my taxes?
Speaker 8: You know, I am technically a CBA, but I do
Speaker 8: not do taxes.
Speaker 4: Thank god.
Speaker 8: I used to do my own and it ended badly.
Speaker 4: So bad, Monica.
Speaker 2: You know, you get serious, serious cred here in accounting
Speaker 2: at Georgetown and as a CPA as well. How do
Speaker 2: you interpret the depreciation raging debate that you hear from
Speaker 2: tech analysts like Gene Munster, Gil Luria, or Dan Eyves.
Speaker 8: I mean, it is a very valid debate. I think
Speaker 8: this is the problem with the AI question in general.
Speaker 8: It's just we're still in such the early innings of
Speaker 8: this transition that I think it is really hard to
Speaker 8: figure out who's spending too much, who's beending too little.
Speaker 8: How do you think about, again the accounting side of
Speaker 8: this and anmorization everything over the next five ten years.
Speaker 8: I don't think people know, and so you have to
Speaker 8: just try to. I think, take the big picture of
Speaker 8: you here. We look across the US. We smate less
Speaker 8: than twenty percent of US companies use AI in any
Speaker 8: meaningful way, and until you get above fifty percent, you
Speaker 8: really don't see mass adoption and the real impact. So
Speaker 8: I just still think it's too early to try to
Speaker 8: call all the winners and losers. I do think you
Speaker 8: have to be a little more choosy. I've been guiding
Speaker 8: my clients this is the time for active management to
Speaker 8: get in tech, be very careful about just owning ETFs
Speaker 8: or everything broadly, work with managers to try to figure
Speaker 8: out who are the winners and losers.
Speaker 2: Oh, it's like the depreciation of the New York Yankees
Speaker 2: pitching staff.
Speaker 3: Yeah, figure that going out.
Speaker 6: What are your family offers is? How are they thinking
Speaker 6: about alternative investments? That's become such a big story. I
Speaker 6: used to think the allocation was five percent, ten percent,
Speaker 6: coming here in much bigger numbers these days.
Speaker 8: Much bigger. We have our new Family Office report out
Speaker 8: where we've surveyed a number of larg framilies. We work
Speaker 8: with globally alternatives. Again, what is an alternative? We do
Speaker 8: lump real estate in there, so we think of it
Speaker 8: as anything that's not a liquid investment. So for us,
Speaker 8: that's real estate, that's infrastructure, that's pe things like that.
Speaker 8: We see allocations for large families of generational wealth forty
Speaker 8: to fifty percent. We'll get that high now, but that
Speaker 8: makes sense for you if you're not going to touch
Speaker 8: this money. This is for two generations too. Now that
Speaker 8: makes sense, But again that's not everyone on average. I
Speaker 8: see people trying to build towards twenty to thirty percent
Speaker 8: for these large families, but we still see gaps everyone
Speaker 8: tells me they're worried about inflation, yet they don't own
Speaker 8: infrastructure or not real estate, So there's pivots happening. People
Speaker 8: were very long growth for a long time. Now they're
Speaker 8: trying to make sure they have a little more diversification
Speaker 8: in their old book.
Speaker 6: How important is the FED here in terms of cutting
Speaker 6: rates for your longer term view? Here, we think we've
Speaker 6: got one, maybe two cuts priced in. I guess for
Speaker 6: a lot of people that's fine. For the markets, that
Speaker 6: seems to be fine how you think about it.
Speaker 8: Yeah, we're still looking for one. I mean, our investment
Speaker 8: being is a bit of a debate. There's maybe saying none,
Speaker 8: we're saying one. I think anything in that realm is fine.
Speaker 8: I think for my clients, the bigger debate is we
Speaker 8: just need to maintain FED independence and the credibility that FED,
Speaker 8: especially roughly because I work with a lot of clients
Speaker 8: overseas and like they're watching us very closely and they're
Speaker 8: nervous and they want to make sure that things stay
Speaker 8: on course here.
Speaker 2: Jana Martin Adams and Torsten Slock have published together in
Speaker 2: the last forty eight hours two Blistering Notes, which goes
Speaker 2: Monica right to the heart of the matter. No signs
Speaker 2: of profit margins going up outside of tech. That's some
Speaker 2: slock it. Apollo and Gina Martin Adams at the same
Speaker 2: tone yesterday at her new shop. What does JP Morgan
Speaker 2: see in the profit margin dynamic?
Speaker 4: Almost the calculus of at the first derivative?
Speaker 8: And that goes back to this whole AI debate, like,
Speaker 8: we're spending a lot of money now, and I can
Speaker 8: tell you Jp Morgan.
Speaker 4: We are too.
Speaker 8: It's still early days. You're just we're not seeing broadly
Speaker 8: the flow through yet. I do think the next couple
Speaker 8: of years you are going to see that. And then
Speaker 8: again the question becomes is it for the entire market?
Speaker 8: Are there certain sectors where you see more of an
Speaker 8: opportunity And that's where we think of sectors like healthcare,
Speaker 8: where we know AI is going to help you bring
Speaker 8: drugs to market faster, cheaper. So you just got to
Speaker 8: make sure you're finding the right companies who can take
Speaker 8: advantage of that broad market.
Speaker 6: How do you feel about this market right here? It's
Speaker 6: had a great run, you know, a good run in
Speaker 6: twenty twenty five. How about thinking about the US versus
Speaker 6: non US, because it's as good. As the US market
Speaker 6: performed in twenty five, the rest of the world did
Speaker 6: a lot better.
Speaker 8: Yes, I was doing with some clients, as you know,
Speaker 8: we were up what eighteen percent last year. It was
Speaker 8: one of the worst performing acquitty right, So still a
Speaker 8: great year, but again relative to everything else didn't.
Speaker 1: Look so great.
Speaker 8: We think there was a bit of a catchup trade.
Speaker 8: I still think there's opportunities in Europe, as opportunities in
Speaker 8: Japan and Asia. But for again long term allocation, I
Speaker 8: still want to have a large allocation in US, and
Speaker 8: we still do. We think twenty six is going to
Speaker 8: look a lot like twenty five well, and the year
Speaker 8: probably higher in equities, more modest returns I think probably
Speaker 8: high single digits, but I think it's gonna be bumpy,
Speaker 8: and we do have midterms. Historically speaking, mid terms are
Speaker 8: a positive. If you do get that balance of power
Speaker 8: in the House, which you think we're going to get,
Speaker 8: that should be a good thing for markets. I would
Speaker 8: expect volatility into that and then probably a relief rally
Speaker 8: after it.
Speaker 6: What's your your clients in the private bank, what's the
Speaker 6: fixed income call here? What do they want to own?
Speaker 6: They wanted to your treasuries at three point five percent,
Speaker 6: or do they want to take some credit risk?
Speaker 4: What are they doing there?
Speaker 8: I mean, you guys know the debate around private credit. Right,
Speaker 8: so we've got a lot of people who have moved
Speaker 8: into more of these evergreen vehicles and others. Really interesting
Speaker 8: for a lot of clients to get accessing it invested quickly.
Speaker 8: I think they'll still make a lot of sense, a
Speaker 8: ton of interest less so in like treasuries, more in
Speaker 8: things like bank preferreds. If you're a US taxpayer, these
Speaker 8: hybrid instruments pay you a very compelling tax aggesity.
Speaker 4: I got this is too important. I'm going to go here.
Speaker 2: What's the yield that you're selling on a private credit?
Speaker 2: I mean, just as a general statement, you're saying, I'm
Speaker 2: going to make four or five percent? Sweet, you're making
Speaker 2: what nine percent?
Speaker 6: Sure, New Jersey Munis.
Speaker 4: What was a private credit yield?
Speaker 2: This is the thing.
Speaker 8: A few years ago you were talking double digits. We've
Speaker 8: now guided clients to say that in this rate environment,
Speaker 8: it's going to be lower, so anchor towards like eight
Speaker 8: to ten, which is still attractive. But again, if you're
Speaker 8: a full taxpayer, you'll start thinking about does that make
Speaker 8: sense for in Union, so for my clients in New
Speaker 8: York California, like Muni's actually still stand out being preferred standout.
Speaker 4: Yeah, Lisa Mateo emails in. She says, that's a great idea.
Speaker 4: Can Monica do my text and still look kill a bunch?
Speaker 8: Hey, I'm happy to try, but I gotta tell you
Speaker 8: I messed mine up a few years ago and I
Speaker 8: stopped after that. You can come over to Park's ird
Speaker 8: sit do.
Speaker 2: That, Monica Descenzo, Thank you so much for JP Morgan
Speaker 2: Private Banks.
Speaker 4: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: Martha Gimball provides leadership at the Budget Lab at Yale.
Speaker 2: They were, without question, my think tank of the year
Speaker 2: last year, last year, just killing it on tariff talk.
Speaker 4: I didn't get an answer from Peter and avar H.
Speaker 2: Let's see if we get one from Martha Grunde to
Speaker 2: try Kimball. Martha, we came out of a two to
Speaker 2: three percent tariff. We had Liberation Day and popped up
Speaker 2: to twenty ish or higher, and we come back right
Speaker 2: now to a ten eleven twelve percent blended teriff. Right,
Speaker 2: are we just doing what William McKinley did in nineteen
Speaker 2: oh one with a buffalo pivot? But we're doing a
Speaker 2: slow motion getting back down to lower tariffs.
Speaker 9: You know, I think that's a question for the President,
Speaker 9: and he's the only one who really knows what's going
Speaker 9: to happen with tariffs, except I guess the Supreme Court.
Speaker 9: So if you can get the President or Chief Justice
Speaker 9: roberts On here, I would ask.
Speaker 3: Them, not me.
Speaker 9: I do agree that this is feeling very early nineteen hundreds,
Speaker 9: late eighteen hundreds.
Speaker 6: It's got that vibe to it. Martha, you and your
Speaker 6: team at the Yale budget Abbotistion Yeoman's work on tracking
Speaker 6: these tariffs. Do we have any data that shows who's
Speaker 6: really paying them? How is it kind of cycling through
Speaker 6: the US economy.
Speaker 9: It's so funny that you asked that, because yesterday the
Speaker 9: Congressional Budget Office released its updated baseline and they said
Speaker 9: that ninety five percent of tariffs are paid for by
Speaker 9: the American consumer. So for all of the discussion from
Speaker 9: the administration that you know, know, China's going to be
Speaker 9: paying this, Mexico is going to be paying this.
Speaker 6: That's just not where we are.
Speaker 9: You know, all of the economists agree, you're paying this.
Speaker 6: I'm paying this, Martha. We had some labor data yesterday,
Speaker 6: pretty solid results here, kind of better than expected for
Speaker 6: the monthly data. The headline unemployment rate coming down. How
Speaker 6: do you guys look at that data?
Speaker 9: You know, it's kind It's so interesting because in between
Speaker 9: job reports, it feels like everyone starts having a nervous
Speaker 9: breakdown about where the labor market is going and convincing
Speaker 9: themselves that, you know, it's all over, we're going into
Speaker 9: a recession.
Speaker 6: And then each month.
Speaker 9: You know, the job report pops up and kind of
Speaker 9: goes it's kind of fine, everyone, could you calm down?
Speaker 4: That one says, oh great.
Speaker 9: We're calm, We're totally calm, and then in two weeks
Speaker 9: everyone starts panicking again. So I do expect you to
Speaker 9: have some people panicking on your show, and let's say
Speaker 9: ten days, but right now, you know, if you look
Speaker 9: at the data, it's fine. You sup pretty substantial revisions
Speaker 9: down to job growth last year, but that was expected, right,
Speaker 9: particularly given the massive changes of immigration policy that are
Speaker 9: literally removing.
Speaker 3: Workers from the workforce.
Speaker 9: Margaret is up, but only barely.
Speaker 2: Martha Gimble with a CEO budget lab. Martha, you took
Speaker 2: the kool aid at the University of California at San Diego,
Speaker 2: which is arguably the most hippous rigorous mathematics in America.
Speaker 2: Conometrics with the laureates Granger and Angle, and they own
Speaker 2: time series analysis. Help our viewers and listeners who are mortal.
Speaker 2: Is all this tear of stuff countable like a we
Speaker 2: are we guessing in our math here? Or is it
Speaker 2: rigorous and countable like what you studied at San Diego?
Speaker 9: Well, I mean, first of all, any estimates and I
Speaker 9: do feel that I have to say this or they're
Speaker 9: going to get mad at me. You know, any estimates
Speaker 9: have standard errors. Any estimates, you know, have a range
Speaker 9: of confidence. There's always some amount of guessing, you know
Speaker 9: that being said, the you know, standard errors, the range
Speaker 9: of confidence on this is pretty small in a lot
Speaker 9: of ways, right, Like we do know that it's getting
Speaker 9: passed on. We can see prices for durables rising and
Speaker 9: so you know, I don't think this is one where
Speaker 9: people are going to be sitting in ECON seminars debating
Speaker 9: standard errors at nauseum. I think, you know, people are
Speaker 9: pretty agreed on what's going on here, Martha.
Speaker 6: We're waiting for the Supreme Court to rule on the
Speaker 6: AIPA terrorisa they get pushed back against it administration. Will
Speaker 6: that deal a serious blow to the administration's of tariff
Speaker 6: capabilities or that they have some flexibility, some plan b's
Speaker 6: and c's.
Speaker 9: You know, they've said that they have a plan ready
Speaker 9: to go.
Speaker 4: I mean, the thing that's useful for.
Speaker 9: Them about a EPA is they can just do it right.
Speaker 9: IPA is the legal authority that they're currently using. You know,
Speaker 9: President Trump can see an ad in Ontario that he
Speaker 9: doesn't like and putting new pariffs on in Canada that minute.
Speaker 9: The other legal authorities that they have are a little
Speaker 9: bit more complicated. So it's understandable that they went for
Speaker 9: AEPA first. But people shouldn't fool themselves that if the
Speaker 9: Supreme Court says that they can't use the IEPA authority
Speaker 9: for terraffs, that tariffs are going away, if anything, that
Speaker 9: will just stretch out the uncertainty of what the tariff
Speaker 9: regime is going to look for Martha.
Speaker 4: Thank you so much.
Speaker 2: After Peter Navarro, Martha gimbal That's the way we roll.
Speaker 2: She's with a budget lab at Yale.
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