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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. The White House
Speaker 2: putting the pressure on Walmart, the President writing over the
Speaker 2: weekend quote, Walmart should stop trying to blame tariffs as
Speaker 2: the reason for raising prices, Eat the tariffs and not
Speaker 2: charge valued customers anything. Neil Data of ronmac joint Us.
Speaker 2: Now for more, Neil, welcome to the program. Lots to
Speaker 2: get through. Let's start here. We know, by definition, the
Speaker 2: importer pace the tariff. How are the costs shared? That's
Speaker 2: the question. How do you think the cost will be
Speaker 2: distributed in the month to account?
Speaker 3: Well, I think the important thing here is the admission
Speaker 3: that obviously the exporter is not the one that's paying, right.
Speaker 3: I mean, that's an implicit subtext here. They're basically admitting
Speaker 3: that it's American companies and consumers that will end up
Speaker 3: eating the costs. So I think that's an important sort
Speaker 3: of admission biomission there.
Speaker 4: You know.
Speaker 5: Look, I mean I.
Speaker 3: Think some of it's going to get passed on to consumers,
Speaker 3: maybe half. I just you know, obviously, retail profit margins
Speaker 3: aren't especially high to begin with, so I think it's
Speaker 3: going to be challenging for a company like Walmart to
Speaker 3: not pass on at least some of the tariff burden.
Speaker 3: But keep in mind that, you know, the bigger issue
Speaker 3: is what that means down the line. I mean, if
Speaker 3: corporate profit margins get squeezed, ultimately, they're going to have
Speaker 3: to pay the piper somehow, and I mean consumers, and
Speaker 3: that might show up in the form of weaker hiring,
Speaker 3: weaker wage growth, and that's another sort of effect on
Speaker 3: consumption in and of itself.
Speaker 6: Hold on a second, Yal, this is actually a really
Speaker 6: important point, and there's a question about how much some
Speaker 6: of these retailers can increase prices where it becomes not
Speaker 6: necessarily inflationary, but disinflationary because it surprises demand. Are you
Speaker 6: seeing any evidence that that's actually happening, given that reports
Speaker 6: have been pretty mixed and dependent on just execution as
Speaker 6: much as anything else.
Speaker 3: Well, I think companies are going to find significant resistance
Speaker 3: in terms of, you know, trying to pass on the
Speaker 3: higher costs, because ultimately the inflationary story boils down to a.
Speaker 5: Household's budget constraint.
Speaker 3: And when you talk about tariffs, I mean whatever goes
Speaker 3: I mean, think about price and quantity, whatever goes into
Speaker 3: P is ultimately going to come out of Q. And
Speaker 3: so you know, look, I mean right now, nominal GDP
Speaker 3: growth is probably barely growing at four four and a
Speaker 3: half percent, if you can maybe talk me into that,
Speaker 3: So if you get a signify an increase in inflation,
Speaker 3: you're going to get a big drop in real growth.
Speaker 5: I mean it's as simple as that.
Speaker 3: So look, I mean, the household's budget constraint is getting worse,
Speaker 3: not better, and I think that you know that ultimately
Speaker 3: means that, you know, anything that's passed on to consumers
Speaker 3: will mean weaker real economic activity.
Speaker 6: We've gotten a pretty big consumer stimulus over the past
Speaker 6: month that's come in the form of significantly lower oil prices,
Speaker 6: and this is something that we've heard the administration talk
Speaker 6: about quite a bit, and I wonder how much that
Speaker 6: offsets some of the constraints on household budgets and actually
Speaker 6: allows more more money for retail, for retailers for goods,
Speaker 6: for things that might be more expensive due to the terraffs.
Speaker 3: Well, we I mean, we have seen a widening in spreads, right,
Speaker 3: So it's not like the drop in oil prices has
Speaker 3: translated sort of one for one to gasoline, so consumers
Speaker 3: haven't really felt the benefits. But no, look at some level,
Speaker 3: I mean, I agree with you that you know, the
Speaker 3: drop in crude oil prices is meaningful and the FETs
Speaker 3: should sort of take that into into their into account
Speaker 3: when they think about how they're you know, looking at
Speaker 3: interest rates policy setting, because you can't pick and choose
Speaker 3: which supply shock you want to pay attention to. On
Speaker 3: the one hand, you have a negative supply shock from terras,
Speaker 3: on the other hand, you have a positive supply shock
Speaker 3: from the energy markets.
Speaker 5: And you know, a.
Speaker 3: Typical rule of thumb I believe is a twenty percent
Speaker 3: drop and imprude prices takes about thirty to forty basis
Speaker 3: points off of headline inflation, so that'll provide a meaningful
Speaker 3: sort of tail into the disinflation story. And remember, oil
Speaker 3: doesn't matter a lot for you know, underlying inflations, but
Speaker 3: it does matter for sort of the monthly swings in
Speaker 3: headline prices. So I think it's something to keep in
Speaker 3: mind here.
Speaker 7: No, I want to get your take on what's going
Speaker 7: on in Congress. We have this big, beautiful bill slowly
Speaker 7: passing through the committee's potential is going to hit the
Speaker 7: House floor by the end of the week. You've always
Speaker 7: talked about the fact that this is just basically baked
Speaker 7: into the market because it's an extension of TCJA. But
Speaker 7: now potentially does this become a risk for financial markets?
Speaker 3: Well, I mean, I don't. I don't, I don't know.
Speaker 3: I mean I always talk to you about what's going
Speaker 3: on in DC. I don't really have many views on
Speaker 3: that myself.
Speaker 7: We have a view of what it means for financial markets.
Speaker 3: Well, I don't. I think basically what they're doing is
Speaker 3: removing ahead wind, not putting in much tailwind. And so yeah,
Speaker 3: I mean I don't think the uh. I guess my
Speaker 3: sense is is that there's not much new coming from
Speaker 3: this so if the bond market's keying off of the
Speaker 3: fiscal negotiations, it doesn't really make that much sense to me,
Speaker 3: you know. So I do think a lot of that
Speaker 3: was already baked and you're seeing, you know, yields go
Speaker 3: up globally. So I don't really think it's US fiscal
Speaker 3: that's driving what's going on in the back end of the.
Speaker 2: Treasury curve here, And then what do you think it is? Then?
Speaker 3: I just think that, you know, it's a that's a
Speaker 3: good that's a good question. I mean, I think there's
Speaker 3: some residual sort of you know, fading of recession risk.
Speaker 3: There's I mean, it's not just the US, right, I mean,
Speaker 3: it's also global in nature. I mean, you have a
Speaker 3: lot of countries kind of stepping up in terms of
Speaker 3: fiscal It's not just the US.
Speaker 5: You have it in Europe as well.
Speaker 3: But I think it's sort of it's a combination of
Speaker 3: economic resilience, you know, people kind of getting tired of
Speaker 3: betting on a recession that hasn't happened, and you know,
Speaker 3: I think it's a.
Speaker 5: Sort of global fiscal story.
Speaker 3: So, you know, the US story, I think by comparison
Speaker 3: to some of these other countries, there's not as much new.
Speaker 5: There, I think, as is the case for some of
Speaker 5: these other countries.
Speaker 6: We've been trying to sell thirty year treasuries to some
Speaker 6: people as are coming on the show to see who
Speaker 6: wants to buy them, and so far nobody has wanted
Speaker 6: to buy them, even those who believe in some of
Speaker 6: the resilience of the US economics story. So are you
Speaker 6: one of those who sees this as an opportunity to
Speaker 6: invest in the dynamism of long term interest rates?
Speaker 3: I mean, look, I mean, to me, there are too
Speaker 3: many things in the economy that don't work with interest
Speaker 3: rates up at these levels. Therefore interest rates will have
Speaker 3: to come down. So yeah, I mean I'd be buying
Speaker 3: duration here.
Speaker 2: I think it's sounds limitsing now. I think it's an
Speaker 2: important point. You believe it's so limiting that the laws
Speaker 2: of gravity still exists for the bond market.
Speaker 5: Absolutely.
Speaker 3: I mean, how long can you sustain a situation where Morgan,
Speaker 3: where interest rates are running above the rate of nominal GDP?
Speaker 5: That's I mean.
Speaker 3: And as you know, my economic outlook is generally more
Speaker 3: on the.
Speaker 5: Cautious side of the consensus.
Speaker 3: So I think if economic momentum is slowing down. Interest
Speaker 3: rates will come down as a result.
Speaker 2: No data, No appreciate your thoughts as always, buddy, no
Speaker 2: data there of Remaka, Let's extend the conversation with Janet
Speaker 2: Low of Stratetiga is a bad company. Jenet, welcome to
Speaker 2: the program. To events one event, one outcome. Let's talk
Speaker 2: about the event the US losing its final triple A
Speaker 2: credit rating, this one from Moody's and the outcome Treasury
Speaker 2: yields back through five percent on a thirty year bond.
Speaker 2: Did the fiscal hawks in Washington just get some extra fuel?
Speaker 4: Oh?
Speaker 8: Absolutely.
Speaker 4: This was definitely something that bolsters their argument. They had
Speaker 4: gone into this fight a haul along saying there needed
Speaker 4: to be much more significant budget cuts. They were the
Speaker 4: ones who were pushing for even larger budget cuts in
Speaker 4: order to have larger tax cuts in place. And they're
Speaker 4: still not satisfied with just overall where the fiscal situation is. Essentially,
Speaker 4: they're looking at the federal spending levels and seeing that
Speaker 4: it's essentially about still four percentage points higher than it
Speaker 4: was pre COVID in our long term average, and so
Speaker 4: that's something that they really want to tackle here. So
Speaker 4: the fact that you had on Friday morning, the members
Speaker 4: of the House Budget can made, the fiscal hawks on
Speaker 4: that committee voting no against this bill to send a
Speaker 4: signal that they wanted more significant cuts, they wanted to
Speaker 4: accelerate them. And then on top of that you get
Speaker 4: the Moodies downgrade in the afternoon. That really added some
Speaker 4: fuel to their argument to say that we need to
Speaker 4: do something even stronger because of the US fiscal situation.
Speaker 7: Did this up end Speaker Johnson's plan to get this
Speaker 7: all on by Memorial Day?
Speaker 8: I don't think so.
Speaker 4: I think that there is obviously some significant push here
Speaker 4: to get this done. This is part of Trump's agenda.
Speaker 4: He doesn't want this bill to get accomplished. There has
Speaker 4: to be some compromises because obviously the fiscal conservatives do
Speaker 4: not have a solid majority. They have to negotiate with
Speaker 4: the moderates to run this through on a Republican only basis,
Speaker 4: and failure means that if you would actually have to
Speaker 4: do a compromise with Democrats towards the end of the year,
Speaker 4: if you can't get it done through reconciliation, and that
Speaker 4: means that you would probably have higher spending levels and
Speaker 4: higher taxes, and that's something that the conservatives don't want well.
Speaker 7: To you and Jonathan's point, the fiscal hawks seem to
Speaker 7: have some fuel right now after what happened with the
Speaker 7: Moody's downgrade. Who else has leverage in this fight?
Speaker 4: Yes, I mean, obviously I think the moderates, do you
Speaker 4: still have leverage because they are not going to vote
Speaker 4: for things that are going to cost them their seats.
Speaker 4: They are obviously the majority makers in this Congress, and
Speaker 4: so that's going to be really important for them to
Speaker 4: not have significantly drastic cuts. So that's why I think,
Speaker 4: you know, having work requirements moved up to twenty twenty
Speaker 4: seven rather than immediately makes a little bit more sense.
Speaker 9: You also do have the Salt Caucus, so the blue.
Speaker 4: State Republicans who are pushing for a higher salt deduction,
Speaker 4: they believe that that's really important. So they're still going
Speaker 4: to be pushing to get their leverage in here. And
Speaker 4: then obviously we do need to watch the Senate as well.
Speaker 4: The Senate is saying that they're signaling that they're not
Speaker 4: happy with some of the provisions that the House is
Speaker 4: put forward, but the House also does have and the
Speaker 4: Senate does have to realize that the House has this
Speaker 4: very slow majority. There's not a lot of wiggle room
Speaker 4: to really make significant changes if you have to deal
Speaker 4: with these competing factions in the House caucus. Toe.
Speaker 6: I love a good deficit debate. It's a great thing
Speaker 6: to have. We discussed it all the time. Is there
Speaker 6: enough discussion about the growth side of this bill, how
Speaker 6: much it actually does boost growth and the other side
Speaker 6: of the balance sheet. It's crucial to keep the deficit
Speaker 6: in some sort of balance relative to GDP.
Speaker 4: Yeah, And I think this is a really important piece
Speaker 4: with the tax bill is we have two things that
Speaker 4: are happening. First, they did include more pro growth tax
Speaker 4: provisions in this bill, so they have foot media expensing
Speaker 4: for CAPBEX, for R and D and for structures again
Speaker 4: to kind of get more domestic manufacturing in the United
Speaker 4: States in the midst of this tariff war that we're
Speaker 4: essentially having. And in the same time too, the fact
Speaker 4: that we now have we had the significant tear of
Speaker 4: reduction on Chinese goods over the past week, so that
Speaker 4: also plays into this. So now we can have a
Speaker 4: tax bill that has more pro growth provisions in it
Speaker 4: that can actually help to sterilize the tariffs that are
Speaker 4: still in place. And that's important because we do have
Speaker 4: essentially a two trillion dollar consumption tax that's put into
Speaker 4: the economy. So having fiscal stimulus for consumers that will
Speaker 4: hit next taxis and is important. Plus you have these
Speaker 4: business investment incentives, and together we look at what we
Speaker 4: have this the current bill in front of us, we're
Speaker 4: looking at saying that that is going to increase or
Speaker 4: boost GDP by one percent, and that is a really
Speaker 4: important point to also keep in mind.
Speaker 6: How much does that offset the increases to the deficit
Speaker 6: on a sort of relative basis at a time where
Speaker 6: people are saying at the same time, growth is going
Speaker 6: to slow as a result of some of these tariffs.
Speaker 4: Yeah, I mean, so I think we still think that
Speaker 4: the deficit is on a improving trajectory. You do have
Speaker 4: tariff income coming into the US treasury that won't obviously
Speaker 4: count for this tax bill, but we are going to
Speaker 4: see some improvement in the deficit. Obviously, it's not significant
Speaker 4: for especially priscal conservatives, and so that's something that comes
Speaker 4: into play.
Speaker 9: But if we were looking at.
Speaker 4: The fact that maybe we would have significant tariffs in place,
Speaker 4: and maybe this tax bill would have been delayed that
Speaker 4: wouldn't have helped.
Speaker 9: To boost the US economy. It could have been worse situation.
Speaker 4: If you actually have some of these pro growth tax
Speaker 4: policies in place and they happen before the stronger tariffs hit,
Speaker 4: that actually provides boost to do the US economy and
Speaker 4: then actually can help with the growth over the long
Speaker 4: term and then help with the deficit.
Speaker 2: Jennet, just finally, just to wrap it up, do you
Speaker 2: thinem they get this done a wait today?
Speaker 4: I do. I do think that they will get this
Speaker 4: stead line is very strong in the House. Now. Maybe
Speaker 4: it's not done by Thursday, maybe it's done by Friday,
Speaker 4: or it gets pushed into that holiday weekend. But I
Speaker 4: do think there's a strong effort to get this done.
Speaker 4: And the fact that you had the Budget Committee meeting
Speaker 4: at ten o'clock at night on a Sunday is really
Speaker 4: important to show that they really do want to get
Speaker 4: momentum voting present obviously with them backing down to some
Speaker 4: extent to allow.
Speaker 9: The bill to move forward.
Speaker 4: And now they have a couple of days before they
Speaker 4: do that one am Rules Committee meeting on Wednesday.
Speaker 2: Jeannette, appreciate your time. Thank you. Janet Low there thost fatiguas,
Speaker 2: let's turn to markets. Bomb your tire across the curve
Speaker 2: the dollar weaker, equity is lower as Moody strips the
Speaker 2: US gouvernment of its top credit writing. Kathy John's are
Speaker 2: child swap writing. This is not a case of the
Speaker 2: US not having the capacity to pay the debt. It's
Speaker 2: the willingness to reduce the deficit that is the issue.
Speaker 2: Kathy joins us now for more. Kathy, welcome to the
Speaker 2: Just your initial reactions to the needs from Moodies over
Speaker 2: a weekend.
Speaker 9: Yeah, it really wasn't a big surprise.
Speaker 1: As you indicated earlier, they had them on negative watch.
Speaker 9: They're following s and p and pitch.
Speaker 1: As I watched the negotiations over the tax bill or
Speaker 1: the budget bill, I thought, oh, well, we're not getting
Speaker 1: anywhere we need to go to get our house in order.
Speaker 9: So not a big surprise.
Speaker 1: But it does bring forward all the issues that you've
Speaker 1: been talking about that we're not enough path to sustainability,
Speaker 1: something we need to address, but Congress doesn't seem willing
Speaker 1: to address.
Speaker 6: I feel like every couple of years we talk about
Speaker 6: the bond vigilantes grabbing their pitchforks and getting ready to
Speaker 6: go out there and pick it, and it never actually
Speaker 6: has any staying power because other people say, actually, well
Speaker 6: you don't want we love. How close are we to
Speaker 6: the bond vigilantes getting the upperhand and really shaping the
Speaker 6: narrative here.
Speaker 1: Yeah, I've never been a big fan of the bond
Speaker 1: vigilante story because I remember the eighties and it was
Speaker 1: more about inflation than it was about the budget.
Speaker 9: But that being said, in nineteen eighty.
Speaker 1: Five we've got sequestration, which which actually did help get
Speaker 1: the budget back in order.
Speaker 9: How close are we?
Speaker 1: You know, I don't think that we're looking at a
Speaker 1: stampede out of treasuries, but I do think that.
Speaker 9: When you combine the whole policy mix.
Speaker 1: We have tariffs, a lower dollar that goes with that,
Speaker 1: and this sort of deglobalization trend, then you get a
Speaker 1: steady march higher in long term yields because you're discouraging inflow.
Speaker 9: Of capital capital that we need.
Speaker 1: So I think that we just continue to see a
Speaker 1: steady climb in yields from here until something changes, either
Speaker 1: the economy gets a lot weaker and we look at
Speaker 1: more federy cuts, or we get some sort of you know,
Speaker 1: fiscal deal that actually makes.
Speaker 7: Sense, Kathy, when it comes to a fiscal deal that
Speaker 7: actually makes sense, what are you talking about? Is there
Speaker 7: anything you see right now on the policy proposals?
Speaker 5: Yeah?
Speaker 1: I mean I'm not a plicy analysts, but if I
Speaker 1: sat down with a spreadsheet today and said how do
Speaker 1: I get back to three percent deficit relative to GDP,
Speaker 1: I wouldn't be cutting taxes on everybody, and I would,
Speaker 1: you know, have to look hard at some of the
Speaker 1: spending that we're doing.
Speaker 9: But that's not what's going on. You know, now we're
Speaker 9: giving tax cuts, and on top of tax.
Speaker 1: Cuts and spending is maybe trimmed a little around the
Speaker 1: edges on Medicaid, but really all that does is on Medicaid,
Speaker 1: you're just going to limit access. You're not, they're already
Speaker 1: Medicaid spending to hospitals and to.
Speaker 9: Doctors is at a bare minimum level.
Speaker 1: So you're just limiting access to healthcare for part of
Speaker 1: the population. And yeah, maybe that gets you a little ways,
Speaker 1: but it's not going to the turn the dial.
Speaker 5: He Kathy.
Speaker 2: In the grund scheme of things, we're having this conversation
Speaker 2: when things are good, the hot dates is still okay,
Speaker 2: The hot date is still okay, and we will un
Speaker 2: budget deficits north of six percent. Through the previous administration,
Speaker 2: when the economy was an expansion in GDP was running
Speaker 2: at three percent. Kathy, how much confidence do you have
Speaker 2: that if we do indeed go into an economic dancer,
Speaker 2: the dispawn market rallies and yields full.
Speaker 1: Well, I think they'll fall, just not as much as
Speaker 1: they would otherwise if we didn't have such a heavy
Speaker 1: download and we weren't due pursuing these policies that are
Speaker 1: in conflict again, trying to get a weaker dollar, limiting trade, deglobalizing,
Speaker 1: all of that is going to be negative for getting
Speaker 1: the capital inflows. We need to attract buyers of our bonds,
Speaker 1: so we can cut rates, but we in line with
Speaker 1: slower growth and lower inflation.
Speaker 9: But they're not going to go back to levels that
Speaker 9: you might otherwise.
Speaker 6: Have thought given that, Kathy, does that limit the argument
Speaker 6: for bonds just as you talk to potential clients as
Speaker 6: a counter cyclical hedge the way that they have been traditionally.
Speaker 1: Yeah, you know, I was looking at the correlations between
Speaker 1: SO equities and over the weekend, and we had that
Speaker 1: big dislocation in April, and now we've gone back to
Speaker 1: a more normal out correlation. I think we may see
Speaker 1: more of those dislocations. So what does that mean is
Speaker 1: bonds don't provide as good a hedge as.
Speaker 9: They once did.
Speaker 1: But I think that it's going to be periodic dislocations
Speaker 1: rather than long term dislocation because eventually the policies will
Speaker 1: probably send the stock market lower and you'll need to
Speaker 1: be somewhere, and frankly, a four and a half to
Speaker 1: five percent treasure yield is not a bad place to sit.
Speaker 1: We've been just advocating staying shorter, you know, benchmark a
Speaker 1: shorter duration and up in credit quality because we're not
Speaker 1: willing to take a lot of duration risk in this environment.
Speaker 2: You're not alone, Kathy, that's for sure.
Speaker 5: Kathy.
Speaker 2: John's a child swabbing. We need to turn to the
Speaker 2: bond market. Christian Mammali of Lafat College with this to say,
Speaker 2: I still like bonds despite the recent pain, for the
Speaker 2: simple reason that I think inflation will not be as
Speaker 2: significant an issue as the markets expect. Kristna joins us
Speaker 2: now for more Christian, Welcome to the program, sir. Before
Speaker 2: we get to tarifs and inflation, downgrades. How relevant is
Speaker 2: that downgrade from Moody's ever at all?
Speaker 8: Well, so, I think your vestent is right on this kind.
Speaker 10: That is, the downgrade itself should have happened a while ago,
Speaker 10: and it really isn't much of a driver of anything
Speaker 10: in the market. I think if the downgrade had come
Speaker 10: when S and P. Five hundred was at let's say,
Speaker 10: fifty four hundred and fifty six hundred, I don't think
Speaker 10: we'll be talking about in terms of impacting equities and
Speaker 10: risk assets very much.
Speaker 2: But Krishna, as you know, it's coming after a big
Speaker 2: conversation through much of April about the future of the
Speaker 2: safe haven status of the United States following a big
Speaker 2: policy shock on the trade front, and that's raising questions
Speaker 2: about the future of a tax bill advancing down in Washington, DC,
Speaker 2: and what it means for fixed income coming forward from here.
Speaker 2: What do you think it does mean?
Speaker 10: Well, So, I think the real issue for the economy
Speaker 10: right now is as Yelena was talking about, is really
Speaker 10: the slowdown and the tax bill. But it isn't tariffs,
Speaker 10: and it isn't really the impact of the fiscal deficit
Speaker 10: that much on the state of the economy or even
Speaker 10: the dollar.
Speaker 5: For that much.
Speaker 10: So I think what we are talking about here is
Speaker 10: the tariff situation will get resolved, the tax will probably
Speaker 10: gets passed, but with lower level of fiscal expansion in
Speaker 10: twenty six twenty seven than what we are expecting right now,
Speaker 10: that's really not a bad environment for bonds, and especially
Speaker 10: in the light of the fact that inflation is really
Speaker 10: not going to be that big a deal. It's you know,
Speaker 10: tariff's impact in price levels, but it's really not as
Speaker 10: inflationary as people are thinking in terms of it's a
Speaker 10: consumption tax rather than inflationary.
Speaker 8: So if that is the case, inflation is.
Speaker 10: Not a big deal and real rates are high, and
Speaker 10: you end up with a tax package that is more
Speaker 10: reasonable rather than meaningfully expansionary, I think that's not too
Speaker 10: bad for the bond market.
Speaker 6: So, Krishna, are you buying thirty year bonds?
Speaker 10: Well, so, you know, in our allocation, for example, for
Speaker 10: an endowment, for example, what we are focused on is
Speaker 10: really the long term return of equities and private equities
Speaker 10: in particular, So bonds, you know, bonds are interesting, but
Speaker 10: we can generate bond type returns out of low wall
Speaker 10: hedge funds just as much. So no, we are not
Speaker 10: buying it in my private portfolio.
Speaker 6: Yes, all right, So here's my question, Krishna, why does
Speaker 6: it not concern you at all that we have a
Speaker 6: toxic brew right now where you have bond selling off,
Speaker 6: stock selling off, and the dollar selling off in tandem
Speaker 6: at a time where people are making a lot of
Speaker 6: noise about the fiscal deficit.
Speaker 10: Well, so I would say that you have to put
Speaker 10: it in a bit of a context. That is, all
Speaker 10: of this is happening after a significant rally on all
Speaker 10: of those things over the last month, month and a half.
Speaker 10: So you know, if we are giving, we are making
Speaker 10: profits rather than rethinking the basic strategy here.
Speaker 7: Chris, Now, will you talk about in your notes that
Speaker 7: you don't foresee a recession but a slow down. What
Speaker 7: would make you reconsider that actually the US could tip
Speaker 7: into a recession.
Speaker 10: Well, if the tax bill doesn't pass and tariffs get implemented,
Speaker 10: that's a fiscal consolidation for the history book. So I
Speaker 10: think that really would get us into a recession. If
Speaker 10: we have a reasonable tax package and the fiscal consolidation
Speaker 10: is or that there isn't as much fiscal expansion, I
Speaker 10: don't think we get a recession.
Speaker 7: Well, that's already baked in that this we're going to
Speaker 7: get an extension of TCJA. The issue right now is
Speaker 7: potentially a lot of people talked about how this was
Speaker 7: a removal of a headwind, but does this actually offer
Speaker 7: some risk given the fact that we have this Moody's downgrade.
Speaker 5: Well, so I.
Speaker 10: Would say the fiscal consolidator or the tax impact effectively
Speaker 10: off tariffs, let's say a percent in GDP without any
Speaker 10: corresponding expansion on the tax package. If it is just
Speaker 10: a renewal of TJSEA, then that's a different equation than
Speaker 10: what we are talking about right now with the current bill.
Speaker 6: So right now you see that there's a downside risk
Speaker 6: to growth. You see it because there is not necessarily
Speaker 6: more fiscal impulse coming from the from Washington DC going forward.
Speaker 6: Is this going to be something that can sustain some
Speaker 6: of the private credit, the private investment that's been ongoing
Speaker 6: in the US economy, or do you see something of
Speaker 6: a very difficult time the fact that you are going
Speaker 6: to private assets.
Speaker 8: Well, so, you know, I think private credit and.
Speaker 10: Things like that are really a reflection of credit growth
Speaker 10: and the fact the disintermediation at the bank level. If
Speaker 10: the FED is really effective in changing bank regulations in
Speaker 10: a meaningful way, again, it's an open question whether they
Speaker 10: will away from, you know, just giving them a little
Speaker 10: bit of room to buy treasuries. I think if that happens,
Speaker 10: the expansion private credit probably comes to, you know, the
Speaker 10: growth that probably stops to some extent because banks will
Speaker 10: have an opportunity to do a lot.
Speaker 8: Of things, you know, without that.
Speaker 10: You know, if the US economy and US corporate sector
Speaker 10: is as good in the shape as it has been
Speaker 10: over the last two three years, I think private markets
Speaker 10: probably continue to do from a growth standpoint, as opposed
Speaker 10: to return standpoint right now, probably continue to do just fine.
Speaker 2: Krishna always wonderful to hear from his Christian Mamali there
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